As of 2011, the number of public institutions is 286, under the Act on the management of public institution. There are more losses when public institutions meet public interests instead of the government’s control. Accordingly, some public institutions draft indemnity clause that the government takes on the obligation to pay for any loss or damage. In particular, if the government is subjected to the obligation clause that should compensate for any loss, it means the government indirectly guarantees public institutions’ debt.

  Recently, rising debt of public institution has invoked a great interest. For example, Korea Land and Housing Corporation (LH) had experienced a liquidity crisis before drafted Act on LH including new clause on indemnification in December 2010.

  National Finance Act obliges to submit ‘Management plan for national debt guaranteed by government.’ However, in the case of public institution where government must compensate the loss, although government are indirectly responsible for issued bond from such public institution, in fact, the government does not manage these bonds under structured management plan. Especially, the amount of bonds in related to indemnification is 6.8 times larger than bonds guaranteed by the government, and rapidly surges compared to national debt, or other debt of public enterprises. It also expected to increase by rising demands. Accordingly, bonds based on indemnification clause should be more strictly managed than other debt of public institutions.

  Considering National Finance Act that mainly focuses on transparency of operating national finance and the fiscal soundness, issued bonds in related to indemnification should be managed strictly like the government guaranteed bond.