"20% Increase in 6 Years" Investment in Aging Infrastructure Requires Utilization of 'Jiyeok Gaebal Gigeum'

[Asia Economy Reporter Kim Yuri] There has been a call for the need to utilize the 'Regional Development Fund' to improve aging infrastructure. Domestic infrastructure was built intensively during the high economic growth period of the 1970s and 1980s without a mid- to long-term management plan, and many are now aging. However, due to difficulties in securing funding, systematic surveys and reinvestments have not been carried out.

According to the report "Utilization Plan of Regional Development Fund to Promote Investment in Aging Infrastructure" released by the Korea Construction Industry Research Institute on the 5th, as of the end of 2016, infrastructure facilities over 30 years old accounted for 10.3% of all facilities. This proportion is expected to rapidly increase to 21.4% by 2026 and 44.4% by 2036. Problems caused by aging infrastructure are already emerging. Representative examples include the underground communication duct fire at the Ahyeon branch in Mapo-gu, Seoul in November and December 2018, and the heat transport pipe rupture accident at Baekseok Station in Goyang-si, Gyeonggi-do.

Although the government has recently been reorganizing the management system for aging infrastructure, the Korea Construction Industry Research Institute points out that it has not moved beyond the existing safety inspection and diagnosis-oriented management framework. In particular, no concrete plans have yet been made regarding the funds necessary for reinvestment.

The Korea Construction Industry Research Institute proposed the Regional Development Fund as an alternative. The Regional Development Fund is a fund established and operated by metropolitan local governments and 18 cities and provinces, including Changwon-si with a population of over 1 million, by issuing regional development bonds based on the 'Local Public Enterprises Act' and local ordinances for establishing regional development funds. It is a fund created for carrying out regional development projects such as local water supply and sewage projects, with an accumulated amount reaching 15.7 trillion KRW as of 2017. This is a large scale, nearly half of the total fund accumulation of local governments nationwide (33.6 trillion KRW) during the same period.

However, the Korea Construction Industry Research Institute analyzed that recently, as new investment demand for regional development projects has decreased in various regions, the utilization of funds has declined. Researcher Kim Jeong-ju of the Korea Construction Industry Research Institute emphasized, "Since aging infrastructure is causing various problems such as threatening the safety of local residents and accelerating regional decline, investment in aging infrastructure should also be regarded as a 'regional development project.' There is a need to actively utilize the Regional Development Fund as a source of investment funds for aging infrastructure."

The Korea Construction Industry Research Institute explained that to this end, the scope of support targets and projects of the Regional Development Fund should be expanded. They also diagnosed that legal measures are needed to ensure that support through the fund leads to investment in aging infrastructure. It is necessary to expand the loan targets of the Regional Development Fund to include projects operated by the state, national public institutions, and private business entities invested by them (linked to regional development projects), and to change the types of projects from the existing enumerated list to a comprehensive one to broaden the base of fund operation.

They pointed out that the loan period, interest rate, and repayment methods of the fund should be flexibly operated considering the characteristics of individual investment projects. Through this, incentives for lower-level local governments to use the fund should be increased, and for regional aging infrastructure investment projects, more relaxed loan conditions should be applied.

To efficiently utilize idle funds within the Regional Development Fund at the national level, they also proposed that the central government establish and operate a 'Public Infrastructure Fund' in which each local government invests a portion of their Regional Development Fund. By designating a separate dedicated investment management organization, the fund raised from development projects nationwide can be invested, and a system should be established to return part of the generated profits to the accounts of the investing local governments, thereby improving both the utilization and profitability of idle funds within the Regional Development Fund.

Researcher Kim said, "There is a need to build a private investment project model for aging infrastructure and establish an aging infrastructure investment platform where private investors can actively propose development projects," adding, "For public and aging infrastructure that cannot be reinvested without financial input, it should be mandatory for local governments to establish separate management plans, and the linkage between these plans and the operation of the Regional Development Fund should be strengthened."

He emphasized, "Although many issues have been raised regarding investment funds for aging infrastructure, no proper alternatives have yet been prepared. Utilizing the Regional Development Fund, which is raised through stable regional development bond revenues, will make it easier to secure investment funds for aging infrastructure."

This content was produced with the assistance of AI translation services.