World Bank/KDI Conference
Efficiency Enhancement in Public Investment Management

November 20-21, 2008
KDI Conference Hall, Seoul, Korea

Word of Invitation

There is growing concern in countries throughout the world to enhance the efficiency of public investment in physical assets such as infrastructure. Although public spending is recognized as a crucial element in national economic development, the outcomes can only be short-sighted and inefficient, unless a sound public-expenditure management system and related policies are in place. There is a need to ensure efficiency through fiscal rules, performance management, and institutional arrangements, as a necessary response to medium and long-term challenges.

This conference will examine the issues of well-designed public investment management and policies, among others, by assessing the current expenditure system and measuring its efficiency, with the ultimate goal of making public spending sustainable and feasible. The policy implications for an efficient approach to public investment management will be discussed by sharing the theoretical background and empirical evidence relating to optimal fiscal rules, to performance evaluation and management, and to capacity building.

Given the commitments of governments to their citizens to provide important public services and social infrastructure, a careful review should also be made of issues raised by private sector alternatives, particularly by Public-Private Partnerships (PPPs), to public provision.

I hope that this conference with the World Bank and KDI will provide the venue to openly address, hear wide range of recommendations, and discuss challenges ahead in public investment management.

In this spirit, I cordially invite you to become part of this breath of lively debate and discussion for the two-day conference scheduled on the November 20th and 21st, 2008. Despite your busy schedules, I assure you that the discussions outlined for our meeting will be both fulfilling and rewarding. Thank you.

November 2008
Jung Taik Hyun
President
Korea Development Institute

Summing Up by Joint Chairs
Dr. Jay-Hyung Kim, Managing Director, PIMAC, KDI.
Mr. Jim Brumby, Lead Public Sector Specialist, World Bank

Efficiency Enhancement in Public Investment Management Conference,
Seoul, Korea, November 20-21, 2008

This conference, jointly arranged by the PIMAC of the Korea Development Institute (KDI) and the Poverty Reduction and Economic Management Public Sector and Governance (PRMPS) group of the World Bank, has successfully brought together a range of leading experts and practitioners around the theme of improving the efficiency of public investment management, and the management of public-private partnerships.

A number of participants drew attention to the increasing importance of public investment management, including PPPs, in the context of the weakening global economy. Given this environment, it was generally agreed that it was especially important to renew efforts to enhance the sustainability and efficiency of public investment management. Yet it was also noted that overselling the ability of public investment to solve all economic problems should be avoided. There was a general consensus that although the PIM process needed to rely on good quality technical work, the actual operation of the system also required well arranged institutional processes. In this context, it was noted that it was important for the quality of project appraisals to be enhanced through checks and balances to ensure an appropriate degree of independence in arriving at objective judgments.

Some specific observations follow:

• To the extent possible, responsibilities for all aspects of the PIM system should be clear cut.
  
• Ownership of the assessment is important; this will tend to reflect the degree of decentralization.
  
• PIM systems do not operate in isolation. Well functioning public expenditure management and budgeting systems, SOE governance and debt and liability management systems are also important as supporting systems to PIM.
  
• Both ex ante appraisal and ex post evaluations are important. The effectiveness of these devices can be reinforced by the performance budgeting system.
  
• At times, considerations other than efficiency are taken account of. In these cases, it is helpful if these decisions are taken in a well informed (and where possible, transparent) way.
  

Country presentations

The conference was asked to consider the applicability of the World Bank framework for examining the desirable institutional arrangements for public investment management. This framework, which contains eight areas where desirable institutional aspects are described, provided a useful structure for the consideration of six country case studies. The consensus was that this was a helpful means to structure the consideration of public investment management systems, even across countries where the operations of the PIM systems may be quite different.

In all presentations were made concerning 10 countries: Australia, Belarus*, Chile*, China*, Ireland*, Japan, Korea*, Thailand, Turkey and Vietnam . These presentations and the accompanying papers provided insights into aspects of public investment management in these countries. Some participants drew particular attention to one case which was able to consolidate a great deal of data concerning the operation of public investment management, including the operation of PPPs, which have become increasingly important.

Other highlighted themes

A number of common themes emerged during the discussions:

• The role of central guidelines: Guidelines, which are then rigorously applied, were seen as a particularly critical aspect of a well functioning PIM system. Examples of such guidelines include: Guidelines for Total Project Cost Management System, Korea, 2007, and Guidelines for the Appraisal and Management of Capital and Expenditure Proposals in the Public Sector, Ireland, 2005. It was noted that the actual use of Guidelines was not always assured, thereby highlighting the need to see how systems actually work, rather than how they are designed to work. This was particularly the case for some developing countries, where there remains a need to develop guidelines.
  
• Evidence based research: Availability of good data was seen as a critical component in the evaluation of the efficiency of specific public investment projects, as well as for reviewing the performance of PIM systems as a whole. Some countries, most notably Chile and Korea, were able to assemble and publish a great deal of investment related data, which assisted the conference in understanding the mechanics of their PIM systems. Yet participants remained somewhat cautious of the ability to estimate efficiency of public projects, given data issues. Notwithstanding, there was general support to attempting to measure efficiency both ex ante and ex post.
  
• Increasing interest in and role of PPPs: There was general acceptance that PPPs can, for a number of reasons, accelerate the delivery of highly valued social services and infrastructure. Participants also agreed that the availability of PPP-related financing and use may need to be considered in the context of the availability of relevant expertise to assess PPP arrangements, the potential for optimal risk transfer, and value for money considerations. The Australian case usefully highlighted a number of the technical issues associated with managing a PPP portfolio.

Conclusion

The active participation of all attendees was welcomed, as it yielded a great vehicle for exchange about the operation of the public investment system in a diverse set of countries. The Bank framework provided a helpful basis to organize the case studies, and there was good interest in the finalization of the country case studies now in draft form. There was general agreement that effective PIM needed to be supported by the assembly of good data, access to well trained officials and the need for support of government at the highest level.

We thank all participants for their efforts in making this Conference such a success.

Seoul, Korea, November 21, 2008