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Development Overview

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Overview of Korea’s development experience

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Development Overview
Official Aid Production

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Production

Investment for economic reconstruction and stabilization

Investment for Economic Reconstruction and Stabilization
 
The aid that Korea received in the late 1950s and afterward was directed toward facilitating the processes of economic stabilization and growth in the country. Specifically, this aid can be divided into two types.

The first type concerned economic reconstruction-based aid programs and projects instituted based on in-depth analyses of Korea’s economy as a whole and its specific sectors. The second type involved financial and other forms of support provided primarily in the donor’s own interest, and to assist Korea in securing defense capacity and fiscal stability.

Aid provided by the United States for Korea’s economic reconstruction and growth was based initially on the Mutual Security Act (MSA), eventually culminating in the aid programs of the International Cooperation Agency (ICA). Washington’s postwar aid for Korea, based on the so-called “Tasca Report,” sought to help Korea rebuild the basis for economic stability and development in a more comprehensive manner.

Until it was replaced by the Agency for International Development (US AID) in 1961, the ICA handled aid programs for Korea amounting to USD 1.7439 million in total. While the majority of these programs were non-project-type assistance providing agricultural produce, food, fuels, and raw materials, they also played a pivotal role in stabilizing the Korean economy and expanding its industrial capacity. The ICA provided not only consumer and industrial goods, but also financial and other forms of resources that ensured the fiscal stability of the Korean government.

The goods, building materials, and agricultural produce brought into Korea as part of the ICA or PL480 non-project assistance were sold to end consumers, the proceeds of which went to defense reinforcement and fiscal expansion. Notably, the financial means with which Korea purchased agricultural produce from the United States were controlled and managed in quite a particular way.

The American aid of surplus agricultural produce began in 1955 and lasted until 1972. The proceeds from selling the grains and other varieties of American agricultural produce, and the consumer goods and raw materials forming the ICA’s non-project assistance, were deposited in the Counterpart Fund, a special account that was set up in 1948 according to the agreement on aid between Korea and the United States. Part of the deposit was used to fund some of Korea’s spending projects. Another part went to the Economic Reconstruction Special Account to facilitate a variety of investments and loans.

Much of ICA non-project assistance and the agricultural produce aid provided under PL480 were subject to this unique system and arrangement for Korea’s economic recovery. The Counterpart Fund remained intact until 1972, when Korea stopped receiving agricultural produce aid from the United States. The Counterpart Fund, along with the proceeds from selling goods provided as grants-in-aid, made up over 40 percent of the total revenue of the Korean government until the early 1960s or so.

The total amount of aid provided by the United States for Korea’s economic and fiscal stability amounts to USD 1.9637 billion, including: USD 1.2617 billion in non-project assistance provided by the ICA from 1953 onward; USD 137.8 million in agricultural produce provided under PL480 until 1960[1]; and USD 564.2 million in agricultural produce that Korea received until 1972.
 
 
[1] Seo, p. 33; International Balance of Payment Statistics, Bank of Korea, pp. 30-33.

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