A Row Between the Incumbent Government and the Presidential Transition Committee Over Additional Public Funds

The incumbent government and the president-elect`s government transition team are wrangling over uses of bailout funds, as the Kim`s administration expressed its opposition to the Roh`s transition team request of unveiling the size of additional bailout funds, citing it might have a negative impact on the domestic financial market as reasons.

The government transition committee has recently requested the Korean Deposit Insurance Corporation (KDIC) of the Financial Supervisory Commission at the Ministry of Finance and Economy in charge of authorizing public funds that it should submit data concerning the size of additional public funds needed to carry out restructuring the financial sector and ways of mobilizing financial resources.

Lee Dong-gul, a member of an economic sub panel in the transition team, said Jan. 29, “To make it clear that where should the responsibility for uses of public funds be placed, the incoming government or the outgoing government, at a time when a new government is about to be launched, the incumbent government should publicize the size of additional public funds to carry out unfinished financial sector reforms.”

The government transition committee made such a request to the incumbent government after it had concluded that as of December last year, although the Kim`s government poured as much as 159 trillion won worth of public funds into insolvent financial institutions, there are still a considerable number of potentially weak financial institutions.

In response to the transition team`s request, the Finance and Economy Ministry and the Financial Supervisory Commission declined to submit relevant data by saying, “It is unrealistic to make an exact estimation of the size of public funds which always vary in accordance with economic situations at this moment. In addition, cautious estimation of the size of public funds is needed because it might have a negative impact on the market directly.”

The Kim`s government expressed its concern that if the need of a third round of public fund injection is recognized, it may bring about a negative situation to the financial market such as bank run.

It has been known that on Jan.16 the Korean Deposit Insurance Corporation (KDIC) in charge of operation of public funds reported at a briefing to the transition team that it is difficult for the agency to estimate the size of additional public funds at a time not only when nobody knows which company will go bankrupt but also when there remains a possibility of resuscitation of a company which is now carrying out a workout program.

The government transition committee is planning to ask the financial ministry and the government financial watchdog to submit relevant data again on the ground of lack of substantiality in the report made by the KDIC.

Meanwhile, the financial sector estimates that at least 5-10 trillion won worth of additional public funds are expected to be injected to carry out restructuring of financially unsound investment companies and other financial institutions.

Young-Hae Choi Joong-Hyun Park yhchoi65@donga.com sanjuck@donga.com