Cabinet set to increase public debt

The Cabinet yesterday approved proposed amendments to the Public Liability Law (公共債務法) that would allow the central government to raise its outstanding debt to approximately NT$430 billion per year -- at a time when presidential candidates are promising billions of NT dollars in "political checks" and cash-strapped local governments are crying out for more financial aid.

Speaking at a press conference yesterday, Minister of Finance Paul Chiu (邱正雄) said the revisions will work to put the current government's indebtedness into "proper order."

Apart from trust funds and operational funds, Chiu said "the amendments reflect the reality of the government's debt situation.''

For example, Chiu said that according to the existing system, there are many so-called "foundations," which operated outside the central government's budget, although losses on the funds still had to be made up for by subsidies from the central government.

If the amendments are passed by the legislature, Chiu said NT$130 billion per year would be the government's limit on long-term debt. As for short-term debt -- designated to be paid back within one year -- the law would allow the addition of about NT$300 billion per year to the total.

Moreover, Chiu pointed out that following the downsizing of the provincial government last July, since the central government and local authorities have taken over its operations and fiscal responsibilities, it is necessary to adjust the portion of debt over the annual budget.

Chiu said that on one hand the amendment could expand the scope of long-term county-level debt from 18 percent to 45 percent, while short-term indebtedness could shoot up from 10 percent to 30 percent.

On the other hand, however, Chiu said that in the past, local governments had no limits whatsoever on levels of short-term debt, so the amendment would in effect put limits on short-term indebtedness created by counties.

"Local commissioners can serve for only between four and eight years; if they borrow too much money during their tenure, whoever succeeds them will face major hassles,'' Chiu said.

Hale Liu (劉三錡), deputy director-general for Budget, Accounting and Statistics agreed, saying judging from the poor financial conditions faced by local administrations, it is necessary to place curbs on their short-term liability.

"During meetings with local financial chiefs yesterday, many participants said they were unable to repay short-term debts, and have asked the central government to intervene,'' Liu said.

Critics appeared to agree that taking local-level liability into account when considering national finances is the right way to go.

"They learned a lesson from the downsizing of the provincial government, when the Cabinet was handed approximately NT$80 billion of its debt. So now, the Cabinet realizes it has to restrain local administrations from extending [too much] credit,'' said Liang Chi-yuan (梁啟元), a research fellow at Academia Sinica.

Nevertheless, Liang also expressed worries that irresponsible campaign "checks" being written by presidential candidates could do little except widen government deficits.