Basic Report

Local governments in Korea have actively sought to attract private capital as part of their efforts to respond to population decline, regional extinction, and promote local economic revitalization. In this process, local governments’ contingent liabilities arose, but it was difficult to obtain related data at the national level, leading to management blind spots. Effective management of local governments’ contingent liabilities is important as their impact can extend beyond the region to national, private and even international credit issues. Several issues related to contingent liability management of local government in Korea have been discussed. These include limitations of the local financial management system as a contingent liability management system, difficulties in accessing public information and timing of disclosure, lack of expertise in the public sector, and instability of the contingent liability project itself.
   The purpose of this study is to provide policy alternatives to address these issues. To this end, the current contingent liability management system in Korea and cases in Japan and the United Stated were investigated. In particular, this study presents alternatives by dividing them into local governments’ self-management plans and institutional improvement plans. As self-management measures for local governments, we proposed preparing detailed financial statement and disclosing information through financial disclosure, recording related information into the electronic local financial management system, which is called “E-HOJO”, and providing manual and training to enhance expertise of the public sector. In terms of improving of the contingent liability system, changes to the local bond issuance limit including the scope of contingent liabilities, inclusion of BTO (Build-to-Order) projects in contingent liabilities, and establishment of a data management system to comprehensive management were suggested.