This paper analyzes the legal and institutional limitations of the system of designating public institutions as is provided for in the Act on the Management of Public Institutions (AMPI) and the Enforcement Decree of the said Act, and provides some suggestions for improving the designation system. In addition, it examines actual cases of designation and the classification of public institutions: As of May 2013, 295 organizations, including Korea Exim Bank and KOICA, are designated as public institutions, while those who qualify, such as Korea Development Bank (KDB) and Financial Supervisory Service (FSS), are excluded from the designation.

      Article 4(1) of AMPI stipulates that the Minister of Strategy and Finance may designate an institution as a public institution if it is established by contributions or investment by the government or a public institution, or if no less than 50% of the amount of its total revenue is government grants. Furthermore, Article 4(2) provides that the Minister may not designate an institution as a public institution if it is established for mutual aid or by a local government, or if it is KBS. Subject to Article 5, the Minister may designate organizations as public corporations among those whose prescribed number of personnel is at least fifty persons and at the same time whose self-generated revenue reaches or exceeds 50% of its amount of total revenue; may designate institutions as quasi-governmental institutions among public institutions not classified as public corporations; and may designate institutions as non-classified public institutions among public institutions that are classified neither as public corporations nor as quasi-governmental institutions. As of May 2013, there are 295 public institutions (including Korea Electric Power Corporation), including 30 public corporations, 87 quasi-governmental institutions, and 178 non-classified public institutions.

      AMPI requires that each public institution be subject to management disclosure, surveys on customer satisfaction, adjustments of functions, and the promotion of innovation. Regarding public corporations and quasi-governmental institutions, detailed provisions are set forth in Chapter IV of the Act, including those concerning the articles of association, board of directors, executives, budget/accounting, evaluation/supervision of management, and guidelines for management. By differentiating governance structures in line with the characteristics of individual institutions, the designation and classification system serves as a prerequisite for the efficient management of public institutions.

      The results of analysis and policy suggestions of this paper can be summarized as follows: First, the criteria for designating public institutions should be made more specific by the law and/or an enforcement decree. Article 4(1) provides that the Minister "may" designate an organization as a public institution, and this creates ambiguity about the scope of "public institutions." Although Article 4(2) specifies the types of organizations that may not be designated as public institutions, KDB, FSS, Bank of Korea, and so forth are not designated as public institutions without any legal basis or guidelines. Specifically, KDB Financial Group, KDB, and Industrial Bank of Korea were excluded from the designation in January 2012 to facilitate smooth privatization and management autonomy. Despite the fact that these organizations had made no progress toward privatization as of December 2012 and uncertainty exists as to whether they could be privatized by the end of 2013, escape clauses such as those regarding the government's compensation for deficits are still in effect. This necessitates the government to establish an appropriate management system.

      In order to ensure operational independence and neutrality, the designation of FSS as a public institution was cancelled in January 2009. About 95% of its revenue, however, depends on contributions from private financial institutions, meeting the designation requirement set forth in Article 4 of AMPI, and it is undesirable for FSS, an organization which conducts regulatory and administrative tasks, to be excluded from being designated as a public institution without legal ground.

      Therefore, all the legally qualified organizations should be designated as public institutions, and at the same time, the principles of and the exceptions to such designation should be clarified by providing more specific criteria for excluding an organization by the law and/or an enforcement decree.

      Second, criteria for classifying public institutions should be made more specific through an enforcement decree. As regards distinguishing public corporations/quasi-governmental institutions and non-classified public institutions, Article 5 of AMPI provides no other criteria than the prescribed number of personnel being at least fifty persons. This gives rise to criticism that the boundary between public corporations/quasi-governmental institutions and non-classified public institutions is unclear.

      As of the end of 2012, Korea Exim Bank and Korea Finance Corporation are designated as non-classified public institutions, on the grounds that their nature as financial institutions necessitates management autonomy. Given their asset size and the government's indirect support such as compensation for deficits, designating these important institutions as non-classified does not seem to properly reflect their characteristics.

      Designation of KOICA and the Korea Foundation as non-classified public institutions is based on the recognition that disclosure of their business information through management evaluation or other measures may adversely affect the national interests. Unlike KOICA, however, the Economic Development Cooperation Fund, a fund established under the National Finance Act to provide credit assistance, is subject to program evaluation by the Ministry of Strategy and Finance. In addition, it should be taken into account that the financing of the Korea Foundation is based on contributions (quasi-tax) for the International Exchange Fund.

      In the future, all the public institutions that meet certain criteria in terms of the number of personnel, total revenue, asset size, etc. should be designated as public corporations or quasi-governmental institutions. Furthermore, the principles and the exceptions regarding the demarcation of public corporations/quasi-governmental institutions and non-classified institutions should be made clear, by prescribing the criteria (including the self-generated revenue ratio) currently applied by the Ministry of Strategy and Finance in a Presidential decree.

      Third, it is necessary to consider introducing international standards in distinguishing public corporations and quasi-governmental institutions. While such a distinction under AMPI is based on the self-generated revenue ratio, the "cost compensation rate" is used when distinguishing these organizations in order to prepare finance statistics and calculate the debt of the general government. This means incongruity between the classification systems. According to the scope of the general government, announced by the Ministry of Strategy and Finance in December 2012, among 83 quasi-governmental institutions under AMPI, 27 organizations (including KSPO) were excluded from being designated as non-profit public institutions. In order to prevent unnecessary confusion about the classification of public corporations and quasi-governmental institutions, a mid- or long-term plan should be considered to replace the self-generated revenue ratio under Article 5(2) of AMPI with the cost compensation rate. However, if the cost compensation rate currently applied in the area of finance statistics is completely introduced, organizations that provide government-commissioned services, such as Korea Energy Management Corporation and Korea Workers' Compensation and Welfare Service might be classified as public corporations. Thus, criteria for identifying purely commercial profit among the total revenue should first be prepared so that the cost compensation rate could properly reflect the institutions' market-test related capabilities.

      Fourth and finally, non-classified public institutions should be managed through detailed sub-categorization. As of May 2013, these institutions occupy 60.3% of the total 295 public institutions. In terms of asset size, government's support, the official nature of their tasks, and so forth, they are no less important than public corporations and quasi-governmental institutions. Either through the segmentation of non-classified public institutions on the basis of the number of personnel, asset size, total revenue, etc. for applying different management instructions, or through management evaluation conducted by the Ministry of Strategy and Finance, a management system that harmonizes with individual institutions' characteristics should be introduced.