Korean SOEs have the highest debt level in the world, and it is expected that low birth rates and an aging population will raise it even further. Due to an implicit guarantee that the government will repay SOE debt if the SOEs are not able to repay the debt by themselves, SOEs are able to expand their debt with ease. However, the existing guarantee system needs to be improved. The vast majority of bonds issued by SOEs are not included in the “official” guaranteed debt category, placing them in the blind spot of the government’s official management and control. Even if classified as such, no regulatory actions are being taken to impose guarantee fees, among others, that are essential for improving the efficiency and soundness of guaranteed debt.

This study highlights the problem of implicit guarantees based on existing theoretical frameworks and shows, through empirical analysis, that existing government rules and regulations and market discipline have been ineffective in solving the problem although the implicit guarantees can actually have a significant effect on the financing of SOEs. Based on these results, this study formulates and suggests a SOE-customized bail-in system and the risk-adjusted guarantee fee system as a way to maintain the balance between publicness and financial soundness.

Preface
Executive Summary

Chapter 1 Introduction

Chapter 2 Problem Recognition
　Section 1 Current Status and Issues of SOE(State-Owned Enterprise) Debt
　Section 2 Current Status and Issues of Government Guarantees
　Section 3 Arguments For and Against Government Guarantees

Chapter 3 Economic Analysis
　Section 1 Theoretical Framework: Dual Moral Hazard and the Crisis Feedback Loop
　Section 2 Empirical Analysis: The Effect of Government Guarantees on Reducing Financing Costs

Chapter 4 Policy Reform Measures
　Section 1 Effectiveness of Liquidation, Removal of Government Support Clauses, and Privatization
　Section 2 Implementation of a Creditor Bail-In System
　Section 3 Introduction of a Risk-Adjusted Guarantee Fee System

Chapter 5 Conclusion

References
Appendix
ABSTRACT