The financial crisis that hit theRepublic of Korea in the second half of 1997 had adevastating impact on its economy, causing the worstrecession since the Korean War era. To address thefundamental causes of the crisis and revitalize the economy,the Korean Government took bold, decisive steps to initiatecomprehensive structural reforms. The major focus of reformin the fiscal and public sector was to adopt a series ofinitiatives for strengthening public investment management.The Government endeavored to instill a performance-orientedapproach in the system, which implies management of publicexpenditure based on the principle of value for money. Thischapter explains the institutional setting for publicinvestment management (PIM) and the Korean Government sefforts to develop and manage a comprehensive PIM reform tofurther improve value for the money invested. The Ministryof Strategy and Finance played a leading role byimplementing an effective appraisal and evaluation system totighten the expenditure monitoring of total project cost andintroducing a new budgeting system called the Medium TermExpenditure Framework. An initiative of the preliminaryfeasibility study (PFS), introduced in 1999 and conductedmainly by the public and private Infrastructure InvestmentManagement Center, has been successful in handling thepass-or-fail bottleneck of the whole project selectionprocess. The total project cost management system (TPCM),strengthened after the crisis, is working satisfactorily bydiscouraging the request frequency and the amount of TPCincreases in line ministries. A reassessment study offeasibility is an innovative tool to control and keep thetotal project cost limit in the middle of TPCM. However, theperformance monitoring and evaluation system on PIM stillhas room for improvement in Korea. A greater emphasis onprogram evaluation is being called for, with the Governmentcurrently establishing a performance-orientation, a greateruse of performance contracts can be encouraged.
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