The Shihwa Coastal Reservoir (SCR) was created to supply agricultural water during the construction of dikes for land reclamation, with this project representing a striking example of policy failure regarding tidal flat reclamation in Korea. After the completion of dike construction in 1994, the water quality inside the SCR drastically deteriorated. As a result, in 1996, the sluice gates were opened to dilute water pollution levels through the physical mixing of seawater from outside and freshwater from inside. Over the last 20 years, the Korean government has invested more than US $ 1.5 billion to recover SCR water quality by improving public sewage treatment systems, which is 2.7 times the cost of the original dike construction. Yet, within the reservoir, water quality has minimally improved, sediment pollution continues to be detected, and anoxic layers have been observed, due to stratification in summer. Severe sedimentary pollution caused by heavy metals and trace organic pollutants originating from the upstream regions of the watershed was evident during the SCR project; however, pollution levels appeared to decrease after seawater circulation. In parallel, the pelagic and benthic communities have also been affected by the deterioration of multiple water and sediment quality indices. While the recent construction of the tidal power plant has significantly increased the volume of seawater circulation, it has not been enough to improve the water quality of the upstream region of the SCR, where the water remains polluted. The SCR project presents a clear example that how incorrect policy leads to the mishandling of both coastal ecosystems and substantial governmental budgets.