"Expand Infrastructure Investment, Utilize Surplus Funds from Government Funds"

Economic Crisis Due to COVID-19, Rapid Deterioration of Government Fiscal Soundness
Urgent Need to Expand Infrastructure Investment for Economic Stimulus and National Competitiveness... Securing Funding a Realistic Challenge
"Government Funds' Ample Liquidity Should Be Redirected to Infrastructure Investment Projects"

[Asia Economy Reporter Yuri Kim] As countries concretize new infrastructure investment strategies in preparation for the post-COVID era, there is a growing argument domestically that the surplus funds held by government funds should be utilized as new public infrastructure investment resources.

The Korea Research Institute for Construction Industry (KRICI) announced on the 12th in its report titled 'Utilization Plan of Government Funds for Expanding Infrastructure Investment' that the total financial assets managed by 67 funds under central government departments amounted to KRW 1,236.7 trillion as of the end of 2019. It explained that a significant portion of these assets are simply held as deposits in financial institutions, and their operating yields do not even reach the level of regular deposit interest rates.

Researcher Jeongju Kim of KRICI stated, "The management status of these funds practically means that the surplus funds, which are national assets, are not being utilized efficiently," and added, "To overcome national crises, the surplus funds of quasi-fiscal funds should be used for infrastructure projects that have significant national economic ripple effects."

Researcher Kim emphasized, "Reviewing the legal basis or asset management guidelines of individual funds shows that investments in government and public bonds or securities issued by financial institutions are permitted," and "if public bonds can be issued based on infrastructure projects as underlying assets that can stably provide returns slightly exceeding the target yield of the funds, there will be sufficient investment incentives from the perspective of fund managers."

The government concretized investment strategies to promote the 'digitalization' and 'greening' of the Korean economy through the 'Korean New Deal Comprehensive Plan' announced last July. However, the worsening government fiscal situation is increasingly becoming an obstacle to investment execution.

KRICI proposed a specific resource procurement and investment method that involves absorbing surplus funds of government funds through 'collective investment schemes' under the Capital Market Act, and then investing in 'project implementers' who carry out infrastructure projects. It suggested designating a public institution with real estate development project implementation capabilities as the 'dedicated project implementation agency,' which would receive infrastructure project proposals from the state, local governments, and other public and private institutions and design the projects. Regarding collective investment schemes, the government could authorize a public institution capable of operating collective investment businesses as a 'dedicated collective investment operator,' which would review infrastructure projects, establish collective investment schemes, raise funds, invest in the dedicated project implementation agency, manage income and expenditures, and distribute profits to investors (funds).

To encourage active participation from fund managers, it was argued that adding measures such as a third-party guarantor guaranteeing a minimum yield on revenue securities would provide sufficient investment incentives from the perspective of fund managers.

Researcher Kim stated, "Utilizing surplus funds of government funds could lower financing costs compared to private investment projects, which would allow investments in areas with low profitability but necessary for public interest, such as aging infrastructure," and emphasized, "Regarding the recent issue of securing investment resources for aging infrastructure, the method proposed in this study could be usefully applied."

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