Overview of official foreign assistance for and by Korea: 1945-2010

Two Sides of Official Foreign Assistance in Korea

Korea was a recipient of official foreign assistance in the period between 1945 and 1995, but in 1990 saw its position change to one of donors. This overview is therefore divided into two sections: the first discusses the official foreign assistance received by Korea for its development from 1945 to 1999, and the second the assistance given by Korea to other developing countries from 1990 to 2010.
 
Definition of Terms

In this overview we use "official foreign assistance" instead of the more pedestrian term “foreign aid.” Official foreign assistance includes Official Development Assistance (ODA) and Other Official Assistance (OOA). The OECD’s Development Assistance Committee (DAC) defines ODA as financial flows from the government or government agencies to DAC-designated developing countries and intergovernmental organizations for the purposes of economic development and welfare improvement with a grant element greater than 25 percent. The DAC defines OOA as all official flows to developing countries other than ODA. However, in this overview, OOA refers to all official flows for the development and welfare improvement in developing countries, like ODA, but with grant elements of less than 25 percent. Therefore, the OOA referred to in this overview is somewhat narrower in scope than that defined by the DAC, excluding official foreign assistance for purposes other than development and welfare improvement (such as aid for military, commercial or cultural purposes). Thus the official foreign assistance in this overview includes all official (or public) development grants and all official development loans. Official (or public) development loans can be divided into ODA and OOA-type loans, depending on the degree of grant element of each loan, and both are included as official foreign assistance in this overview. In comparison, the DAC's ODA includes both official (or public) development grants and only ODA-type development loans (i.e. loans with grant elements greater than 25 percent), and therefore excludes OOA-type loans (i.e. loans with grant elements less than 25 percent).
 
Scale and Type of Official Foreign Assistance

In the course of the social and economic development of Korea (1945-99), the total official foreign assistance received by the country amounted to about $44 billion. This amount includes public development grants of about $7 billion and public development loans of some $37 billion. The total loan amount can be divided into ODA-type loans of around $6 billion (with a grant element greater than 25 percent), and OOA-type loans of about $31 billion (with a grant element less than 25 percent). Therefore, the total ODA amounted to approximately $13 billion.
 
[Table 1]  Official Foreign Assistance: 1945-99 (US$ billion in current prices; gross disbursement basis)
 

 
The history of official foreign assistance to Korea evolved over several stages in accordance with the political, economic and social development processes of the country. The first stage was from 1945 to 1949 under the US Army Military Government (USAMG) and the newly established Korean government; the second was from 1950 to 1959 during the Korean War and the country’s period of rehabilitation; the third was from 1960 to 1979 during the nation’s rapid industrialization and growth; the fourth was from 1980 to 1999 during economic and political stabilization and liberalization and includes the Asian Financial Crisis period; and the final one was from 1990 to 2010 during Korea’s global development cooperation period.
 
[Table 2] Evolution of Official Foreign Assistance for and by Korea
(Unit: US$ billion in current prices)
 

 
During the period from 1987 to 2010 when Korea became a net donor to other developing countries, the nation provided a total of about $9.3 billion for official foreign assistance, of which $3.4 billion was grants and $5.9 billion loans (ODA-type loans: $6.1 billion; OOA-type loans: $1.6 billion). This indicates that the total official foreign assistance that Korea has provided to other developing countries in current prices is equivalent to only 21 percent of the total official foreign assistance that Korea received from developed countries and international organizations during its development decades. If the two aid streams were compared at a constant price, this percentage would be much lower.
 
[Table 3]  Official Foreign Assistance from Korea to Developing Countries: 1987-2010
(Unit: US$ billion in current prices; disbursement basis)
 

 
The amount of official foreign assistance provided to Korea during its development stages can be viewed together with other types of capital inflows to Korea during the same period. Official assistance accounted for only 13 percent of the total capital inflows from 1945 to 1999. During the early part of Korea’s development history (1945-62), official foreign assistance took up a major portion of capital inflows to Korea. However, as the country’s development progressed, the importance of official assistance declined, and private capital inflows came to play a more dominant role; this was particularly the case during the latter part of Korea’s development history (1976-92) when growth was faster and steadier. Private capital inflows accounted for 63 percent of total capital inflows from 1962 to 1975, and for 78 percent from 1976 to 1992, indicating that Korea's fast economic development and industrialization can be more attributed to the active private capital inflows.
 
[Table 4]  Capital Inflows to Korea during the Development Decades: 1945-92
(Unit: US$ million in current prices)
 

 
Official development grants accounted for only 24 percent of total public capital inflows throughout Korea’s entire development history (1945-92), with public development loans, especially OOA-type loans, making up the rest. Given that official development grants were scarcely available after 1975, Korea’s successful industrialization and fast economic growth can be more attributed to public development loans, especially OOA-type loans, than to official development grants. From 1959 to 1999, when official development loans were actively disbursed, OOA-type loans took an 85 percent portion of total official development loans.
 
[Table 5]  Public Development Loans by Type and Period: 1959-99
(Unit: US$ million in current prices; %)
 

 
Donors of Official Foreign Assistance
 
[Table 6]  Official Development Assistance (ODA) by Donor: 1945-99 (Unit: US$ million in current prices; %)
 

 
 
 
[Table 7]  Public Development Loans by Donor and Type: 1959-99
(Unit: US$ million in current prices; %)
 

* Includes statistical errors.
 
Sectoral Allocation of Official Foreign Assistance
 
As grants were mostly provided in the form of food and emergency consumption goods, and public development loans accounted for 84 percent of the total official foreign assistance, the sectoral allocation of the public development loans shows the strategy of the aid. If the emergency structural adjustment loans in the wake of the Asian Financial Crisis of 1997 are excluded, top priority was given to the economic infrastructure sector (51 percent), followed by the production sectors (24 percent). The social infrastructure sector was allocated about 12 percent. This sectoral allocation pattern is almost an inverse to the pattern seen in the average DAC donor in recent years.
 
[Table 8]  Public Development Loans by Sector: 1959-99 (Unit: US$ million in current prices; %)
 

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