Public Funds Are of Public ConcernWatching the prolonged standoff over the approval of the government budget for additional public funds between the ruling and opposition parities, one can not help but raise questions about whether they have done their job properly. We believe that the public funds, planned to be raised, could have been substantially scaled back if they had exercised vigilance in their efforts to determine the size of public funds previously needed and the criteria of their execution, and scrutinize their management.
We now need to review these issues from the beginning because our economy can no longer allow the luxury of trial and error. In all, the proposed public funds can be put to the best use only after a thorough assessment has been conducted on already used public- and other public-purpose funds totaling 109.6 trillion won.
To this end, I suggest that new public funds should be allocated with the following in mind.
First, the 64 trillion won in public funds, raised in May 1998, was based on the accurate estimate of business failures. In retrospect, the overriding opinion is that the initial estimate of business failures totaling 112 trillion won was underestimated. Additional injection of money became unavoidable as the estimate of bad loans arising from the demise of Daewoo group had been understated. For this reason, the proposed 40 trillion won in public funds should be scrutinized to determine whether it was based on an accurate estimate of business failures. This will be possible only when financially-troubled Hyundai Construction and Engineering is dealt with in a transparent setting.
Second, it should be asked whether allocating public funds were managed properly. Distribution of public funds and financial sector restructuring are inseparable from each other. Still, the process of dealing with troubled banks has not been truthful. It was a result of the inconsistency in the government''s approach to deal with them - between liquidation, property and assets takeover, third-party takeover, and government purchase. To go ahead with the restructuring of troubled financial institutions, the government should provide a statutory framework designed to clarify the process of allocating public funds. Limiting its options of restructuring to holding companies carries too big a risk.
Third, who has checked the use of public funds at the financial institutes that received the money and has the job been done properly? Little has been done so far to check up on whether the financial institutes have improved management.
Fourth, the question of whether the efforts of recollecting the funds were properly conducted arises. Out of the already used 110 trillion won, about 60 trillion won will impose a financial burden on the people. When considered that more than half the proposed funds, too, will come out of people''s pocket, it is imperative to put forth a plan to recollect the funds used.
Then the question comes down to who is going to take charge of thorough and consistent efforts to supervise the use and management of public funds. In conjunction with this issue, we need to note two laws, the Federal Deposit Insurance Corporation Improvement Act (FDICIA) and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), that the U.S. government enacted after undergoing financial crisis in late 1980s through the early 1990s.
In the case of the FDICIA, the government created a statutory framework designed to clarify the criteria to determine non-viable financial institutions, and make its processes transparent. I also suggest that we need to keep a watchful eye on the management of public funds by legislating the equivalent of FIRREA, which is designed to maximize the accountability of related officials at troubled financial institution.