History

Rising from a Recipient to a Donor Country

Korea has a unique history of transforming from a recipient a donor country. In the course of its phenomenal economic development since 1945, Korea has successfully made the transition from a poor, aid-dependent country to a member of the OECD, a group of the advanced countries. In order to make a greater contribution to the global poverty reduction, Korea is now preparing to join the OECD-DAC by 2010.

Korea as a Recipient

Between 1945 and the early 1990s, Korea received a total assistance of 12.69 billion USD from the international community. Effective use of the enormous amount of foreign aid was crucial to Korea’s sustained economic growth.

After the end of the Second World War, the world was divided into the Western and Eastern blocks, and foreign aid was disbursed according to the logic of the Cold War, with the Soviet Union and the United States seeking to support their allies through development assistance. In this geopolitical context of the Cold War, Korea in the 1950s received emergency relief as well as reconstruction funds from the international community, the U.S. being the core contributor. Korea used the foreign aid to curb postwar inflation, secure financial stability and make investments in industrial facilities. Until the end of the decade, foreign aid, mostly in the form of grants, made up most of the country’s capital, which contributed to the rapid economic growth at the average annual rate of 4.9% between 1954 and 1960.

From 1957, the grant-type aid to Korea began to decrease and was increasingly replaced by loans after the end of 1959. With the enactment of the Foreign Investment Promotion Act in January 1960, Korea actively attracted foreign investment from developed countries and effectively utilized the foreign resources through the execution of its Five-Year Economic Development Plan. Between 1961 and 1975, Korea received 30.9 % of its total aid, and the foreign aid provided critical resources for government capital, investment, industrial infrastructure and technological development.

From the late 70s, the main form of development assistance to Korea changed from project-based loans to sector loans (for the development of an overall particular sector) as well as structural adjustment loans (for the adjustment of the overall economic and industrial structure).

Korea’s graduation from the World Bank lending list in 1995 marked the de facto end of Korea’s history as a recipient country. Although Korea did receive an emergency financial aid package from international development banks during the Asian financial crisis in 1997, Korea managed to overcome the crisis and in 2000 made its way out of the OECD-DAC list of aid recipients. As such, Koreawas finally able to make a transition from an aid-receiving country to an emerging aid-donor country.

The following chronicle and Figure 1 show how Korea evolved from a recipient to a donor country and provide information on the composition of international ODA to Korea.

Chronicle of Development Assistance to Korea

(1945-1948) Assistance during the United States Army Military Government in Korea

ㆍPeriod of emergency relief for Koreans freed from the Japanese colonization

ㆍEmergency assistance for economic recovery in regions occupied by the U.S. military

ㆍFood supplies mainly of grain accounted for 41.6% of the assistance

ㆍEmergency relief and reconstruction assistance from the UN

(1949-1960) Assistance during postwar restoration and economic reconstruction period

ㆍFull-fledged economic assistance period for recovery from war and reconstruction

ㆍMultilateral assistance from the UN (for postwar recovery) and the U.S. (for economic stability
and defense consolidation)

ㆍSince the armistice, assistance was given in consideration of Korea’s strategic importance in the
Cold War era and international security

(1961-1975) ODA in the early stage of economic development

ㆍDiversification of donor countries

ㆍAssistance from international organizations such as the ADB and the IDA

ㆍAn active assistance period with the largest ODA to Korea

ㆍVarious cooperation programs including technological cooperation grants and tied loans.

ㆍThe government planned to fund much of the Economic Development Plan by attracting grant-type
aid and development aid loans.

(1976-1990) ODA in the late stage of economic development

ㆍIn the process of formulating and promoting the development plan, the kinds of fund and sectors
for investment were chosen more discreetly.

ㆍOverall reduction of assistance

(1991-) ODA as an emerging donor country

ㆍElimination from the list of recipient countries, following the redeeming of the development loan
from the World Bank in 1995

ㆍCooperation funds provided by the IMF, World Bank and the ADB helped Korea overcome
the Asian financial crisis in 1997. Korea’s reception of official assistance ended in 1999.

Korea as a Donor

In response to the international community’s attention to Korea’s successful economic development, Korea started a training program under the sponsorship of the USAID in 1963, began funding the training program on its own in 1965, and started to dispatch experts to developing countries in 1967.

Until the mid 1970s, Korea implemented development assistance mainly funded by the UN. However, the Korean government gradually expanded assistance with its own fund as there was an increasing demand from developing countries pursuing Korea’s economic developing path.

The Ministry of Foreign Affairs and Trade (MOFAT) procured a budget of 900 million won for the first time in 1977 and provided developing countries with equipments and resources. In the same year the Korean Development Institute started the International Development Exchange Program (IDEP) which invited leading figures from developing countries deliver education programs on Korea’s development experience. In 1984, the Ministry of Construction and Transportation (MOCT) and the Ministry of Labor (MOL) launched a project for providing technical assistance in construction and a project for the establishment of a training center, respectively.

By the time when the Asian Games opened in 1986 and the Seoul Olympics in 1988, Korea accelerated its development assistance as it recorded surplus in the balance of international payments. Koreawas also asked to meet responsibility corresponding to its expanded economic capacity and higher status in the international community.

With the foundation of the Economic Development Cooperation Fund (EDCF) and the Korea International Cooperation Agency (KOICA), the Korean government established a regular assistance system for a more efficient and effective operation of its ODA.

In 1987, the EDCF was established at the Export-Import Bank of Korea to provide developing countries with concessional loans amounting to 30 billion won. Through this fund for loan-type aid Korea set up a base to assist developing countries’ industrial and economic development.

In 1991, KOICA was founded as an agency responsible exclusively for grant aid under the Ministry of Foreign Affairs and Trade and started providing full-scale assistance for developing countries.

The volume of Korea’s ODA has steadily grown since 1987. In 2005, the total amount of Korea’s ODA reached 752 million USD or 0.1% of the nation’s GNI, recording the largest amount ever. Furthermore, the Korean government decided to join the OECD-DAC in 2010. In step with the international community’s endeavor to eradicate poverty, Korea continues to make efforts to expand its contribution to the international community.

Chronicle of Korea’s Development Cooperation

2000s

2007Launch of the Task Force for Korea’s Join in the OECD-DAC

2005KOICA Reconstruction Program for regions affected by the Tsunami disaster

2003KOICA starts Special Assistance Program for Iraq

2002KOICA embarks on Special Assistance Program for Afghanistan

2001Approved ECDF in cumulative terms exceeds 1.6 billion USD

2000Approval for the first time the co-financing with the Inter-American Development Bank (IDB)

1990s

1997KOICA and EXIM Bank sign a collaboration agreement

1996Korea joins the OECD

Annual disbursement of economic cooperation fund exceeds 100 million USD

1995KOICA initiates the Korea Overseas Volunteer program

KOICA starts the NGO Support Program

International Cooperation Training Center opens

1993Co-financing agreement with the ADB

1992Co-financing agreement with the World Bank

KOICA initiates project-type assistance

1991Foundation of Korea International Cooperation Agency (KOICA)

1980s

1989First dispatch of UNESCO Korea Youth Volunteers

The Economic Planning Board begins grant-type technology transfer program

The first disbursement of EDCF by the Export-Import Bank of Korea

The first EDCF concessional loan contract of with Nigeria

1988Start technical assistance in communication to developing countries

1987Establish the Economic Development Cooperation Fund (EDCF)

Consign technology transfer project to the Korea Science and Engineering Foundation
(Ministry of Science and Technology, MOFAT)

The first EDCF loan to a developing country (Nigeria) is approved

1984Embark on Gratis Construction and Technology Transfer (MOCT)

Commence the operation of the training center

1983Begin the Invitational Training program for construction technicians

1982Initiate the International Development Exchange Program (IDEP)

1981Start Research Cooperation Program with KAIST

1970s

1977MOFAT invites development-related foreign experts in cooperation with the UN and other

international organizations

MOFAT commences assistance in commodity provision

1975MOL embarks on the technical trainees program

The program is undertaken by MOST for the 1975-1982 periods

MOL retakes the program after 1983

1960s

1968MOST initiates a technology transfer project funded by the Korean government

MOST starts the experts dispatching program with government funds

1967MOFAT and MOST launch the invitational training program for foreigners in cooperation with

the UN and other international organizations

1965MOFAT and MOST launch the invitational training program with government funds

the sponsorship of the USAID