Posted July. 17, 2010 08:05,
In the wake of the moratorium declaration by the mayor of Seongnam, Gyeonggi Province, the central government began Friday dealing with fiscal crises facing municipal and provincial governments nationwide.
Municipal and provincial governments that manage finances well will receive incentives such as more financial support from the central government.
The central government will also supervise the financial status of municipal and provincial governments and companies they run at the same level as government debts.
To prevent waste of tax spending and bankruptcy of municipal and provincial governments, the Public Administration and Security Ministry and the Strategy and Finance Ministry will offer more shared taxes to governments showing a good performance in budget management.
An early warning system will be set up for municipal and provincial governments with fiscal problems.
An official at the Public Administration and Security Ministry said, Based on the assessment of fiscal conditions of local governments made from their fiscal status reports every July or August, we will grade them and give incentives commensurate with their marks.
We will set detailed assessment standards and announce them next month.
To adequately reflect the efforts of municipal and provincial governments to save budget, the Public Administration and Security Ministry will include in the assessment items the effectiveness of fiscal management, cuts in operating costs, and collection of back taxes.
When several municipal and provincial governments carry out similar projects, the central government will conduct comparative analyses to give incentives to those completing projects at lower cost.
The Strategy and Finance Ministry will also strengthen its role as the ministry in charge of public finance while conducting feasibility tests for projects more rigorously. To accurately detect lax management of finances, it is working on clarifying the types and scopes of bonds issued by municipal and provincial governments.
A high-ranking ministry official said, The Strategy and Finance Ministry can control unreasonable projects by municipal and provincial governments through budget and funds, but it hasnt faithfully fulfilled its role in this regard.
Since fiscal consolidation has become a national issue, we will from next year closely inspect projects done not only by central government agencies but also by municipal and provincial governments.
Experts, however, say the central governments measures are not enough to prevent fiscal crises in municipal and provincial governments. Supplementary measures such as a prior warning system for fiscally poor municipal and provincial governments and a budget appropriation system allowing civic participation are also required to prevent abuse of budget by municipal and provincial government heads, they add.
Nam Hwang-woo, a professor at the University of Seoul, said, The (central) government should constantly review the fiscal conditions of municipal and provincial governments and a system to issue warnings in phases before bankruptcies is urgently needed.