Public sectors are divided into government administration organizations, public institutions, and municipalities. Government administration organizations carry out policy projects, which are characterized by mission-pursuit, non-formulaic project content, and process-control. On the other hand, public non-profit institutes and public enterprises carry out commercial or industrial projects, which are characterized by profit-pursuit, formulaic project content, and result-control. The results of public enterprises are evaluated and controled by examining whether they make up for production cost through prices and sales.

All the costs of government administration organizations depend on government revenue, and quasi-government institutions partly depend on government revenue. When the revenue dependency of an organization is under 50%, it is categorized as public enterprises. Over the world, the standards of national finance statistics are experiencing the transition from the fund-unit statistics which is based on general accounting to the institutional-unit statistics which takes into consideration the characteristics of each institution.

Compared to the fiscal indexes of other OECD countries, the fiscal portion of Korea against GDP is 12% below the average, and the debt rate is as low as 39.7%. However, when we include the indexes of public enterprises, the debt rate amounts to 65.5%. At the moment when the baby-boom generation is actively contributing to the national pension, the integrated financial indexes are in the black, but administrative financial indexes are in the red. The interest costs of the twelve major public institutions have exceeded the business profits since the previous government.

One of the main characteristics of Korean public finance operation is the rise in national pension deposit. At the moment this deposit is invested in stocks, bonds, alternative investments, overseas loan transaction, and so forth. Some think these investments should have been directed more to raising the birth rate and the discussions and decisions on this will affect the fate of Korea. The second feature is that even though the disparity rate in market incomes among the people is not that high, Korea has not been very active in redistributing the incomes through policies and the outcomes are unsatisfactory.

In addition to these, the excessive mobilization of some public enterprises like Land and Hosing Corporation, KEPCO, Expressway Corporation, KORAIL, Water Resources Corporation, National Oil Corporation, and Gas Corporation into national policy projects and also excessive policy project finance from financial public enterprises are a serious problem of Korean public finance. Another is excessive welfare coverage of the loss in retirement pay deposits of public servants, soldiers and teachers. The last is that over one hundred trillion won of the national pension deposit is invested in the form of national bonds.

Even in so-called market-failure areas in which public benefit is bigger than profitability, the government should increase the private voluntary contracts and learning from private sectors, increase its own organizational capacity.

Translation by Kang, Soo Jung

President of Salt&Light