Lessons from the ‘Seoul Alternative’ of Lessons from the ‘Seoul Alternative’ of Development and Development Development and Development
Cooperation: Cooperation: Republic of Korea’s Experience Republic of Korea’s Experience from Recipient to Donor of Aid from Recipient to Donor of Aid
DSA Annual Conference
November 5, 2010
Eun Mee KimProfessor, Graduate School of International Studies
Director, Institute for Development and Human SecurityEwha Womans University
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
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Table of ContentsTable of Contents
• 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”
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I. IntroductionI. Introduction
• Three questions:
1. What are the key factors of South Korea’s
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)?
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II. South Korean Development II. South Korean Development ModelModel
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
• Institutionalism and the Developmental StateFocus on key institutions to explain economic
developmentEast Asian nations became key examples for
theory-building (first among development studies)Japan and the MITIFour Asian Tigers
Emphasis: Earlier phase of industrialization
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II. South Korean Development II. South Korean Development ModelModel
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• S. Korean scholarship on economic developmentHighlighted political and social problems
associated with developmentAuthoritarian and dictatorial rule of the military regime Suppression of democracyExploitation of labor Unequal development between urban and rural areas
and between large business groups and SMEsCapitalist development without democratization during
early phase of growth
Post AFC: Emphasis shifted to the changes/ transformation of the developmental state
II. South Korean Development II. South Korean Development ModelModel
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
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II. South Korean Development Model (1960s-II. South Korean Development Model (1960s-80s)80s)
• Received ODA from 1945-1995Began 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 - III. South Korea and ODA - RecipientRecipient
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• 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
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III. South Korea and ODA - III. South Korea and ODA - RecipientRecipient
South Korea
Time Period 1945-1995
Volume USD 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 Summary of South Korea as a Recipient of ODAODA
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• 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%
III. South Korea and ODA - DonorIII. South Korea and ODA - Donor
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• 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
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III. South Korea and ODA - DonorIII. South Korea and ODA - Donor
1. South Korea’s own development experience from the 20th centuryCountry ownership in its development planning and usage of ODAState-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 ODAEnd of the Cold War WTO Regime OECD/DAC Guidelines for ODA
IV. South Korean Alternative for IV. South Korean Alternative for Development CooperationDevelopment Cooperation
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1. Changes in the Global Political 1. Changes in the Global Political EconomyEconomy
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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 WarPost-Communist Reconstruction; Democracy; US: War against Terrorism;China: Non-interference (Communist)
WTO;Learning Effect re/ EOI;Cyclical and Global Financial/Economic Crisis
• Domestic Political System: 20th vs. 21st Centuries
2. Domestic Political System for 2. Domestic Political System for DevelopmentDevelopment
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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
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 cooperationOECD/DAC donor guidelinesParis Declaration for Aid Effectiveness
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3. Global Norms for ODA3. Global Norms for ODA
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.
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OECD/DACOECD/DAC
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OECD/DAC Guidelines on National DevelopmentOECD/DAC Guidelines on National Development
• OECD/DAC guidelines recommend capacity building for national development.
Economic Development Political Development
• Background The 2nd High Level Forum on Aid Effectiveness Conference to
efficiently manage increasing aid volumeParis, France, March 2005
• Endorsed by 107 countries, 26 development institutions, 14 civil society organizations (UN, WB, EU, etc.)
• Five Key Principles
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Ownership Alignment Harmonization
Managing for Results Mutual Accountability
Paris Declaration for Aid Effectiveness (2005)Paris Declaration for Aid Effectiveness (2005)
1. Washington Consensus: Capitalist market, economic liberalization
2. Paris Model: Traditional donor’s 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?
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4. Other Alternatives for 4. Other Alternatives for Development CooperationDevelopment Cooperation
• South Korea’s 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 Korea’s input in the donor discourse
“Seoul Alternative” for Development Cooperation1.Balance between global standards and South Korea’s
distinct experience of economic development2.Developmental State & Country Ownership
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V . Concluding RemarksV . Concluding Remarks
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South Korean AlternativeSouth Korean Alternative
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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: $ 815.8 million• ODA/GNI: 0.1%
• South Korea’s Promise for ODA by 2015
• Total volume: $ 3 billion• ODA/GNI: 0.25%
System
Source: ODA Korea
III. Overview of South Korea and ODAIII. Overview of South Korea and ODAIII-2. South Korea as a Donor of ODAIII-2. South Korea as a Donor of ODA
Japan (2007-08 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%) (2002-2007)
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III-2. South Korea as a Donor of ODAIII-2. South Korea as a Donor of ODA
South Korea 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% (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)
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III-2. South Korea as a Donor of ODAIII-2. South Korea as a Donor of ODA
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South Korea
Time Period
1945-1948 1949-1960 1961-1975 1976-1990 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 ODAIII. Overview of South Korea and ODAIII-1. South Korea as a Recipient of ODAIII-1. South Korea as a Recipient of ODA
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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: $ 815.8 million• ODA/GNI: 0.1%
• South Korea’s Promise for ODA by 2015
• Total volume: $ 3 billion• ODA/GNI: 0.25%
System
Source: ODA Korea
III. Overview of South Korea and ODAIII. Overview of South Korea and ODAIII-2. South Korea as a Donor of ODAIII-2. South Korea as a Donor of ODA
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