MEASURING THE FISCAL BURDEN OF FINACIAL RESTRUCTURING

MEASURING THE FISCAL BURDEN OF FINACIAL RESTRUCTURING

THIS PAPER PRESEINTS ESTIMATES OF THE ACTUAL FISCAL ASSOCIATED WITH FINANCIAL SECTOR RESTRUCTURING IN KOREA, CALCULATED ON AN ANNUAL CASH-FLOW BASIS. THE FISCAL COSTS OF FINANCIAL RESTRUCTURING PRIMARILY CONSIST OF THE ANNUAL INTERST PAYMENTS ON THE NET DEBT AND THE REALIZED LOSSES FROM THE SALE OF COLLATERAL, SHARES, AND ASSETS OF RESTRUCTURED FINANCIAL INSTITUTIONS. ACCORDING TO OUR RESULTS, THE TOTAL FISCAL COSTS OF RESOLVING THE NON-PERFORMING ASSETS, WHICH SHOULD BE REFLECTED IN THE BUDGET OVER THE NEXT SEVERAL YEARS, MAY REACH SOMEWHERE BETWEEN 79 TRILLION WON AND 110 TRILLION WON, WHICH AMOUNT TO 15.4% AND 21.4% OF THE CURRENT GDP. FISCAL COSTS OF THOSE MAGNITUDES ADVERSELY AFFECT THE FISCAL BALANCE AND THE DEBT POSITION. WHILE THE GOVERNMENT DEBT IN KOREA IS LIKELY TO BE SUSTAINABLE AS LONG AS HIGH TO MODERATE ECONOMIC GROWTH CONTINUES, GREATER RESTRUCTURING FUND LOSSES AND AN ECONOMIC SLOWDOWN COULD WORSEN SUSTAINABILITY.