Legoland Korea resort in Chuncheon, Gangwon Province / Yonhap

By Nam Hyun-woo

Gangwon Province Governor Kim Jin-tae has been facing criticism from both the ruling and opposition parties for his "hasty" decision not to fulfill a payment guarantee for the developer of Legoland Korea, creating a liquidity crunch in the nation's corporate bond and commercial paper markets.

During the ruling People Power Party's (PPP) emergency committee meeting, floor leader Rep. Joo Ho-young blamed Gangwon Governor Kim Jin-tae and warned of a butterfly effect.

"The Gangwon governor's announcement not to fulfil the payment guarantee, despite its capability, has sowed distrust and created a big stir in the market," Joo said.

Gangwon Province Governor Kim Jin-tae speaks during a semiconductor forum at the National Assembly in Seoul, Saturday. Courtesy of Gangwon Province

He was also critical of Kim's predecessor, former Gangwon Province Governor Choi Moon-soon of the main opposition Democratic Party of Korea (DPK), saying Choi pursued the Legoland project "without considering the financial status of the province, whose financial independence stands at a mere 27.4 percent this year," while adding that Governor Kim is also responsible for amplifying the market concerns.

"We have to remember that a butterfly flapping its wings sometimes causes a storm," Joo said.

Joo's remarks came a day after the government said it would expand the provision of liquidity to over 50 trillion won ($34.7 billion) hoping to ease jitters in the country's bond market stemming from the "Legoland shock."

Former Gangwon Province Governor Choi Moon-soon / Korea Times file

Gangwon Jungdo Development Corp. (GJC), the developer of Legoland Korea, established a special purpose company to fund the construction of the Legoland resort, but declared bankruptcy on Oct. 6 after missing a payment of a 205 billion won asset-backed commercial paper issued by the special purpose company.

Gangwon Province had guaranteed the commercial paper's payment, but on Sept. 28 it declared that it would file for GJC's bankruptcy to a local court, instead of paying the debt. Governor Kim has been saying that he will thoroughly review money-consuming tourism projects pursued by his predecessor.

Though Governor Kim said last week that Gangwon Province "will repay 205 billion won by Jan. 29 next year," this triggered market concerns that a commercial paper guaranteed by a provincial government is not trustworthy. As the risk of a credit crunch amplified, the bond and commercial paper markets of the country were running short of liquidity, dealing heavy blows to small and medium-sized enterprises (SMEs) seeking investors.

Former lawmaker Yoo Seong-min was also critical of the Gangwon governor for his "self-serving" way to save face.

"Earlier, the governor said he would apply for rehabilitation procedure for Legoland and his remarks paralyzed the bond market and panicked the financial market," the economist-turned-politician wrote on social media. "He should have known that there is no way Gangwon Province can remain safe while letting Legoland go bankrupt."

Yoo accused Governor Kim of having tried to save face by victimizing the local developer, warning that "local governments shouldn't take bankruptcy lightly."

President Yoon Suk-yeol also noted the Legoland shock on his way to work, Monday. "The Legoland shock has created a liquidity crunch in the bond and commercial paper markets," he said. "The government began to expand the provision of liquidity today to help SMEs."

"As long as Gangwon Province does not go bankrupt, the province should keep its payment guarantee on the 205 billion won," Yoo wrote on Facebook, Sunday. "There is no way of Legoland going bankrupt alone while Gangwon Province stays intact."

The DPK said in a statement that Governor Kim has "caused serious damage to the national economy" with his "politically motivated and economically sloppy offensive campaign against his predecessor."

It added, "Kim's hasty decision has haunted the financing market with distrust, and triggered a liquidity crunch and slowdown in investments. The 205 billion won payment guarantee is now affecting the 2,000 trillion won household debt."