Audit Board: "Indiscriminate Compensation for Losses in Local Industrial Complexes Threatens Local Fiscal Soundness"

Audit on the Promotion Status of Local Industrial Complex Development Projects... Caution Requested for Wanju-gun and Gimje-si in Jeonbuk, and Goesan-gun in Chungbuk

[Asia Economy Reporter Ryu Jeong-min] The Board of Audit and Inspection has revealed that indiscriminate loss compensation occurring during local industrial complex development projects threatens the soundness of local finances.

On the 13th, the Board of Audit and Inspection disclosed the results of an audit related to the 'Promotion Status of Local Industrial Complex Development Projects.' This audit was conducted to prevent financial burdens caused by indiscriminate loss compensation by local governments during industrial complex development and to prepare institutional improvement measures.

According to the Board of Audit and Inspection, the Ministry of the Interior and Safety oversees policies related to the establishment, operation, and dissolution of investment institutions established by local governments, and local governments select investment institutions as project implementers to carry out development projects.

The Board of Audit and Inspection stated, "In some local governments, cases threatening the soundness of local finances were confirmed, such as fully guaranteeing subordinated loans as debt guarantees to strengthen credit when investment institutions take out loans from financial institutions, or compensating losses of investment institutions beyond the local government's investment ratio under the pretext of attracting companies."

Wanju-gun, Jeonbuk, was criticized for excessively guaranteeing debt beyond its equity ratio by signing a loan agreement with the project implementer of the A Industrial Complex (total project cost 344.4 billion KRW) and committing to purchase all loan claims at the subordinated loan maturity date (October 2024) with a limit of 128.4 billion KRW.

The Board of Audit and Inspection pointed out, "While investors secured profits without bearing the risk of loan non-repayment, Wanju-gun may bear all losses due to unsold units or loan non-repayment beyond its equity ratio in some cases."

In Goesan-gun, Chungbuk, despite concerns about a loss of 12.1 billion KRW by the project implementer of the B Industrial Complex (total project cost 95 billion KRW), Goesan-gun decided to compensate for additional costs (interest expenses, operating costs, etc.) and provided subsidies. The Board of Audit and Inspection explained, "While other investors did not bear losses, only Goesan-gun ended up bearing all losses of the investment institution."

Gimje-si, Jeonbuk, signed a loan agreement of 160 billion KRW with the project implementer of the C Industrial Complex (total project cost 301.5 billion KRW). The Board of Audit and Inspection pointed out, "Gimje-si decided to extend the loan maturity by 2 to 3 years and changed the agreement to pay a fixed cash amount of 7.28 billion KRW regardless of the investment institution’s profit or loss," adding, "Since all support facility sites remained unsold, Gimje-si alone bore the risk of unsold units."

The Board of Audit and Inspection notified the Minister of the Interior and Safety to prepare related measures to prevent local governments from excessively bearing the debts and losses of investment institutions. The Board also requested caution from the Wanju-gun governor, Cheonan mayor, Goesan-gun governor, and Gimje-si mayor regarding local industrial complex development.

This content was produced with the assistance of AI translation services.