139 Trillion Won in Loss in Public Funds . . . 10,000,000 Won Per Family

More than half the amount of public funds invested in insolvent financial organizations cannot be recovered. A NGO economic research institute reported that in the case that the principal and interest are combined with opportunity cost, the loss incurred will amount up to a total of 139 trillion won. If taxpayers have to make up this amount, 13,000,000 families will have to pay an average of 10,000,000 won per family.

In a report published in March titled `Public Funds Recovery and Tax Payer Burden` by the Federation of Korean Industries subsidiary Korea Economic Research Institute (KERI) states, "With the recovery rate for public funds stopping at 44-48 percent and the date for repayment drawing near, tax payers will bear a greater burden starting 2003."

The KERI report predicted that if the full amount of 158.9 trillion won were to be invested by the end of the year, there will be a loss of 84.6 trillion won in principal, 44.8 trillion won in interest payments, 9.9 trillion won opportunity costs.

This amount is greater than the total 137.5 trillion won of public funds invested by June and the amount of total taxes (120 trillion won) to be paid this year.

The report also pointed out that the payment due date falls in the time frame of the next two administrations, 2003 – 2008 and expressed concern about it becoming a main obstacle for financial and economic planning for these future administrations. The amount of payment due per year is 30 trillion and 1667 billion won in 2003, 25 trillion and 4918 billion won in 2004, 25 trillion and 7857 billion won in 2005, 22 trillion and 822 billion won in 2006, which means that the next administration will have to pay between 20 to 30 trillion won in public funds each year in its four year term.

Park Seung-Rok, head of KERI, commented, "In order for tax payers to avoid paying anything, the 2.1 billion insolvent company stocks owned by the Korea Deposit Insurance Corporation (KDIC) have to be valued at a price between 37,000 – 38,000 won per stock, and other insolvent credit organizations have to recover adequately. There is, however, almost no possibility of that happening." Even if the KDIC and the Korea Asset Management Corporation (KAMC) managed sell all its assets, the amount of money that they can additionally guarantee comes out to be only 20 trillion won. The loss in funds appears unavoidable.

The report stated that KDIC would be able to pay back the principal and interest up to this year. KAMC will lose its capacity to pay back the funds by 2005 and the government will have to provide direct aid after that point.

Park Won-Jae parkwj@donga.com