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Overview of Korea’s development experience

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Development Overview
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Economic Infrastructure

Development aid in the latter part of the decades of development

Development Aid in the Latter Part of the Decades of Development (1976 to 1990)
 
Due to active state involvement based on the three ambitious Five-Year Economic Development Plans that began in the early 1960s, Korea achieved significant industrialization by the mid-1970s, at which time it possessed not only basic industrial infrastructure, but also the capacity for heavy and chemical industries (HCIs).

With its gross national product (GNP) per capita reaching USD 574 in 1975, Korea graduated from the league of developing countries dependent on soft loans from the IDA (which provided loans for countries whose GNP per capita was USD 520 or below as of 1975), joining instead the so-called group of newly industrialized developing countries (NICs). In the meantime, the terms of reparation from Japan came to an official end in December 1975, paving the way for the two countries to explore new possibilities and modes of cooperation.

Whereas Korea welcomed almost all forms of development aid and cooperation without discrimination to satisfy its mounting development needs until the mid-1970s or so, by the late 1970s it had begun to more carefully review and ensure the quality and purposefulness of the investments and aid it received so as to ensure greater effectiveness in its development cooperation projects. The oil shocks exerted dramatic impact on Korea’s expansive growth, which had proceeded uninterrupted until then. As the amount of foreign development aid and investment in Korea increased hugely in the 1970s thanks to the launch of multiple large-scale development projects, worries over the possible repercussions of excessive foreign debt grew.

The Korean government thus began to pursue a greater balance between growth and stability in the late 1970s, focusing its attention on upgrading the quality and technological standing of Korean industries. A restructuring policy was thus launched, aimed at pinpointing and remedying the various problems, inequalities in particular, borne out of the growth-only policy.

 Korea also began to shift its focus from project-type loans and investment to sector loans and structural adjustment loans that were provided to foster multiple industries or facilitate the restructuring of the overall socioeconomic structure.

In the mid-1970s, bilateral grants-in-aid from US AID, the Japanese Reparation Fund, and other such sources stopped flowing in, and the amount of conditional development loans and aid also plummeted drastically. While the US role as a major donor to Korea began to contract, Japan’s influence on the Korean economy and development grew significantly by comparison. The amounts of grants and aid from Germany, France, and elsewhere also increased noticeably during this period.

While multilateral grants and aid from the United Nations and other international organizations remained relatively marginal even during the latter part of the decades of development, they still continued to flow into Korea, while international financial institutions, such as the IBTF and the ADB, began to provide increasing amounts of development cooperation funds in the form of public loans.

Source: Korea International Cooperation Agency. 2004. Study on Development Aid and Cooperation for South Korea: Size, Scope and Exemplary Effects. Seoul.