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[KDI FOCUS] Remedies to Korean SOE Debt Problem
◾ Author : Hwang, Sunjoo
◾ https://bit.ly/3TfwO8k
◾ Summury
Benefitting from implicit government guarantees, Korean state-owned enterprises (SOEs) can readily expand their debt at an interest rate as low as sovereign bonds regardless of their ability to repay. In this scenario, Korean SOEs stand vulnerable to ‘double moral hazards’: SOEs have little incentive to improve their financial structure, and the government has a large incentive to assign popular but unprofitable projects to SOEs. In recognition of this, the government should formally acknowledge SOE debt as the ‘national guaranteed debt’ in order to ensure official supervision and regulation. In addition, the government needs to improve SOE debt structure by introducing capital regulation and bail-in bonds.