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Overview of Korea’s development experience

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Development Overview
Official Aid General

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General

Overview of official foreign assistance: 1950-60

Background


Soon after the Korean government's proposal to use a massive amount of aid for economic reconstruction through a 5-year economic development plan was rejected by the US Congress, the Korean War broke out (June 25, 1950). The ceasefire in 1953 left the Korean peninsula war-torn, divided, and utterly destroyed once again. South Korea suffered massive social and economic damages: civilian causalities totaled nearly 1.5 million while the destruction of properties was estimated at about $3.1 billion, with nearly 43 percent of residential homes and industrial facilities ruined. .
 
Scale of Assistance and the Donors


Korea received a massive amount of official foreign assistance for emergency relief and reconstruction efforts during the 1950s, with the total coming to about $2.3 billion. In particular, Korea’s economic and public finance systems depended heavily on foreign assistance. The total assistance amount accounted for about 74 percent of total government revenues, and for 85 percent of total imports during 1953-61. The Counterpart Fund, created from the proceeds of consumption goods donated as part of assistance and sold in the domestic market, contributed to about 30 to 53 percent of total government revenues during 1954-60. During the same period, 32 percent of the Counterpart Fund (about 103.4 billion KRW) was employed for the defense budget, and 45 percent went to public investment in fixed assets and financial operations. The Counterpart Fund constituted about 70 percent of total public investment and financial operations, contributing to the inception of capital formation in Korea.
 
As in the 1940s, the major donor was the US government. Multilateral efforts by the UN failed to result in a large assistance package, with the only exception being the UN Assistance of Civil Relief in Korea (CRIK) and the UN Korea Reconstruction Agency (UNKRA), which together accounted for about 21 percent ($479 million) of total official assistance granted during the 1950s.
 
Objective and Sectoral Application of Assistance


The nature of the assistance granted was again emergency humanitarian relief, although some reconstruction aid was provided by the UNKRA and by the Foreign Operation Administration (FOA)/ International Cooperative Agency (ICA) of the US government during the latter half of the 1950s. During the 1950s as a whole, reconstruction aid accounted for less than 30 percent of the total assistance, with emphasis placed on physical infrastructure, industries, and education/health. As the majority of assistance came in the forms of food, raw materials, and other consumable commodities (77 percent), the economy was sustained on consumption goods supplied by aid. The government also maintained an overvalued local currency to maximize the proceeds of assistance and imports, which discouraged export-oriented industrialization and contributed to creating a chronic balance-of-payments deficit.
 
[Table 1] Official Foreign Assistance to Korea: 1945-59 (Unit: US$ million in current prices; %)
 

  US/
AMGIK
(1945-49)
US
ECA/ SEC
(1948-52)
UN/
CRIK
(1951-56)
UN/
UNKRA
(1951-59)
US/
FOA
(1953-55)
US/ ICA
(1955-59)
US/ PL480
(1955-
61)
Total
(1945-61)
$ %
Agriculture /
Fishery
      8.1 1.3 40.4   49.8 1.7
Mining       12.8 0.9 59.6   100.3 3.4
Manufacturing       27.0
Physical Infrastructure       8.9 48.5 219.5   276.9 9.3
Other Reconstruction 69.8 6.0 47.9 NA 1.2 19.6   144.5 4.9
Education       9.6 17.4 14.0   106.6 3.6
Housing / Health 7.9   16.2 11.5 30.0  
Food / Raw Materials 416.8 196.0 393.3 36.2 136.0 891.0 202.6 2,271.9 76.6
Technical Assistance 7.7 NA NA 7.8 NA NA NA 15.5 0.5
Total 502.2 202.0 457.4 121.9 205.3 1,274.1 202.6 2,965.5 100.0

 
 
UN/CRIK


The CRIK provided Korea with multilateral assistance of $457 million for wartime relief efforts from 1951 to 1956, of which all but a fraction came from the United States. Much of the assistance was for food, and textiles and clothing, representing 40 and 24 percent, respectively, of the total assistance provided. UN relief efforts were crucial in relieving widespread starvation and disease in Korea during this time.  
 
UN/UNKRA


The UNKRA was to lay the economic foundation for the political unification and independence of the country at the beginning of the Korean War. However, as the war dragged on for far much longer than had been anticipated, As a result, the UNKRA's role in its first 2 years of establishment was limited. It was not until after the Korean War had ended that UNKRA was able to provide a significant amount of assistance for the reconstruction of Korea's economy. The agency helped restore devastated properties and provided rehabilitation supplies, transport, and services for Korean industry. Approximately 40 countries pre-committed to providing a total of $208 million for funding the UNKRA. In reality, however, only $122 million was mobilized and used for Korea’s rehabilitation.
 
One salient feature of the UNKRA was that the proportion of assistance it provided for bolstering the Korean economy’s productive capacity stood at 70 percent while that for consumption was 30 percent. This ratio was exactly inverse to aid efforts under the GARIOA and the ECA during the 1940s, and under the CRIK and the FAO/ICA during the 1950s. Since UNKRA assistance was geared toward facilitating reconstruction, much aid went toward importing the equipment needed to construct new factories, including the Inchon Plate Glass Factory, the Moon-Kyung Cement Factory, and the Sam-Duck Paper Factory. UNKRA assistance was also used to rehabilitate damaged industries such as the Janghang Smelting Factory, large-scale textile factories, and coal mines, as well as to fund policy loans for SMEs in the manufacturing and mining industries through the Bank of Korea (BOK), which offered loans based on recommendations from the Ministry of Commerce and Industry.
 
US/FOA and US/ICA

The US aid administrators of the FOA (1953-55) and the ICA (1955-59) insisted on pursuing stabilization first, then development, placing priority on reigning in the hyperinflation caused by the expansion of debt to finance the war and on securing a minimum subsistence level of living. Thus foreign assistance went toward increasing the supply of consumer and intermediate goods to curb inflation and providing basic essentials. The FOA provided a total of $205 million and its sequel agency, the ICA, $1.3 billion. About 70 percent of their combined aid was for consumption goods, supplies and raw materials such as fertilizer, wheat, and energy (non-project assistance). From 1954, a large quantity of wheat flour was given to Korea under Title I of Public Law 480 (Food for Peace Program) and used as compensation for workers mobilized under the public works program (which included such projects as soil reclamation for the purpose of reforestation). During the period between 1955 and 1974, food assistance given under PL 480 amounted to $1.6 billion, equivalent to 37 percent of the total aid offered by the United States ($4.4 billion). Two unfortunate side effects of the large quantity of food aid was food price distortion and reduced incentive among farmers.
 
While maintaining the priority on consumption goods (70 percent of total assistance), the FOA and later the ICA provided a significant amount of aid for economic reconstruction toward the end of the 1950s due to the large amount of total aid available. Assistance to increase economic productive capacity amounted to 30 percent of total aid, nearly 37 percent of which was used to construct railways (for the Youngam, Choongbook, and Hambaik lines). A portion of assistance was used for investment in manufacturing (including for the construction of the Choongju Fertilizer Plant, the Busan Arsenal, an electric wire factory, a pesticide factory, a rubber recycle factory, a tire factory, and the Busan Shipyard). In addition, about $78 million in ICA assistance was employed for building 44 new small-sized plants and for reconstructing the Hwachon Hydro Power Plant, which had been severely damaged during the Korean War, and thermal power plants in Yongwol, Danginri, and Masan. By the end of the 1950s much of the country’s infrastructure—including railways, roads, and harbors—had been rehabilitated almost to their pre-war level thanks to foreign assistance. A major challenge during this time, however, was securing an adequate electric power supply to meet social and economic demands. Much of the South’s electricity had been supplied from power factories in the North prior to the division of the peninsula.

Besides physical infrastructure and industries (mining and manufacturing) the priority area for assistance was education. In absolute terms, the amount of assistance that went toward education during the 1950s was only about $30 million, or 1.5 percent of total official assistance received. However, the priority granted to this sector by both the donor and recipient governments was clear. Assistance efforts after the Korean War centered on providing infrastructure for basic education, secondary vocational education, teacher training, and higher education. There was also a good deal of technical assistance (overseas training) provided for military personnel.
 
Classrooms were in short supply nationwide after the Korean War, as the country had lost almost 70 percent of its classrooms to the war. In response UNESCO and UNKRA developed a 5-year program for the development of Korea’s educational system and provided $11 million, or nearly 8 percent of the total aid from UNKRA ($122 million), for education assistance, one half of which was used to repair schools destroyed during the Korean War. Once infrastructure reconstruction efforts were fully underway, education assistance shifted toward establishing a textbook printing factory for primary and secondary education textbooks and increasing investments in higher education.
 
Contrary to common belief, US assistance in support of the Korean education system was not as sizeable as that given for infrastructure and productive industries. During 1954-61, the FOA/ICA earmarked about 1 percent of total aid, or around $20 million, for the education sector. However, the assistance addressed keenly felt shortages in technical and professional human resources. About half of the education aid was invested in higher education, in particular Seoul National University, another 20 percent in teacher training, and the rest in secondary vocational education.
 
Prior to Korea’s liberation from the Japanese occupation, access to higher education was extremely limited. Moreover, Korea suffered a huge deficit in the number of skilled workers and technicians, after the departure of the Japanese, who held most of the skilled jobs during the occupation. To bolster Korea’s technical capacity and economy, then, a considerable amount of assistance went into upgrading Korean secondary vocational education and into establishing and supporting institutions of higher learning.
 
To staff primary schools left vacant by the repatriation of Japanese teachers, who accounted for 40 percent of all teachers, eight new teacher-training schools were established with US assistance by 1951. Enrollment in primary schools nearly doubled from 1.4 million in 1945 to 2.5 million in 1947, the demand for education having increased after it was denied to most Koreans during Japanese colonization. Thanks to the expansion of teacher education programs, Korea eventually achieved universal primary education in the late 1950s, making all primary schools coeducational.
 
Another unique feature of US education assistance was that investment in facilities, equipment, and materials did not dominate, and technical assistance accounted for about 40 percent of the total educational aid provided. For example, a teacher education program was carried out in Korea in cooperation with the George Peabody College of Teachers in the United States. This program benefited several universities including Seoul National University, teacher training colleges, junior colleges, and lower-level schools. Technical assistance was carried out under the Peabody Program between 1956 and 1962, during which time about 40 Peabody faculty members were sent to Korea to train Korean educators in Western-style education methods. The Korean educators were trained in educational theory, curriculum development, and teaching practices through on-site technical assistance at various educational institutions in Korea. In addition, nearly 80 Korean teachers participated in an exchange program through which they were sent to the United States to receive training in higher education. The aim of this kind of cooperative program was to significantly modernize the education system and curriculum contents. The Korean curriculum as a result underwent significant change during this time with the incorporation of scientific methods in education and a new emphasis on “problem solving” and “learning-by-doing.” The United States also attempted to implement policies for decentralizing education and devolving power to the local level, but these did not successfully take root.  
 
Another example of technical assistance is the Minnesota Program. The US ICA offered a significant amount of technical assistance for about 40 developing countries under “university contracts,” which enlisted the participation of US universities and technical institutions to facilitate the sharing of professional knowledge and skills. The basic objectives of the technical cooperation program were: expansion of education in the fields of engineering, medicine, agriculture, and public or business administration; support of specific services or industries; expansion of research; and training of professional personnel. In Korea, the Minnesota Program provided technical and material assistance to Seoul National University (SNU) from 1954 to 1961, specifically for the university’s colleges of agriculture, engineering, and medicine. Later on, the program was expanded to include the fields of nursing, veterinary medicine, and public administration. The program successfully contributed to the training of professionals and academics in the fields covered and to the modernization of related industries and services in Korea.

Source: Written by Lee, Kye Woo(KDI School) in 2014 for K-Developedia (Revised July 2, 2014)