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Development Overview

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Overview of Korea’s development experience

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Development Overview
Official Aid General

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Development cooperation and Korea’s transformation into a donor country

Development Cooperation and Korea’s Transformation into a Donor Country (1991 to 1999)
 
In the 1990s, Korea began its transformation from being a recipient of international aid to becoming a donor country. The Korean government enacted the Economic Development Cooperation Fund (EDCF) Act in December 1986, through which it provided soft development loans for developing countries beginning in 1987. Korea also set up the Korea International Cooperation Agency (KOICA) in 1991 to centralize and better coordinate diverse types of technology aid for development projects that had been handled by multiple departments until then.


Prior to these changes, a Korean delegation attended the Consultative Assistance Group Meeting for Papua New Guinea, organized by the World Bank in Tokyo in May 1987, as an observer, thus beginning preparations to become a visible donor of international aid. In November 1988, Korea officially joined the league of the IMF Article VIII nations, thus leaving behind its former identity as a developing country.


In December 1988 Korea repaid all its IMF credits and ended its career as a recipient of Asian Development Bank (ADB) loans—with its final loan secured for the construction of a highway between Jinju and Gwangyang. The days of international cooperation and aid for Korea’s decades of development were now officially over.


The United Nations Development Program (UNDP) also decided, at its executive board meeting held in 1991, to change Korea’s official status into a net contributor country (NCC).[1] Although Korea still remained dependent on limited forms of technology aid in certain areas, its capacity to return to the international community the help and aid it had received was finally recognized and proven.


Afterward, Korea finally left the World Bank’s list of development loan recipients after signing on for two last development loans, totaling USD 439 million, from the organization in March 1995. Since receiving the first development loan from the World Bank via the International Development Association (IDA) in 1962, Korea had borrowed USD 8.5 billion in total for 120 projects or so over 33 years. Korea thus became the first-ever developing country to have graduated from dependency on World Bank loans (except for 25 developed countries and Singapore, which exited the World Bank’s list of loan recipients in 1975).[2]


Moreover, Korea became the 29th country in the world to join the Organization for Economic Cooperation and Development (OECD) in 1996, becoming the first member of the league of newly decolonized, developing countries that had left behind the days of impoverishment to join the ranks of advanced economies worldwide.


The Asian Financial Crisis that broke out in 1997, however, derailed Korea from its new route of economic progress, forcing it to once again rely on emergency loans and cooperation funds from the International Monetary Fund (IMF), the World Bank, the ADB, and the like. Nevertheless, Korea overcame this economic hardship with astonishing speed and success.[3]


As the new millennium dawned, Korea made the transition from the group of Part-I countries, dependent on official development assistance as defined by the OECD’s Development Assistance Committee (DAC), to the group of Part-II countries, called “Countries and Territories in Transition.”[4]


Throughout this period of transition from recipient to donor, Korea continued to receive decreasing, yet significant, amounts of international aid. Between 1991 and the early 2000s, Korea received USD 2.326 billion in international aid, USD 1.202 billion of which were grants-in-aid.
Much of the development aid that Korea received during this period came from Japan, which provided USD 751 million in grants-in-aid and USD 1.01 billion in loans, which, together, amounted to almost 80 percent of the total official development assistance that Korea received during this period. The United States, which was the biggest donor to Korea until the early part of the decades of development, had withdrawn almost all its development assistance by the latter part of the decades. During the period of transition until 1994, the United States provided USD 7 million in aid for Korea.[5]


Offsetting the decrease in the amount of development aid was the increase in the amount of non-concessional development cooperation funds and loans that Korea secured between 1991 and 1999, which amounted to USD 17.348 billion and comprised 56 percent of the total non-concessional development loans that Korea had secured in its modern history. This dramatic increase reflects the huge amount of emergency restructuring loans that Korea took out in the late 1990s to overcome the financial crisis.
 
<Development Aid in the Transitional Period>
(Unit: USD 1,000,000)
 

Type Official development assistance Development cooperation funds
Total amount 2,324.6 (100) 17,347.7 (100)
Source Japan 1,761.1 (75.8) IBRD 8,311.6 (47.1)
  Germany 306.3 (13.2) ADB 3,707.9 (21.4)
  United States 7.2 (0.3) Japan 2,851.9 (16.4)
  Other countries 151.6 (6.5) France 2,036.6 (11.7)
  NGOs 98.4 (4.2) United States 439.7 (2.5)
Fund type Grants-in-aid 1,300.9 (56.0)   -(-)
  Loans 1,023.7 (44.0)   17,347.7(100)
 

Note: Figures in parentheses represent the proportion of each item in the total.
 

 
[1] Science and Technology Annual, Ministry of Science and Technology, 1992.
[2] Far Eastern Economic Review, March 16, 1995.
[3] Korea took out loans totaling USD 10.7 billion from the International Bank of Reconstruction and Development (IBRD) and the ADB to overcome the Asian Financial Crisis of 1997. The country ended up repaying part of its debts ahead of schedule, and currently maintains an outstanding balance of USD 6.5 billion (as of the end of 2003).
[4] 2000 Development Cooperation Report, OECD, 2001. As of 2001, the OECD-DAC list of developing countries in Part I divides those countries into five subcategories, including: the 49 Least Developed Countries (LDCs); the 23 Other Low-Income Countries (Other LDCs), whose gross national product (GNP) per capita amounts to less than USD 745; 45 Lower Middle-Income Countries (LMICs), whose GNP per capita ranges between USD 2,976 and USD 9,205; 31 Upper Middle-Income Countries (UMICs), whose GNP per capita reaches or exceeds USD 9,206; and one High-Income Country (HIC). Part II, to which Korea now belongs, is divided into two groups: namely, the group of 12 Central and Eastern European Countries and the Newly Independent States of the Former Soviet Union (CEECs/NISs) and the group of 25 More Advanced Developing Countries and Territories. Korea belongs to the latter.
[5] The United States continued to provide grants-in-aid for Korea until 1981.


Source: The Export-Import Bank of Korea. 2008. EDCF Your development partner 1987-2007, History book. Seoul.