The policy of local borrowing power controlled by central government restricts local self-governing functions and autonomy of local finance and distorts decentralized decision- making of local borrowing market.
Recent financial decentralization theor...
The policy of local borrowing power controlled by central government restricts local self-governing functions and autonomy of local finance and distorts decentralized decision- making of local borrowing market.
Recent financial decentralization theory suggests that local borrowing should be performed with a broader approval system with more flexible restrictions, while maintaining the current administrative regulations: a ceiling system where local governments determine the maximum limit of issuance and credit evaluation system where the central government or private evaluation organization assesses the credit of local government based on the criteria of financial soundness.
This study also recommends the centalized control system on the local borrowing in Korea should be stopped and transformed more flexible approval system. At the same time central government should develop credit evaluation system of local governments.