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Development Overview

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Overview of Korea’s development experience

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Development Overview
Official Aid Economic Infrastructure

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Economic Infrastructure

Electricity and communications

Electricity and Communications
 
1. Electricity
 
Development aid for electricity and communications, two of the core components of any economic substructure, is akin to emergency relief in the sense that the demand for the two components has an urgent basis.

Korea was particularly in dire need of international aid for developing its electricity infrastructure. The escalating political and ideological conflict between the two Koreas led the North to cut power supplies to the South early in 1948, worsening the energy crisis. The Korean War not only halted all forms of investment, but also ruined existing social overhead capital facilities. The severe energy shortage made electricity a top-priority concern in South Korea in the postwar period, and became one of the key objectives of economic reconstruction. International aid was especially needed in this area because Korea had no means of its own, financial or technical, to build necessary power plants and networks.

Initially, Korea decided to secure at least some of the power supplies it needed from the electricity-generating vessels of the United States Army Military Government in Korea (USAMGIK). This peculiar way of obtaining emergency power supplies continued with aid from Government and Relief in Occupied Areas (GARIOA), the Economic Cooperation Administration (ECA), the CRIK, the United Nations Korean Reconstruction Agency (UNKRA), and the International Cooperation Agency (ICA) during and after the Korean War.[1] Jacona and Electra were the first US electricity-generating vessels to be stationed at the Busan and Incheon ports, respectively, in 1948. The list of vessels later expanded to include Marsh, Wiseman, Horse, White Horse, Impedance, and Saranac, which were stationed in such key ports as Busan, Incheon, Masan, Mokpo, and Jangseungpo. Impedance was eventually retired, returning home in September 1955.

These vessels stopped being necessary after the end of the Korean War, as Korea launched a series of power plant development projects and repaired some of its damaged facilities. Amazingly, though, these vessels once accounted for 56 percent of all power supplies available in Korea.
 
Electricity-Generating Vessels>
(Unit: 1 million KWH)
 

Power source 1948 1949 1950 1951 1952 1953
Vessels (a) 83.3 132.6 64.3 190.0 231.5 211.7
Total amount of power (b) 984 655 420.7 336.6 639.7 736.1
Share of vessels (a/b,%) 12.0 20.2 15.3 56.4 36.2 28.8
 

Source: The 100-Year History of Korea’s Electric Power, Korea Electric Power Corporation, Nov. 1989, p. 407.
 
After the Korean War, much of the development aid Korea received went to projects for developing fossil fuel power plants, according to a government-established, phase-by-phase power development plan. The Agreement on the Plan for Reviving Power-Generating Facilities and Transmission Networks signed between the Korean government and the UNKRA in May 1953[2] enabled the former to establish a plan and garner funding—USD 3.6 million in total—for restoring power plants at Yeongwol, Cheongpyeong, and Danginri. A series of projects ensued from 1954 to 1956 to restore and expand these power facilities.

At the same time, according to the Three-Year Electricity Development Plan, the Korean government also secured USD 32.96 million in aid from the US FOA for expanding power facilities at Masan, Samcheok, and Danginri, and another USD 8.98 million from the same organization for the expansion and reconstruction of the hydro power plant at Hwacheon. The US ICA and AID also provided aid for the reconstruction and new construction of such facilities as the Yeongwol Therman Power Plant, the Gunsan Thermal Power Plant, and others. In the meantime, although the Korean government attempted to implement additional electricity development plans prior to the first Five-Year Economic Development Plan, such plans were thwarted by chronic financial shortages.[3] Much of the development aid that Korea received for its power facilities during this period thus went mainly to restoring and expanding existing facilities.

The start of the decades of development in the 1960s, however, saw the Korean government investing larger amounts of international development loans and commercial loans in the development of hydro, thermal, and nuclear power plants in accordance with its mid- and long-term power development strategies that were integral to its overall economic development plans.
 
 


[1] The 100-Year History of Korea’s Electric Power, Korea Electric Power Corporation, Nov. 1989, pp. 405-406.
[2] The parties to this agreement, which was signed in Busan, were the Korean government, the UNKRA, and the UN Command.
[3] Two five-year plans for power development were established in 1955 and 1957, respectively. A 10-year plan, spanning the period from 1959 to 1968, was also established in 1958.


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

 

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2. Communications
 
Communications was another area for which Korea had to rely heavily on international sources for both technology and capital. Much of the investment in the postwar expansion of communications infrastructure derived from the grants-in-aid that were included in the Korean government’s Special Account for Economic Reconstruction. The switch to domestic capital and development loans did not occur until the early 1960s or so. The total amount of grants-in-aid earmarked for communications development until the early 1960s was USD 175.4 million.[1]

Communications was a high-priority issue for the Korean government at the time of postwar reconstruction, and it was also the first area in which the switch to official development assistance, in the form of conditional grants and funds, was made. The Korean government funded its communications development projects through the Development Loan Fund (DLF), a soft-loan fund of American origin that was granted through an agreement signed between the Korean government and the DLF in April 1959. This agreement led to the first conditional public loan that Korea ever received.[2] The USD 3.5 million from the DLF went towards the purchase of telephone line and return-call materials, as well as to the installation of automatic telephone exchange systems and telephones. The loan was provided with relatively favorable terms, including an interest rate of 3.5 percent per annum, a grace period of one year, and repayment over 20 years. Interestingly, the currency for repayment was the Korean won.

Having secured a soft loan from the DLF, the Korean government began to seek out conditional loans, cooperation funds, and other forms of official development assistance from diverse sources for development of its communications infrastructure. Organizations such as the Kreditanstalt für Wideraufrau (KFW) of Germany, the AID and the Exim Bank of the United States, the Japanese Reparation Fund, the Export Development Corporation (EDC) of Canada, and others provided the public loans with which Korea expanded its communications networks.
 
<Grants-in-Aid for Communications Projects>
(Unit: USD 1,000)
 

Year Description Grant
1954 9 projects, concerning Seoul Central Telephone Exchange, Masan Telephone Exchange, and Postal Service School training, etc. 6,057.0
1955 9 projects, concerning telegraph-telephone machinery, coastal wireless communications facilities, international wireless communications facilities, invitation of foreign engineers, etc. 4,620.5
1956 11 projects, concerning cable facilities in downtown Seoul, telegraph-telephone cables, idle-rotating exchange facilities, overseas training of electric communications engineers, etc. 4,249.8
1957 4 projects, concerning automatic telephone exchange, idle-rotating telephone exchange, etc. 1,210.3
1958 4 projects, concerning automatic telephone exchange, etc. 1,053.3
1959 Invitation of foreign engineers 100.0
1960 Invitation of foreign engineers 250.0
Total 39 projects 17,540.80
 

Source: Loan Projects Management Manual, Ministry of Postal Services, Dec. 1971.
 
Massive amounts of public loans began to flow into the Korean communications sector in the 1970s, mainly for the installation of satellites, electronic exchange facilities, and other such features of infrastructure. Communications is one of the areas in which Korea received a high level of development aid and pursued other projects of international cooperation. Development loans accounted for much of the radical investment made in Korea’s communications sector, in contrast to other developing countries at the time.
 

 

Project Loan date Loan amount Terms
First loan from W. Germany for expansion of local telephone facilities Nov. 1962 DM 35 mil. 4% per annum, 3.5-year grace period, repayment over 16.5 years (G.E.: 33.14)
Second loan from W. Germany for expansion of local telephone facilities Dec. 1964 DM 19 mil. 4% per annum, 3.5-year grace period, repayment over 16.5 years (G.E.: 33.14)
Loan from US AID for expansion of local telephone facilities Dec. 1964 USD 8.4 mil. 2% per annum, 12-year grace period, repayment over 30 years (G.E.: 67.69)
Loan from Japanese Reparation Fund March 1966 USD 1 mil. 3.5% per annum, 7-year grace period, repayment over 13 years (G.E.: 39.67)
Third loan from W. Germany for expansion of local telephone facilities Sept. 1967 USD 4.5 mil. 6% per annum, repayment over 10 years
First loan from US Exim Bank July 1968 USD 6.28 mil. 6% per annum, 2-year grace period, repayment over 8 years
Loan from Japanese Reparation Fund Jan. 1968 USD 1.8 mil. 3.5% per annum, 7-year grace period, repayment over 13 years (G.E. 39.67)
Second loan from US Exim Bank July 1969 USD 82.92 mil. 6% per annum, 2-year grace period, repayment over 8 years

Source: Loan Projects Management Manual, Ministry of Postal Services, Dec. 1971.
 

 
[1] Loan Projects Management Manual, Ministry of Postal Services, Dec. 1971.
[2] “Loan Agreement between the Government of the Republic of Korea and the Development Loan Fund, an Agency of the Government of the United States of America,” April 8, 1959. Three Decades of Foreign Capital in Korea, co-published by the Ministry of Finance and the Korea Development Bank, cites the USD 5 million provided by the DLF in 1959 for the construction of Dongyang Cement plant as the first-ever public loan that the Korean government received.

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