The Government Charges Fee on Liability Guarantee

If early, the government will charge fee when it guarantees private companies or financial institutes for their liabilities from the end of this year.

Un to now, there was no a legal base to charge fee when it guarantees private companies for their liabilities, so has not received even one dollar.

At 31st, Ministry of Finance and Economy (MFC) announced the legislation for enacting a new provision ‘The government can charge a fee to the applicant for liability guarantee’ in detailed regulation for Budget Accounting regulation.

MFC will enforce immediately after the reviewing in National Administration Meeting. So, if early, the government will charge fee on some liability guarantees except bonds concerned restructuring from the end of this year. The rate will be depends on the amount guaranteed and the reliability. The details will be decided later.

An officer concerned of MFC explained “Up to now, it has been indicated wrong that if company guaranteed by government can not repay the liability, the government repays instead of it and the company does not pay fee as well. So this system cause moral hazard.”

The amount of liability guaranteed by government was 106.77 trillion won at the end of 2001 and it shared 19.6% of GNP 0f 2001. According to the items ▽guarantees for restructuring bond was 97.36 trillion won ▽guarantee for foreign liability by public authorities was 3.43 trillion won ▽others was 5.98 trillion won.

Other items include 3 billion dollars guaranteed to the ‘third party compensation for air plain accident’ for Korea Air and Asiana Airlines.

The third party compensation means the compensation on other products damaged and injury to human life except airplane, passengers and cargo, when an air plain accident by war or terrorism.

Kwang-Am Cheon iam@donga.com