[Column] ‘A victim of its own success’

Suh Kyoung-ho

The author is an editorial writer of the JoongAng Ilbo.

The preliminary feasibility study (PFS) became obligatory for large public projects from 1999 under President Kim Dae-jung in the wake of the 1997-1998 bailout crisis. The mandate has helped prevent the “politicization” of public finance from indulging electorates with populist development promises. State think tank Korea Development Institute overseeing the PFS estimated that 144 trillion won ($109 billion) of state funds were saved from 1999 to 2019 thanks to the oversight process.

Politicians unhappy with the PFS intervention and hassle have tried to destabilize the system. Both the conservative and liberal governments contrived to get around the obligation. The government under President Lee Myung-bak tweaked the enforcement ordinance to the National Finance Act in 2009 to push the Four River Restoration Project — the signature campaign pledge of Lee — without the feasibility study. The administration included projects aimed at preventing natural disasters and promoting balanced regional development in the category for the exemption. As the river restoration project costing colossal 22 trillion won was deemed a project to prevent natural disasters, it was exempted from the feasibility study. The massive restoration work for the country’s major rivers has gained favorable light amid worsening drought from climate change. Still, the project’s worth remains controversial. If the government had pushed the project incrementally — namely, starting with areas that require immediate fixes — it would have invited less noise from opposition parties and environmental groups.

The last Moon Jae-in administration exempted 149 public projects costing 120 trillion won from feasibility studies to promote balanced regional growth. Kim Kyoung-soo — former South Gyeongsang governor and a close aide to former President Moon — gained a fast-track endorsement to his first campaign promise as a candidate to build a railway between Gimcheon and Geoje at the cost of 4.66 trillion won.

The PFS exemptions under Moon’s presidency far exceed the 61 trillion won under Lee Myung-bak and 25 trillion won under Park Geun-hye. The Moon administration further revised the 2019 changes to the PFS ordinance to enable greater favor for projects outside Seoul for balanced development. As a result, the rate of infrastructure projects outside the capital region passing the PFS shot up to 89 percent from 52 percent before the easing in the guidelines.

An expert from the World Bank observed South Korea’s PFS system has become a “victim of its own success.” As the system has served its original design well, regional and political communities resisted and continued with efforts to outmaneuver the feasibility study.

Hong Nam-ki, former finance minister in the Moon Jae-in administration, announced a list of national projects to be exempted from the mandatory preliminary feasibility study on Jan. 29, 2019. [YONHAP]

The campaign goes on under the Yoon Suk Yeol administration despite its promise to restore fiscal integrity. The Ministry of Economy and Finance last year announced a new set of rules for PFS, specifying the guidelines for exemptions, fast-tracking the review process and raising the upper limit of infrastructure and R&D projects to 100 billion won from the previous 50 billion won. The proposal to lift the upper limit passed the National Assembly subcommittee of the Strategy and Finance Committee easily. Politicians from both ruling and opposition parties could be tempted to vie with development projects in their constituencies ahead of the parliamentary elections a year from now. The Finance Ministry says that such concerns are not necessary as construction projects like building a new provincial government complex will be exempted from the higher threshold.

The easing in the PFS rules will be welcomed by other government offices because they could receive less meddling from the Finance Ministry when they pursue their individual projects. Before the PFS mandate, each government office carried out a preliminary feasibility study on each project idea. As a result, of 33 projects that were reviewed from 1994 to 1998, 32 were approved. The central government, as much as local governments, take pleasure in exhibitionist projects that can win favor with the public.

It is why the role of PFS must be enhanced. The system’s design is to have a third party scrutinize a proposed project with objective information to aid policy judgment. Though the feasibility study matters in determining whether to launch a certain project, the findings are not binding. But since they are required to be reported to the National Assembly and made public, the central or local governments cannot dare to ignore them and carry out disapproved projects. Exemptions from the feasibility study should be minimized to execute national projects based on objective grounds.