Impossible Collection of KRW 69 Trillion and Possible Collection of KRW 87 Trillion

Out of KRW 156 trillion of public flows for restructuring, KRW 69 trillion cannot be collected as a matter of fact. The government proposed that the government will pay KRW 49 trillion and the financial institutions will pay KRW 20 trillion for 25 years. The government decided that KRW 18 trillion for the bond interest for public flows paid with the government budget was settled as losses.

Accordingly, For losses of public flows, the charge per person includes the interest and so reaches to KRW 1,435,000 on the basis of the current value.

National debts as of the end of the last year increased to 30% from 22.4% over GDP. It was not clear whether the target of the next year’s balance finance would be achieved.

The minister of finance and economy published the result and repayment measure of public flows based on service results of research institutes such as Korea Institute of Finance and Korea Institute of Public Finance on June 27. This measure must follow the legal steps through public hearing and deliberation of the National Assembly.

▽Estimated collection rate 〓 The minister of finance and economy as of the end of March estimated that the total public flows of KRW 156 trillion were input (△KRW 104 trillion for bond issuing △ KRW 32 trillion for re-input of collections △KRW 20 trillion for financial fund) and KRW 42 trillion was already collected and KRW 45 trillion (KRW 41~49 trillion) will be additionally collected. Accordingly, total collections were KRW 87 trillion and the collection rate was 55.6%.

Calculated based on KRW 104 trillion of pure public flows collected through bond issuing after subtracting the public flows and financial funds re-inputted after collection, the collection rate decreases to 34.5%.

▽Losses share 〓 The government planed to change bonds such as the maturity-coming deposit insurance bond into the government bonds with a low interest in terms of losses of KRW 69 trillion bonds, or newly establish the special deposit premium. So, the government will pay KRW 49 trillion and the financial institutions will pay KRW 20 trillion for 25 years. Also, KDIC and KAMCO will not receive the borrowing of KRW 18 trillion with no interests to pay the interest on bonds. Special premium will not exceed the maximum 0.1%, based on the balances of financial institutions’ deposits. However, financial institutions said that they hardly ask responsibility to current shareholders who are not responsible for insolvency. As they have repelled, the remarkable aftereffects will happed.

Rae-Jeong Park Joong-Hyun Park ecopark@donga.com sanjuck@donga.com