SKorea seeks to cut $468 billion debt load at state-owned companies

SEOUL, South Korea – South Korea’s government said Wednesday it will tackle massive debts at inefficient state-owned companies by ending lax management and cutting excessive perks for workers.

The Ministry of Finance said the companies should also come up with their own measures to reduce debt and chief executives could be sacked if they don’t go far enough. The $468 billion owed by state companies is greater than South Korea’s government debt.

“State-owned companies’ debts and lax management problems are becoming huge risks for South Korea’s economy,” Finance Minister Hyun Oh-seok said at a press conference. “This is not an end of reform, but the start.”

South Korean government debt is relatively low at about 35 per cent of gross domestic product. But state companies piled on debt during Lee Myung-bak’s 2008-2013 presidency, when they were required to take on big ticket projects for the government. Some, such as utilities, have difficulty boosting revenue because their charges are kept at low levels to control the cost of living.

The finance ministry said any restructuring at state companies would not include layoffs, a remark aimed at soothing concerns from unions. It also ruled out privatizing state companies that serve a crucial public need.

The measures announced Wednesday aimed to reduce debt at state companies to 200 per cent of their equity value from 230 per cent by 2017.

The shakeup of state companies comes as thousands of rail workers walked off the job for a third day to protest the government’s establishment of a new bullet train operator.

Unions say it will pave the way for the sale of the rail monopoly to private investors. The government said its changes will introduce competition and are crucial because the rail operator has been losing some 500 billion won ($475 million) every year and has 14.3 trillion won ($13.6 billion) in debt.

The Korea Institute of Public Finance said in a report that the government should use its budget or the profits of state companies for major projects rather than borrowing by the companies.

State firms have invested in energy overseas, helped build a new administrative city to house South Korean government agencies and spent billions of dollars in a contentious effort to rehabilitate rivers.