[The Editors' Verdict] The Ruling Party Is Nowhere to Be Seen Amid 'Legoland-Induced Credit Crunch'

The ruling party, which should be coordinating with the government in responding to the bond market turmoil triggered by Legoland, is nowhere to be seen. Although it is said to have participated in the liquidity program exceeding 50 trillion won announced by the government, recent remarks from the ruling party leadership give the impression that they still view the situation complacently.

Seong Il-jong, the Policy Committee Chair of the People Power Party, said the day after the government decided to supply more than 50 trillion won, "We actively welcome the government's swift announcement of measures and promise that the party and government will thoroughly prepare to establish a financial system that will not be shaken under any circumstances." While the market mainly criticized the response as a 'too little, too late' reaction, saying 'it could have been stopped with 200 billion won but was escalated to 50 trillion won,' Chair Seong gave a completely opposite evaluation, stating that the government's action was swift.

Floor Leader Joo Ho-young shifted responsibility to local government heads. He warned Gangwon Province Governor Kim Jin-tae, saying, "Despite being able to fulfill debt obligations, failure to do so caused distrust," and added, "I hope all matters are handled carefully."

However, whether the ruling party is qualified to praise the government's response and warn local government heads is a matter that deserves reconsideration.

It has been nearly a month since the first default of 20.5 billion won worth of asset-backed commercial paper (ABCP) issued by Gangwon Jungdo Development Corporation (GJC), which triggered the bond market liquidity freeze. During this period, the market judged that even bonds guaranteed by local governments lost credit, and began delaying purchases of various bonds including corporate bonds. Rumors of crises involving some major construction companies even circulated.

The central government's interest only appeared around mid-month, two weeks after the default of bonds issued by the corporation. According to Gangwon Province, the Financial Services Commission first contacted them to identify guaranteed bonds, followed by the Ministry of the Interior and Safety recognizing the seriousness of the situation and discussing response measures several times.

Even during this process, the ruling party was absent. Governor Kim Jin-tae claimed that he did not discuss the matter with the ruling party in advance, so the central party was completely unaware. However, even on the 21st, when the funding squeeze issue was prominently reported in the media, it was difficult to find any awareness of the problem within the ruling party leadership. At the National Assembly audit countermeasure meeting that day, no one mentioned the real estate project financing (PF) issues that caused the liquidity freeze. After the meeting, Chair Seong Il-jong, when asked about measures to respond to the real estate PF deterioration, said, "That's the investors' story," considering it a matter of investor judgment rather than policy intervention. Regarding plans for countermeasures, he said, "We need to understand the situation more."

Reflecting on this incident reveals several institutional issues that the political sphere should examine, such as the local governments' practice of providing payment guarantees. It is questionable whether it is appropriate for local governments, which raise funds through taxpayers' money, to act as the 'lender of last resort' like the Bank of Korea. Additionally, the supervisory authority of the relevant local government over local corporations needs to be reconsidered. Gangwon Province holds 44% of GJC shares but does not have audit rights over the corporation because its shareholding is less than 50%. The province's perception is that this structure, which prevents them from monitoring whether the corporation can repay its debts, is the starting point of the crisis.

The ruling party habitually emphasizes sound fiscal management and livelihood issues. To escape criticism that these are mere slogans, action is necessary. It has been confirmed how structural problems in local government finances affect people's livelihoods. Accurate judgment and response from the ruling party are urgently needed.

Choi Il-gwon, Head of Political Department

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