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[Editorial] Government Should Be Wary of Pitfalls in Comprehensive Investment Plan

[Editorial] Government Should Be Wary of Pitfalls in Comprehensive Investment Plan

Posted March. 08, 2005 22:48,   


The government concluded and put forward a comprehensive investment plan of investing more than 23 trillion won of private capital into the construction of public facilities for three years starting this year.

Yet, there are quite a few pitfalls to worry about. The plan might help stimulate short-term construction because the government would be building many buildings, but there are abundant problems in terms of the project’s efficiency and its effect on the aggregate national burden. Looking at the project content, there is almost no productive expenditure for enhancing the economy’s supply capability; most of it is consumptive. The government says that it “selected a project that is expected to bring about increased benefits and reduced costs through the private sector’s creativity and efficiency,” but do the construction of school buildings and military barracks fall under that category?

How voluntarily and actively private capital will participate in the project is also questionable. In order to attract private capital easily, the government introduced a “Build-Transfer-Lend (BTL) method,” which guarantees a fixed return rate, but considering the policy and economy’s uncertainties, it is a highly risky investment. An unreasonable guarantee of returns could also lead to an increased tax burden on the people. Some even say that it might be better to mobilize the necessary funds by issuing national bonds because it is likely that the rent will be higher than the interest paid by the bonds.

For the comprehensive investment plan to be successful, the appropriate projects should be selected to attract private capital. In other words, the projects’ productivity and efficiency have to be improved by the participation of private capital. Roads, power plants, tunnels, and information superhighways that public companies own are good examples. Except for such fields, the government project may be a short-term economic stimulus, but may not be able to prevent economic side effects.

The government should deeply reflect on the fact that the “Korean New Deal” would not have been necessary in the first place if it had been implementing policies like real-estate countermeasures that could have led to stable investment from the private sector.