Fix state-funded enterprises

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Fix state-funded enterprises

The urban development unit of the city of Yongin, Gyeonggi, sets an infamous example of how bad and reckless state-funded enterprises are managed. Its debt exceeds 500 billion won ($441.5 million) as of last year due to a slump in the real estate market. It received a liquidation warning from the Ministry of Security and Public Administration as its debt-to-asset ratio nears 500 percent. The city government that runs the development unit is, separately, 630 billion won in debt from its money-losing operation of the Yongin Rapid Transit light rail system, in which it invested more than 1 trillion won. The urban development unit, however, awarded its executives and employees bonuses totaling 500 million won - 3 million won each.

The industrial committee of the city council of Chuncheon, Gangwon, recently turned down the city government’s proposal to invest real estate worth 2 billion won in the city government’s urban development unit because of its murky business prospects.

These examples underscore the problems in local government public entities. Unlike state-funded companies, local government-invested companies have grown big on lax oversight and control. According to the National Assembly Budget Office, public umbrella entities of local governments now number 460 compared with 272 in 2000. They range from companies managing sewage to public sector development to state corporations running subway systems and urban development. Their assets amounted to 160 trillion won as of the end of 2011 with combined debt of 69.1 trillion won. Debt ballooned by 21.3 trillion between 2008 and 2011.

Losses from operating seven subway corporations reached 858.5 billion won to 917.8 billion won a year. Gangwon Development Corporation and other local government real estate development units sit on colossal debt from elephantine resort, tourism and city development projects.

The ruling Saenuri Party and government announced a bill authorizing central government oversight in management of local government entities. The bill, dubbed the law on establishment and operation of enterprises invested and funded by local governments, would apply strict guidelines on establishment, budgeting and operation, as well as liquidation processes. No local administrations would be allowed to set up an entity of a certain scale without approval from the Ministry of Security and Public Administration. Public entities would come under management review from the central government. Local government heads could be dismissed for mismanagement. The mess in the public sector was caused by rivalries among local governments. Before regulations, local governments must exercise discretion with taxpayers’ money. There are too many idle trains, deserted exhibition centers, museums, amusement parks and stadiums. For whom are they for? Voters will answer in the next election.
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