콘텐츠 바로가기
로그인
컨텐츠

Category Open

Development Overview

tutorial

Overview of Korea’s development experience

home

Development Overview
Official Aid General

Print

General

The launching of EDCF

1. Economic Situation of Developing Countries in the 1980s

During the 1980s, economic changes, which were caused by the world’s economic recession, rise of protectionism, and price decline in primary products, brought poor progress in the economic development policy and the increase of foreign debt to developing countries. This made developing countries suffer from economic contraction and hardships. In addition, the development and income gap between developed and developing countries widened as developing countries grew at a slow rate of 2.6% annually between 1980 and 1985.

[Table 1-1] Annual Economic Growth Rate
[Table 1-1] Annual Economic Growth Rate   
 
Another factor adding to the economic hardship was the increasing pressure over the foreign debt developing countries received since the 1970s to spur economic development. Foreign debt of developing countries, which recorded only USD 68 billion in 1970, increased ten times to USD 686 billion in 1985. Along with that, a significant rise in debt-service ratio (DSR) was witnessed from 14.7% to 19.7%.

[Table 1-2] Foreign Debt of Developing Countries
[Table 1-2] Foreign Debt of Developing Countries  
 
Since developing countries could not show their ability to make a breakthrough in the economic circumstances, the idea was spread that new institutional frameworks and attempts were needed to solve the economic problems in developing countries. With rising concerns over the increasing development gap between the more advanced developing countries and late developers, as well as between the developing and developed countries, developing countries came to realize that cooperation for self-help among developing countries was very crucial.
 
2. Why the EDCF?

Raised awareness on governmental cooperation in various forms
As a developing country, Korea had constantly expanded cooperation with other developing countries in various fields such as trade and investment. Developing countries were one of Korea’s most important economic cooperation partners in the 1980s as they took up one third of the nation’s trade volume, half of foreign investment, and the absolute majority of Korean companies’ overseas construction businesses.

Since governments of developing countries are in charge of drafting and carrying out economic development plans, they play a very important role in facilitating the development of a nation. Therefore, forging cooperative ties on a governmental level is both crucial and effective in facilitating economic cooperation and exchange between countries. It was within this context that the EDCF was established, based on general consensus, to play a mediating role as a form of intergovernmental cooperation.
 
Complying with cooperation requests and boosting south-south cooperation
As developing countries implemented their own economic development plan, development demand for the expansion of infrastructures, import substitution, investment on infant industries, and food production increased sharply. However, in most cases, they did not have enough resources and skills to meet those demands.

To overcome these obstacles, governments strived to attract foreign capital and introduce technologies. Late-developing countries looked to the inflow of capital and technologies from other forerunners such as Korea, which possessed the necessary development experience and skills gained through their own rapid economic growth.

Unfortunately, Korea did not have the effective means or financial resources to satisfy their needs at that time. Although there were several attempts by Korea to provide aid through programs such as the international development exchange progra since 1982 or technical cooperation in construction sector in 1984, the amount of aid provided was too small to meet the recipients’ demands. Korea’s ODA amount totaled USD 93.2 million at the time and excluding the contributions of USD 79 million to multilateral development banks (MDBs) such as IBRD and ADB, the amount dropped to a mere USD 14 million.

As such, the need for the establishment of an economic development cooperation fund was brought up in order to facilitate economic exchange with developing countries and to comply with the requests of developing countries to provide capital and technical skills to assist economic growth.

The establishment of the EDCF was based on reciprocal necessity, in that Korea supports the economic development of developing countries, expands economic exchange with them, and contributes to south-south cooperation by providing capital as well as the necessary facilities and technologies.
 
3. Establishment of the EDCF


Based on a national consensus, the Korean government designated Ministry of Finance the operating body for the EDCF and prepared the institution of a new law. The EDCF Law approved by the National Assembly was promulgated on December 26, 1986 and the Ministry of Finance set to work, formulating the rules and preparing for the establishment and management of the fund. After the Enforcement Decree of the EDCF was enacted on April 23, 1987, the operational by law was passed and principal policies were deliberated in the first Fund Management Council on May 29, 1987.

In 1987, the Ministry of Finance entrusted the task of operating the EDCF to the Export-Import Bank of Korea (Korea Exim bank) and the bank established the EDCF Department in June the same year. Also, the Korean government made a contribution of KRW 15 billion to the EDCF on July 1, 1987. With this, Korea entered into a new era of development aid as a donor country.

 

[Picture  3-1] Establishment of the EDCF in June 1987
[Picture  3-1] Establishment of the EDCF in June 1987 


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