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Lessons from the ‘Seoul Alternative’ of Development and Development Cooperation: Republic of Korea’s Experience from Recipient to.

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Presentation on theme: "Lessons from the ‘Seoul Alternative’ of Development and Development Cooperation: Republic of Korea’s Experience from Recipient to."— Presentation transcript:

1 Lessons from the ‘Seoul Alternative’ of Development and Development Cooperation: Republic of Korea’s Experience from Recipient to Donor of Aid DSA Annual Conference November 5, 2010 Eun Mee Kim Professor, Graduate School of International Studies Director, Institute for Development and Human Security Ewha Womans University

2 Table of Contents Introduction South Korean Development Experience
South Korea and Official Development Assistance (ODA) South Korean Alternative for Development Cooperation Concluding Remarks

3 I. Introduction South Korea’s phenomenal economic development
2010 Ascension to OECD/DAC 2010 G20 Seoul Summit: November 11-12, 2010 2011 Busan HLF-4 (High-Level Forum on Aid Effectiveness): November 29-December 1, 2011 New challenges for South Korea in the global arena “South Korean Model of Development Cooperation”

4 Three questions: What are the key factors of South Korea’s development experience ( )? Challenge 1: What are the changes in the global political economy in the 21st century? Challenge 2: What are global guidelines for development assistance (donor guidelines)?

5 II. South Korean Development Model
Post-WWII key questions in development studies: Why are some nations underdeveloped? How do nations attain development? Modernization theory: s Dependency theory: s East Asian cases treated as anomalies in Modernization and Dependency theories: Japan, S. Korea, Taiwan, Hong Kong, Singapore, and China

6 II. South Korean Development Model
Institutionalism and the Developmental State Focus on key institutions to explain economic development East Asian nations became key examples for theory-building (first among development studies) Japan and the MITI Four Asian Tigers Emphasis: Earlier phase of industrialization

7 II. South Korean Development Model
S. Korean scholarship on economic development Highlighted political and social problems associated with development Authoritarian and dictatorial rule of the military regime Suppression of democracy Exploitation of labor Unequal development between urban and rural areas and between large business groups and SMEs Capitalist development without democratization during early phase of growth Post AFC: Emphasis shifted to the changes/ transformation of the developmental state

8 II. South Korean Development Model (1960s-80s)
Key Institutions Policies/Instruments Distinct Features Developmental State: Economic Planning Board (EPB) Ministry of Finance (MOF) Ministry of Commerce and Industry (MOCI) Long-term comprehensive planning and projection Provider and intermediary for capital & technology Provider of indirect assistance and subsidies Export-oriented industrialization (EOI) Sustained economic development Low income inequality Low inflation High employment Authoritarian State Military, police, tax, and intelligence used Limited civil liberties Labor oppression Collusion with chaebol for HCI Local Capital: Large Business Groups (Chaebol) Heavy and Chemical Industrialization (HCI) Trading Company Large chaebol as the state’s partner for development vs. MNCs, SOEs or SMEs Foreign Capital: ODA grants Concessional loans Grants and loans over FDI State-guarantees for repayment for loans Foreign capital (grants/loans) behaving like domestic capital

9 III. South Korea and ODA - Recipient
Received ODA from Began in 1945: US Government Appropriations for Relief in Occupied Area (GARIOA) and Economic Rehabilitation in Occupied Area (EROA) GARIOA: Emergency relief aid to assist with US-occupied areas in need of basic subsistence including food, medicine and fuel after WWII. EROA: To assist with infrastructure in US-occupied areas after WWII. Republic of Korea established in August 1948. Korean War ( ) devastated over 80% of the Korean peninsula.

10 III. South Korea and ODA - Recipient
1995: S. Korea graduated from being a recipient by paying off the World Bank loan The S. Korean government was able to utilize ODA funds to support its industrial policies Significant in world history that a major aid recipient became an emerging donor of ODA in less than 5 decades

11 Summary of South Korea as a Recipient of ODA
Time Period Volume USD billion (Current USD) Major Donors US, UN , Japan (US : 44% of total grant aid in , % of total ODA in )

12 III. South Korea and ODA - Donor
1963: Participated in a training grant with USAID 1987: Economic Development Cooperation Fund (EDCF) Established in 1987 to handle concessional loans Housed in the Korea Export-Import Bank 1991: Korea International Cooperation Agency (KOICA) Established in 1991 to handle grant aid 2009: South Korea’s ODA Volume: $816 million ODA/GNI: 0.1% DAC members’ average ODA/GNI: 0.28% UN goal for ODA/GNI for MDGs by 2015: 0.7% 2010: G20 Summit Meeting – Development Agenda 2011: HLF-4 Meeting in Busan 2015: South Korea’s Promise for ODA Total volume: $ 3 billion ODA/GNI: 0.25%

13 III. South Korea and ODA - Donor
It was never a colonizer of other nations, thus freeing it from the “white man’s guilt” Its successful economic development in less than a generation from being one of the poorest nations in the world sends out a strong message of “possibility” and “hope” to other developing countries

14 IV. South Korean Alternative for Development Cooperation
1. South Korea’s own development experience from the 20th century Country ownership in its development planning and usage of ODA State-intervention in the market Industrial policies, effective use of carrots and sticks (performance-based incentive structure), prevention of moral hazard and corruption Extensive use of authoritarian state apparatus for development 2. Global political economy & Global norms for ODA End of the Cold War WTO Regime OECD/DAC Guidelines for ODA

15 1. Changes in the Global Political Economy
Time period Global Political Environment Global Economic Environment S. Korea 1960s-1980s Cold War: Military aid; Economic aid to LDCs Open Market (US); Relatively Few Players with Cheap Export Products; Trade Protectionism (high in NICs) Developing nations 2010 - Post Cold War Post-Communist Reconstruction; Democracy; US: War against Terrorism; China: Non-interference (Communist) WTO; Learning Effect re/ EOI; Cyclical and Global Financial/Economic Crisis

16 2. Domestic Political System for Development
Domestic Political System: 20th vs. 21st Centuries Political System Government South Korea Developmental State Authoritarian State (Military-based Authoritarianism) Severe restrictions on civil liberties Bureaucracy Developing Countries Less tolerance for non-democratic political systems Global and local demands for democracy is high Governance crisis Corruption Budget dependency on aid is high

17 3. Global Norms for ODA Global standards and norms for development cooperation as exemplified in the OECD/DAC guidelines must be taken into consideration when South Korea is developing its own “model” of development cooperation OECD/DAC donor guidelines Paris Declaration for Aid Effectiveness

18 OECD/DAC The Development Assistance Committee (DAC) is a key forum of major bilateral donors. They work together to increase the effectiveness of their common efforts to support sustainable development. The DAC concentrates on two key areas: How international development co-operation contributes to the capacity of developing countries to participate in the global economy, and The capacity of people to overcome poverty and participate fully in their societies. Members of the DAC are expected to have certain common objectives concerning their aid programs -> DAC provide Guidelines, Manuals and Reports for development practitioners.

19 OECD/DAC Guidelines on National Development
OECD/DAC guidelines recommend capacity building for national development. Capacity development to empower women economically, politically and socially Women Empowerment: to promote economic growth Private Sector: Good Governance to monitor government and address public needs Civil Society Organizations: Economic Development Political Development

20 Paris Declaration for Aid Effectiveness (2005)
Background The 2nd High Level Forum on Aid Effectiveness Conference to efficiently manage increasing aid volume Paris, France, March 2005 Endorsed by 107 countries, 26 development institutions, 14 civil society organizations (UN, WB, EU, etc.) Five Key Principles Ownership Alignment Harmonization Mutual Accountability Managing for Results

21 4. Other Alternatives for Development Cooperation
Washington Consensus: Capitalist market, economic liberalization Paris Model: Traditional donor’s model of foreign aid (national interest -> humanitarian needs of recipients); Colonial past Beijing Model: National interest of donor (energy, resources) + Recipient sovereignty South Korean Alternative?

22 V . Concluding Remarks “Seoul Alternative” for Development Cooperation
South Korea’s success in attaining development has made it a Poster Child for ODA: Many less developed countries look to South Korea for a model for economic development OECD/DAC welcomes South Korea’s input in the donor discourse “Seoul Alternative” for Development Cooperation Balance between global standards and South Korea’s distinct experience of economic development Developmental State & Country Ownership

23 South Korean Alternative
Seoul Alternative for DC: Developmental State, Country Ownership OECD/DAC Guidelines for Donors (Global Standards) South Korea's Development Experience (20c) Global Political Economy Context for Developing Countries (21c)

24

25 System                                                                                                                                                                                                                                     III. Overview of South Korea and ODA III-2. South Korea as a Donor of ODA S. Korea’s ODA System Economic Development Cooperation Fund (EDCF) Established in 1987 to handle concessional loans Housed in the Korea Export-Import Bank Korea International Cooperation Agency (KOICA) Established in 1991 to handle grant aid Total volume of ODA Total volume: $ million ODA/GNI: 0.1% South Korea’s Promise for ODA by 2015 Total volume: $ 3 billion ODA/GNI: 0.25% Source: ODA Korea

26 III-2. South Korea as a Donor of ODA
Japan ( average) South Korea (2008) China Allocation Region Asia and Oceania (35%) Sub-Saharan Africa (18%) Middle East and North Africa (14.5%) Asia (41.4%) Middle East (19.1%) Africa (12.7%) Africa (71.56%) Southeast Asia (26.83%) Latin America (1.6%) Country Iraq, China, Indonesia, India, Vietnam Vietnam, Philippines, Angola, Indonesia, Mongolia Sector Economic infrastructure & service (32%), Social infrastructure & service (excluding education, health and population) (16%) Debt Relief (15%) Social infrastructure & service (59.7%) Economic infrastructure & service (25.3%) Natural Resources Extraction/ Production (43.89%) Infrastructure/Public Works (42.35%) Humanitarian (1.3%) Military (0.23%) Technical Assistance (0.02%) Income Group Lower Middle-Income (52.3%), Least Developed Countries (17.9%), Other Low-Income (13.3%) Low Middle-Income (49.4%) LDCs (24.5%), Other Low-Income (12.9%) Non-specific (10.58%) ( )

27 III-2. South Korea as a Donor of ODA
Japan China OECD/DAC Membership Member (2010--) Member (1961--) Not a member ODA/GNI 0.1% (2009, OECD data) 0.18% (2009, OECD data) Grant Aid vs Concessional Loans 2008: Grants (68.4%), Loans (31.6%) 2007: Grants (39.5%), Loans (60.5%) 2008: Grants (52.8%), Loans (47.2%) Grants, Debt cancellation in kind 5% ( ), Govt. Sponsored Investment (53%), Concessional Loans (42%) Tied vs. Untied Aid Untied (48.3%), Tied (51.7%) (2009, OECD data) Untied (96.5%) Tied (3.5%) (2008, OECD data) Bilateral vs Multilateral Aid 71.2%; 28.8% (2009) 63.3%; 36.7% (2009)

28 III. Overview of South Korea and ODA III-1
III. Overview of South Korea and ODA III-1. South Korea as a Recipient of ODA South Korea Time Period Volume (Current USD) $434.3 million $2,546.2 million $3,941.4 million $3,510.8 million USD billion Major Donors US Grant aid $409.4 million; US Concessional loans $24.9 million; UN Relief and Reconstruction Agency US 77.2%; UN 22.8% US 63.6%; Japan 27.4%; Others9% US 14.6%; Japan 57.4%; Others28% US aid: 44% of total grant aid in , 63.6% of total ODA in Grants vs Loans 70% of all grant aid to S. Korea was concentrated between 1945 and 1960 Grant aid 50.7%; Concessional loans 49.3% Grant aid 21.4%; Concessional loans 78.6%

29 System                                                                                                                                                                                                                                     III. Overview of South Korea and ODA III-2. South Korea as a Donor of ODA S. Korea’s ODA System Economic Development Cooperation Fund (EDCF) Established in 1987 to handle concessional loans Housed in the Korea Export-Import Bank Korea International Cooperation Agency (KOICA) Established in 1991 to handle grant aid Total volume of ODA Total volume: $ million ODA/GNI: 0.1% South Korea’s Promise for ODA by 2015 Total volume: $ 3 billion ODA/GNI: 0.25% Source: ODA Korea


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