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Seongnam Mayor`s Moratorium Show

Posted July. 14, 2010 12:48,   


The mayor of the southern Seoul suburb of Seongnam, Gyeonggi Province, Lee Jae-myung, declared Monday a moratorium on money borrowed from an account used for infrastructure construction in the new satellite town of Pangyo. The Public Administration and Safety Ministry cited no legal ground for the action and nullified the action. Seongnam has borrowed 520 billion won (429 million U.S. dollars) from the account over the past three years. Though the mayor was reluctant to take over the debt incurred by predecessor Lee Dae-yub, abruptly declaring a moratorium is wrong. The city should have held talks with the Land, Transportation and Maritime Affairs Ministry and Korea Land and Housing Corp., which provided the funds for the account.

Seongnam in April ranked eighth in financial independence at 67.4 percent among 228 provincial and municipal governments. Though the city is rich, its fiscal condition worsened after it built a luxurious city hall and parks for 322.2 billion won (265.9 million dollars). The office was the fault of the previous mayor. Had the new mayor sought to overcome financial difficulty, he should have shown a commitment to giving up unnecessary projects and reduce spending. Lee Jae-myung made campaign pledges of building a city hospital and parks in the downtown area that might cost one trillion won (825 million dollars). His declaration of a moratorium seems to indicate his intent to start the projects he promised at the cost of deferring repayment of debts.

Certain countries have seen municipal governments go bankrupt. Los Angeles, which declared an emergency financial crisis in April due to a long recession, reduced staff at the Department of Motor Vehicles. This means people needing motor vehicle services must wait in longer lines. American cities on the brink of bankruptcy are also waiting for investment from rich Chinese companies. In Japan, Yubari in Hokkaido Prefecture went bankrupt in 2006 after making excessive investment to transform itself from a coal mining city into a resort city. It cut more than half of its workforce and slashed welfare programs to survive.

Korea has a system under which the central government helps smaller governments with taxes before they go bankrupt. What is needed is stronger financial supervision to prevent smaller governments from asking for help after spending a bundle on building luxury city halls or holding festivals. As seen with Seongnam, the Dong district of Daejeon, and the Nam district of Busan, municipal councils cannot keep in check excessive spending by regional government heads. A revival plan might be required to help financially troubled municipal or provincial governments like debt workouts for troubled companies.

Editorial Writer Hong Kwon-hee (konihong@donga.com)