Bankruptcy process opposed for local agencies

February 16th, 2014 · Economy and Worklife, Legal news · 0 comments

Original article in Korean is at this link.

The Gyeonggi-do provincial government is opposed to the introduction of a bankruptcy process for local public entities (지방자치단체).

The province annouonced that, “a system of bankruptcy for local public entities would give the central government considerable power over local finances, violating fiscal autonomy and destroying the foundation for local entities, so it is unacceptable.”

The province argued that there should be first discussions over reforms to the current 8-to-2 ratio of national and local taxes. It suggested the 6-to-4 ratio found in advanced countries such as the United States and Japan.

The province also expressed the opinon that the introduction of a bankrupcty system is inappropriate considering the current situation in which the government is placing additional burdens on provinces to pay for social services, worsening the state of local finances.

This year Gyeonggi-do’s expected budget for social services is 5.5267 trillion won, 34.5% of its total budget of 15.9906 trillion won.

A member of the Gyeonggi-do Office of Planning and Coordination said that “the government has already begun instituting its pre-warning system for local entities’ finances, so it’s difficult to see any need for this additional bankruptcy system… what is needed is pre-emptive financial management that enlarges local finances.”

Today the Ministry of Security and Public Administration reported to President Park Geun-hye its 2014 Business Promotion Plan (2014년 업무추진계획), which contains the substance of the bankruptcy system for local public entities.

MSPA head Yu Jeong-bok said that “a bankruptcy system for local public entities is not intended to implement restrictions of last resort when an elected official commits financial mismanagment rather than shift the responsibility for a bankruptcy onto the citizens… this will lead to a return to sound financial management.”

The bankruptcy system for local public entities is intended to have the government or high-grade agencies intervene to promote the financial recovery of local public entities which have defaulted on loans or committed other acts that make it difficult to recover financially.

It is different from the bankruptcy system for businesses, which involves the dispersal or liquidation of legal persons. It is similar to the work-out system in which a business that still has value is saved through a restructuring.

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