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Lessons from the Seoul Alternative of Development and Development Cooperation: Republic of Koreas Experience from Recipient to Donor of Aid DSA Annual.

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Presentation on theme: "Lessons from the Seoul Alternative of Development and Development Cooperation: Republic of Koreas Experience from Recipient to Donor of Aid DSA Annual."— Presentation transcript:

1 Lessons from the Seoul Alternative of Development and Development Cooperation: Republic of Koreas 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 I.Introduction II.South Korean Development Experience III.South Korea and Official Development Assistance (ODA) IV.South Korean Alternative for Development Cooperation V.Concluding Remarks 2010-11-5 2 Table of Contents

3 South Koreas 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 2010-11-5 3 I. Introduction

4 Three questions: 1. What are the key factors of South Koreas development experience (1960-1980)? 2. Challenge 1: What are the changes in the global political economy in the 21st century? 3. Challenge 2: What are global guidelines for development assistance (donor guidelines)? 2010-11-5 4

5 5 II. South Korean Development Model Post-WWII key questions in development studies: 1. Why are some nations underdeveloped? 2. How do nations attain development? Modernization theory: 1950-60s Dependency theory: 1970-80s East Asian cases treated as anomalies in Modernization and Dependency theories : Japan, S. Korea, Taiwan, Hong Kong, Singapore, and China

6 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 2010-11-56 II. South Korean Development Model

7 2010-11-57 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 II. South Korean Development Model

8 Key InstitutionsPolicies/InstrumentsDistinct 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 states 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 2010-11-5 8 II. South Korean Development Model (1960s-80s)

9 Received ODA from 1945-1995 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 (1950-1953) devastated over 80% of the Korean peninsula. III. South Korea and ODA - Recipient 2010-11-59

10 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 2010-11-510 III. South Korea and ODA - Recipient

11 South Korea Time Period1945-1995 VolumeUSD 12.78 billion (Current USD) Major Donors US, UN, Japan (US : 44% of total grant aid in 1945-99, 63.6% of total ODA in 1961-75) Summary of South Korea as a Recipient of ODA 2010-11-511

12 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 Koreas 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 Koreas Promise for ODA Total volume: $ 3 billion ODA/GNI: 0.25% III. South Korea and ODA - Donor 2010-11-512

13 It was never a colonizer of other nations, thus freeing it from the white mans 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 2010-11-513 III. South Korea and ODA - Donor

14 1. South Koreas own development experience from the 20 th 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 IV. South Korean Alternative for Development Cooperation 2010-11-514

15 1. Changes in the Global Political Economy 2010-11-515 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 Domestic Political System: 20 th vs. 21 st Centuries 2. Domestic Political System for Development 2010-11-516 Political SystemGovernment 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 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 2010-11-517 3. Global Norms for ODA

18 1. 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. 2. The DAC concentrates on two key areas: (1) How international development co-operation contributes to the capacity of developing countries to participate in the global economy, and (2) The capacity of people to overcome poverty and participate fully in their societies. 3. Members of the DAC are expected to have certain common objectives concerning their aid programs -> DAC provide Guidelines, Manuals and Reports for development practitioners. 2010-11-518 OECD/DAC

19 2010-11-519 OECD/DAC Guidelines on National Development OECD/DAC guidelines recommend capacity building for national development. Capacity development Women Empowerment: to empower women economically, politically and socially Private Sector: to promote economic growth Good Governance Civil Society Organizations: to monitor government and address public needs Economic DevelopmentPolitical Development

20 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 2010-11-520 Ownership Alignment Harmonization Managing for Results Mutual Accountability Paris Declaration for Aid Effectiveness (2005)

21 1.Washington Consensus: Capitalist market, economic liberalization 2.Paris Model: Traditional donors model of foreign aid (national interest -> humanitarian needs of recipients); Colonial past 3.Beijing Model: National interest of donor (energy, resources) + Recipient sovereignty 4.South Korean Alternative? 2010-11-521 4. Other Alternatives for Development Cooperation

22 South Koreas success in attaining development has made it a Poster Child for ODA: 1. Many less developed countries look to South Korea for a model for economic development 2. OECD/DAC welcomes South Koreas input in the donor discourse Seoul Alternative for Development Cooperation 1. Balance between global standards and South Koreas distinct experience of economic development 2. Developmental State & Country Ownership 2010-11-522 V. Concluding Remarks

23 2010-11-523 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)


25 2010-11-525 S. Koreas ODA System System Source: ODA Korea III. Overview of South Korea and ODA III-2. South Korea as a Donor of ODA

26 Japan (2007-08 average) South Korea (2008) China AllocationRegion 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%) (2002-2007) 2010-11-526 III-2. South Korea as a Donor of ODA

27 South KoreaJapanChina 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% (2002-2007), 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) 2010-11-527 III-2. South Korea as a Donor of ODA

28 2010-11-5 28 South Korea Time Period 1945-19481949-19601961-19751976-1990 1945-1995 Volume (Current USD) $434.3 million $2,546.2 million $3,941.4 million $3,510.8 million USD 12.78 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 1945-99, 63.6% of total ODA in 1961-75 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% III. Overview of South Korea and ODA III-1. South Korea as a Recipient of ODA

29 2010-11-529 S. Koreas ODA System System Source: ODA Korea III. Overview of South Korea and ODA III-2. South Korea as a Donor of ODA

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