Yoon Administration to Reduce Public Enterprises by 30%... Accelerating Reform Efforts

[Asia Economy Sejong=Reporter Son Seon-hee] The Yoon Seok-yeol administration has decided to drastically reduce the number of public enterprises and quasi-governmental institutions by more than 30% starting next year. It also plans to establish new evaluation criteria for public enterprises and quasi-governmental institutions that strengthen the scoring on financial management indicators. The Ministry of Economy and Finance aims to accelerate the reform of public institutions by narrowing the scope of public institutions directly supervised by the ministry, thereby expanding the autonomy of each institution. However, some political circles interpret this policy as a step toward privatization of the public sector, and follow-up controversies are expected.

On the 18th, the Ministry of Economy and Finance held the 10th Public Institution Management Committee chaired by Second Vice Minister Choi Sang-dae, where it finalized the plan to reorganize the public institution management system. Public institutions are classified into three types?public enterprises, quasi-governmental institutions, and other public institutions?based on the size of personnel and assets. The core of this reorganization plan is to significantly expand the personnel threshold for public enterprises and quasi-governmental institutions from the current 50 employees to 300 employees. The revenue criterion will also be raised from 3 billion KRW to 20 billion KRW, and the asset criterion from 1 billion KRW to 3 billion KRW. As a result, 42 institutions (32%) previously classified as public enterprises or quasi-governmental institutions are expected to be reclassified as other public institutions.

These criteria were established when the Act on the Management of Public Institutions (Public Institution Management Act) was enacted in 2007 and have been maintained for 15 years. Since the scale of public institutions has increased and the management system has stabilized compared to when the law was enacted, the ministry explains that management authority will be transferred from the Ministry of Economy and Finance to the relevant ministries, and the autonomous management system of each institution will be strengthened going forward.

For the 88 institutions that will remain as public enterprises or quasi-governmental institutions, the management evaluation criteria will be changed to strengthen financial management. In the ‘2022 evaluation’ scheduled for the first half of next year, the weight of financial performance, which was previously 10 points, will be doubled to 20 points. Conversely, the weight of social value will be reduced from 25 points to 15 points. The criteria for preliminary feasibility studies for public institutions will also be raised, with the total project cost threshold increasing from 100 billion KRW to 200 billion KRW, and the institution/government burden amount threshold changing from 500 billion KRW to 100 billion KRW or more.

Since public institutions have consistently faced criticism for ‘reckless management,’ the ministry plans to promote the introduction of job-based pay in the future and provide incentives such as salary increases and expanded management evaluation scores to outstanding institutions. Additionally, reforms for responsible management will accompany this, including the expansion of audit committees, disclosure of activities of non-standing directors, and strengthening of disciplinary standards for executives.