Korea’s Debt Increases As Government Bonds Outstanding Exceed 200 Trillion Won

As more government bonds are issued to stimulate the economy, maintain the current exchange rate, and repay public funds, the outstanding value of sovereign bonds surpassed 200 trillion won for the first time.

Government bonds refer to the debts of the nation that issued those bonds. Though they are issued to smooth economic fluctuations, their excessive issue could impose a bigger tax burden on future taxpayers.

According to the Ministry of Finance and Economy and the Bank of Korea on August 17, the outstanding national debt jumped by about 24.98 trillion won in the first half of this year (from January to June) to 202.59 trillion won as of the end of June. The debt was 177.61 trillion won at the end of last year

In late 1997, when the Asian financial crisis hit Korea, total outstanding bonds were valued at 29 trillion won. In March 2003, it passed the 100 trillion won mark for the first time, and for the next two years and three months, the rate doubled.

Under the current administration, the pace of the increase was faster with outstanding debts swelling by 38 trillion won in 2003 and by 42 trillion won in 2004.

This year, authorities have a plan to issue bonds worth 60 trillion won. So even though some maturing bonds are excluded from the equation, the steepest-ever rise in the outstanding value of government bonds is expected.

“Since last year, more sovereign bonds have been put to the market to stabilize the won-dollar exchange rate. As deposit insurance bonds that were spent to pay back public money were converted into treasury bonds in 2003, the total amount of government bonds went up,” a Finance Ministry official explained.

Joong-Hyun Park sanjuck@donga.com