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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

Project and sector investments for economic and social development

Project and Sector Investments for Economic and Social Development
 
1. Overview
 
At the dawn of the decades of development in 1961, upon the launching of the first Five-Year Economic Development Plan, Korea saw an increased influx of development aid and cooperation from abroad. These were primarily invested in major development projects and industrial sectors.

Korea’s investment of development aid into major economic and social advancement projects was made possible due to the country’s successful postwar rehabilitation and economic reconstruction projects carried out throughout the 1950s. It should be noted, however, that the shift of development aid from unconditional grants to conditional grants and loans compelled the channeling of such funds into high-priority development projects and industrial sectors.

The economic aid that the United States began to provide for Korea via the newly created Agency for International Development (US AID), the Japanese Reparation Fund for Korea set up by Tokyo as part of normalizing diplomatic relations with Korea, and the cooperation funds from such multilateral organizations as the International Development Association (IDA), the International Bank of Reconstruction and Development (IBRD), and the Asia Development Bank (ADB) were all meant as investments in Korea’s economic and social development.
 
 
2. Japanese Reparation Fund for Korea, and Korea’s Economic and Social Development
 
The Japanese Reparation Fund for Korea, set up in 1965 as part of the process of normalizing Korea-Japan relations, became a key financial resource for the construction and expansion of Korea’s infrastructure and industrial facilities.

Consisting of USD 300 million of unconditional grants and USD 200 million of long-term, low-interest loans, the fund was mainly spent on expanding infrastructure for mining, manufacturing, and society in general, as well as on fostering the agriculture, forestry, and fishery sectors and on the research and development of new technologies. At first, the fund was invested in primary industries and general manufacturing, with a focus on agriculture, forestry, and fishery.

The Korean government moved forward with major industrialization projects, like the construction of Pohang Steel Mill and the Gyeongbu National Expressway, despite lacking the financial resources to fully support such projects. Thus it necessarily tapped the Japanese Reparation Fund to fill in the financial gaps. Accordingly, the proportion of the fund’s investment in key national industries and social overhead capital increased rapidly in comparison to investment in primary industries. The construction of Pohang Steel Mill alone took up a 24 percent portion of the fund, or USD 119.5 million. The construction of the Gyeongbu National Expressway drew an additional USD 6.9 million.

More specifically, the Japanese Reparation Fund was invested in the economic and social development projects[1] detailed below.
 
<Investment based on the Japanese Reparation Fund>
 
  • Agriculture and forestry: USD 39.7 million in total, including 16.4 million for agricultural waterworks and 4.4 million for farming machinery and equipment.
  • Fishery: USD 27.2 million in total, including 8.3 million for building fishing vessels and 4 million for importing trial vessels.
  • Mining: USD 280.1 million, including 119.5 million for Pohang Steel Mill, 132.6 million for importing raw materials, and 22.2 million for fostering small and medium businesses.
  • R&D: USD 20.3 million in total, including 6 million for school laboratories, 6.7 million for meteorological facilities, and 2.7 million for nuclear energy research facilities.
  • SOC and infrastructure: USD 86.9 million in total, including USD 21.6 million for the Soyang River multipurpose dam, 6.9 million for the Gyeongbu National Expressway, 20.3 million for railroads, 8.2 million for marine transportation, and 3.7 million for expanding rural telephone facilities.
 
 
3. Technological Aid for Projects
 
Technological aid for projects refers to multiple forms of grant-type aid, including human resources, technology, equipment and machinery, and so forth that are provided to support development projects. Technological aid is a conventional way for the international community to support postwar rehabilitation and reconstruction, emergency relief, human resources development, and expansion of the economic and social substructure of a country.

In the 1950s and the 1960s, Korea severely lacked not only in capital, but also in the basic human resources and technology needed to handle the task of national development on its own. Much technological aid thus flowed into Korea from abroad in the 1960s, including planned aid from the United Nations Korean Reconstruction Agency (UNKRA); International Cooperation Agency (ICA) aid under the Mutual Security Act of the United States; and aid from the United States Agency for International Development (US AID). Furthermore, part of the assistance granted from the UN Development Program (UNDP), and the majority of the bilateral grants-in-aid from Japan, Germany, and Belgium throughout the 1950s and the 1960s were all technology aid.
 
<Major technology aid projects>
 
  • Construction of the Korea Medical Center (1956-69): Joint aid from the UNKRA and three Scandinavian states, totaling USD 15.565 million.
  • Construction of the Central Vocational Training Institute (1968-81): Aid from the UNDP, totaling USD 2.62 million.
  • Construction of the Korea Fishing Technology Training Institute (1963-78): Aid from the UNDP and Food and Agriculture Organization, totaling USD 3.867 million.
  • Construction of the Korea Institute of Science and Technology (1966-70): Aid from US AID, totaling USD 9.08 million (including USD 1.9 million in loans).
  • Construction of the Korea-Germany Vocational Training Institute in Busan (1970-75): Aid from Germany, totaling DM 16 million.
  • Construction of Geumo Vocational High School (1970-76): Aid from Japan, totaling USD 3.651 million.
  • Construction of the Daejeon Vocational Training Institute (1976-83): Aid from Japan, totaling USD 2 million.
  • Construction of the Korea-Belgium Vocational Training Institute at Changwon (1976-80): Aid from Belgium, totaling USD 6 million.
  • Construction of the Changwon Campus of Korea Polytechnic VII (1979-90): Aid from Germany, totaling DM 13 million.
 
The dearth of records on the technology aid for projects, which formed a considerable part of all grants-in-aid that Korea received during this period, makes it difficult today to ascertain the details and extent of the aid provided. Even research findings and statistical records omit investment-related technical cooperation (IRTC) and other forms of technology aid from their lists of technological cooperation projects.[2]

Technological cooperation projects with the UNDP and technological aid for other major projects are discussed sector-by-sector and in greater depth in later sections of this publication.
 
 
4. Project Aid
 
So-called “project aid” refers to conditional official development assistance (ODA) provided mainly in the form of public loans as opposed to grant-type technological aid. Project aid is the most representative form of development aid, as it combines diverse types of assistance and support for projects with specific purposes or aims.

Bilateral and multilateral project aid was granted for several of Korea’s development projects  in the 1960s and the 1970s, and even continued well into the 1990s with respect to projects in certain sectors. Ministry of Finance and Economy records on the public loans granted Korea offer details on this type of development aid.

Some of the conditional grants provided from the Japanese Reparation Fund also fall into this category. Korea is believed to have received USD 5.8 billion in total project aid. Later sections of this publication discuss project aid and its sources in greater depth.
 
[1] Policy Studies on a Half Century of the Korean Economy, Korea Development Institute, 1996.
[2] See Annals of Science and Technology each year, and Choi Jong-gi, Review of the Technological Aid Plan, General Commentaries on Public Administration, vol. 5, no. 1, Korea Public Administration Institute (Seoul National University Graduate School of Public Administration), 1967.

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