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IPE of Korea:Development Assistance of Korea

* Some parts of this note are borrowed materials or summary of the references for teaching purpose only.

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IPE of Korea <Lecture Note 7 > 13.5.24

Semester: Spring 2013 Time: Friday 2:00-5:00 p.m. Class Room: No. 331 Professor: Yoo Soo Hong Office Hour: By appointment Mobile: 010-4001-8060 E-mail: yshong123@gmail.com Home P.: //yoosoohong.weebly.com

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From a Receiver to a Donner of ODA

Korea’s Received Aid

-- Korea was an aid recipient up until the late 1990s. Since entering the new millennium, Korea has become a donor. According to the OECD, Korea’s official development assistance (ODA) was $264 million in 2001. It increased to $672 million in 2007, 0.07 percent of its GNI, but is still far below major donors, whose average donations in 2007 accounted for 0.3 percent of GNI.

– Korea, which received $33.1 billion in assistance from advanced coun-tries and international organizations since liberalization from Japan in 1945, is an example of the miracle that outside help can create when combined with good development strategies.

– It only took about a half century for Korea to become the world’s 15th largest economy. In the process, Korea had a lot of help from the United Nations.

– The money was spent on building highways and factories, turning the $70 per capita income country into an industrial powerhouse.

ODA Strategies of Korea, Japan, and China

– On top of humanitarian needs, developed countries around the world are us-ing ODA to strengthen ties with recipient countries to build up their influence and reputation, considering it a form of long-term investment. ODA helps Korean firms find business opportunities in the recipient country.

– Japan is the third largest donor in the world after the United States and the United Kingdom, but was one of the top two for a long time before the weaker yen pulled it down in the rankings.

– It is also the second largest contributor to the regular U.N. budget after the United States, as it continues its bid for a permanent seat on the U.N. Secu-rity Council.

– Japan's ODA strategies are serving to promote national interests on top of fulfilling humanitarian needs.

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– Japan is spending around 25 times more than Korea, and is concentrating on Asia and reaping the benefits. From Southeast Asia to Central Asia, Ja-panese firms are outrivaling others in getting major infra projects and gain-ing strong footholds in local markets.

– If Japan was a traditional big hand in ODA, China has lately risen as a guru in the field ― securing resources is its basic motif.

– As the demand for resources rises with global economic expansion, keeping close ties with the government has become crucial to secure resources. Now donor countries are vying to provide ODA to resource rich countries.

– China, rapidly industrializing, has been the most aggressive player in the energy war. Though it never officially announces how much it spends on ODA, it is estimated to spend billions of dollars each year on such projects.

– Korea’s efforts to become an active donor are in line with its plan to raise its international status commensurate with its economic power.

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– Beijing pledged to double its aid to Africa, and to provide $3 billion in prefer-ential loans at the Forum on China-Africa Cooperation held in 2008, to which leaders from 48 African countries were invited.

– It imports over a quarter of its oil from African countries such as Angola and Sudan. While China provided $3 billion in loans to Angola, Korea's ODA to-taled only $30 million. Though China is also criticized for giving ODA to un-democratic governments, its strenuous search for energy sources and new markets is remarkable.

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Joining DAC of OECD

– Korea plans to triple its economic aid to poor countries around the world to 0.25 percent of gross national income (GNI) by 2015 to help achieve more balanced global economic growth.

– Korea's entry into the Development Assistance Committee (DAC) of the Or-ganization for Economic Cooperation and Development (OECD) on Nov. 25, 2009 suggests Korea has joined the league of the world's wealthiest coun-tries.

– Korea is the second Asian country after Japan to become a DAC member.– The membership is expected to help it deepen economic partnerships with

underdeveloped countries, which will emerge as Korea's major trade part-ners in the long term. By participating in various development programs in the countries, Korea can promote social and cultural exchanges as well.

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– Korea will provide $100 million in food aid to countries suffering from food shortages and droughts in 2010-2012, while gradually increasing its assis-tance to underdeveloped nations.

– To help coordinate polices on economic aid to developing nations, Korea will host the fourth High-Level Forum on Aid Effectiveness, a large-scale inter-national gathering on development assistance, in 2011.

– Korea hopes to help developing countries lift themselves out of famine and poverty, and to this end, share Korea’s past development experiences. While financial support is important, finding the right development model that befits each country can be a more fundamental way of overcoming poverty.

– Whether in the form of low-interest loans, grants-in-aid, or technical cooper-ation, ODA helps developing countries in moving forward.

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Sharing Experience

– Korea is the only country that successfully turned into an industrialized country through receiving ODA.

– Korea should share its experiences. Developing countries are also seeking Korea's know-how in economic development, education and IT. Experts ad-vise that this expertise could help set up a unique ODA model for the coun-try.

– Simply giving out money could result in aid dependency of recipient coun-tries, diminishing production incentives and failing to pull them out of poverty. In other words, ODA should be in harmony with the recipient coun-try's development strategies.

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Determinants of Development Aid

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Considerations for ODA Determination

Source: KOICA (http://www.koica.go.kr. 2008).

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Major Donor Countries

Source: OECD

ODA to GNI Ratio

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Source: OECD

Note: GNI is assumed to grow at 5.0%/year, ODA/GNI is assumed to increase at 0.026%/year.

Evolution and Current Status of Korea's Foreign Aid

(units: US $ mn, %)

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Prediction based on Korea’s plan to increase ODA(2007~2012)

Source: Export-Import Bank of Korea(http://www.koreaexim.go.kr, 2008).

Evolution and Current Status of Korea's Foreign Aid

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Proportion of Korea’s Loans to Various Regions (1991- 2007)

Source: Int'l Economic Affairs Bureau, Ministry of Strategy and Finance of the Korean Gov't, April 4, 2008.

Evolution and Current Status of Korea's Foreign Aid

(units: US $ mn, %)

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Ratio of Korea’s ODA to GNI (2006, 2007)

Source: Export-Import Bank of Korea, Ministry of Strategy and Finance of the Korean Gov't.

Evolution and Current Status of Korea's Foreign Aid

(units: US $ mn, %)

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Korea’s ODA contribution (1991-2007)

Source: OECD Databases(http://www.oecd.org, 2008).

Evolution and Current Status of Korea's Foreign Aid

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Ratio of Aid to Least Developed Countries out of Korea’s Bilateral ODA(1991-2007)

Korea's ODA at a glance

Striving forward to eradicate international poverty

– Although mankind has achieved economic prosperity at an unprecedented level, 20 percent of the world's population still lives on less than $1 a day. The significance of Official Development Assistance (ODA) is increasingly gaining recognition in the international community as its efforts to eradicate poverty result not only in the protection of basic human rights, but also in the construction of a healthy governance system, the spread of democracy within the recipient country, and ultimately the contribution to world peace.

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Korea's transformation from a recipient to a donor

– Korea shares with other East Asian newly industrialized countries the unique experience of overcoming national poverty and achieving economic growth in just a few decades. Effective use of the enormous amount of for-eign aid was crucial to Korea’s sustained economic growth. Between 1945 and the early 1990s, Korea received a total assistance of 12.69 billion USD from the international community. Korea’s graduation’ from the World Bank lending list in 1995 marked the de facto end of Korea’s history as a recipient of ODA. As such, Korea was finally able to make a transition from an aid-re-ceiving country to an emerging aid-donor country.

– The volume of Korea’s ODA to developing countries has steadily grown since 1987. In 2007, the total amount of Korea's ODA was more than 680 million USD (646 billion KRW), an increase from that of 2006 (517 million USD, 490.2 billion KRW).

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Korea's ODA implementation system

– Grants, composed of grant aid and technical cooperation programs, are im-plemented by the Korea International Cooperation Agency (KOICA) under the policy guidelines of the Ministry of Foreign Affairs and Trade (MOFAT). However, while grant aid program is wholly controlled by the KOICA, some technical cooperation programs are engaged by other government agencies and organizations. Concessional loans are managed by the Economic De-velopment Cooperation Fund (EDCF) programmed by the Export-Import Bank of Korea (EXIM Bank) under the supervision of the Ministry of Finance and Economy (MOFE). For effective adjustment and discussion among agencies, the Commission on International Development Cooperation and its Working Committee are in place.

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Recent efforts to improve Korea's ODA

– Korea is currently in the process of drafting its basic ODA policy document and of legislating its Framework Act on ODA.

– In step with efforts of the global community in discovering ‘innovative deve-lopment financing’ for poverty eradication in least developed countries, the Korean government introduced the ‘Air Ticket Solidarity Levy’ (named ‘Con-tribution to International Poverty Eradication’ in Korea) in October 2007. It levies 1,000 KRW on international flight tickets to finance eradication of po-verty and disease in developing countries.

– To provide rapid assistance activities to the disaster-affected regions, Korea has enacted the Overseas Emergency Relief Act in October 2007 as the foundation for the creation of a pan-government assistance mechanism.

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– To help developing countries to achieve their development goals with a sen-se of ownership and responsibility, it is crucial for donor countries to build global partnership for aid effectiveness. In October 2007, Korea attended the Second International Conference on Development Cooperation with Mi-ddle-Income Countries in El Salvador where specialdevelopment needs and most appropriate set of policies and instruments for this group of countries were discussed. In addition, Korea held bilateral ODA Policy Consultations with developing countries, including that held between Korea and Vietnam in January 15, 2008, To strengthen Korea's commitment to strengthening and supporting the multilateral system, Korea is now parti-cipating as an observer to the Multilateral Organizations Performance Assessment Network (MOPAN)

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Classifications of ODA

Source: www.odakorea.go.kr

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ODA System of Korea

Source: OECD-DAC, 2008, Special Review of Korea

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Two Approaches of ODA

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Korea as a Recipient

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Korea as a Donor:Korea’s Aid at a Glance

Source: OECD-DAC, 2008, Special Review of Korea 26

Core Elements of Korea’s Policy Statement on Interna-tional Development Cooperation

(Currently Under Review)

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Criteria of ODA Effectiveness

The 2005 Paris Declaration– Ownership– Alignment– Harmonization– Managing for results– Mutual accountability

Donor’s Commitments– Share of gross ODA in terms of GNI (ODA/GNI ratio)– Proportion of grants in ODA (grants/ODA ratio)– Proportion of humanitarian grants in ODA (humanitarian grants/ODA ratio)– Proportion of bilateral (or multilateral) aid in ODA (bilateral aid/ODA ratio)

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ODA of 2009: A Comparison of Koreaand OECD-DAC Members

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Legal Framework

Korea International Cooperation Agency Act

– The Act was enacted in 1991 to establish the Korea International Coopera-tion Agency (KOICA) with the task to implement Korea’s grant aid programs and promote international cooperation.

Economic Development Cooperation Fund (EDCF) Act

– It was enacted in 1986 to establish and manage the Economic Development Cooperation Fund (EDCF) which was designed to promote industrial devel-opment and economic stability of developing countries and to strengthen Korea’s partnership with the partner countries by providing soft loans.

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Overseas Emergency Relief Act

– The Overseas Emergency Relief Act was enacted in 2007 to enhance Ko-rea’s humanitarian efforts in emergency and disaster relief through the rapid, systematic, and effective implementation of various aid programs.

Enacting the ODA Act

– In light of Korea’s increasing ODA and the corresponding need for greater aid effectiveness and policy coherence, the Korean government is currently in the process of enacting the ODA Act. The Act will provide an umbrella law that supervises and stipulates all ODA-related regulations, management systems, as well as the due processes of establishing main policy priorities and project plans. The introduced bill is currently in the process of review at the National Assembly.

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Top 10 Recipients (for 2006)

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Source: OECD/DAC database.

Distribution among Groups of Recipients (for 2006)

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However, it should be noted that North Korea probably got more aid than any of the countries mentioned. Also, aid to Iraq fell substantially between 2005 and 2006 (from US$ 150 million to US$ 57 million). Be-tween 2003 and 2005, KOICA delivered aid to 156 countries in Asia, Africa, the Middle East, Central and South America, Central Europe and CIS and Oceania. Since 1987, the EDCF has made loans to 41 countries. Even though Asia still accounts for the vast bulk of Korean ODA , especially with special reconstruction programmes in Iraq and Afghanistan and the aftermath of the earthquake in Pakistan and the tsunami, it is committed to increasingly focus its attention on Africa.

Based on net disbursements % of total bilateral

LDCs 24.5%

Other LICs 12.9%

Asia 60.5%

SSA 10.3%

Quantity Of Aid

Current/Recent Quantity Performance:

– In 2008, South Korean net ODA disbursements stood at US$ 797 million,186% up from their 2002 level. The above figures do not include aid to North Korea. Figures from the Korean Ministry of Finance and Economy put inter-Korean aid at US$ 124 million for 2005, whilst other sources give figures as high as US$ 430 million. Hence, if assistance to North Korea has stayed at the same levels since 2005, ODA could be 0.13% of GNI.

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Distribution of Aid by Sector (for 2006)

Based on commitments US$m % Of total sectoral aidSocial& Admin. Infrastruc-

ture 403.1 66.3%

Education 135.2 22.2%Health 38.6 6.3%

Population 0.5 0.1%Water & Sanitation 80.8 13.3%

Government & Civil Society 141.6 23.3%Economic infrastructure 171.0 28.1%Transport & communica-

tions 164.8 27.1%

Energy 5.0 0.8%Production 33.5 5.5%Agriculture 9.8 1.6%

Industry, Mining, construc-tion 17.4 2.9%

Trade and tourism 4.3 0.7%Total sectorally allocated aid 607.5 100.0% 35

– It shows that the major sectors of Korean aid are Education, transport & communication and Government & Civil society. KOICA’s stated priority sec-tors are: (i) Education, (ii) Health, (iii) Governance, (iv) Rural Development, (v) Information & Communication Technology, (vi) Industry & Energy, (vii) Environment & Others, and (viii) Disaster Relief & Reconstruction. The main sectors benefiting from EDCF loans are, in order of quantity of loan com-mitments for 2006: transport, civil society & Government, Water Supply & Sanitation and Education.

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Disbursement of KOICA ODA to African Nations

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Bilateral ODA by Region in 2007

Bilateral ODA by Income in 2007

– As an emerging donor, Korea has been constantly increasing the amount of its ODA in order to contribute to the development of developing countries. As a result, the amount of assistance, which was 110 million USD in 1991, reached 460 million USD in 2006, showing a steep incline.

– However, the portion of ODA to Gross National Income (ODA/GNI) in 2006 of 0.05% remains low, given that Korea’s economy ranks 13th in the world in its size. This ratio is far below the average ODA/GNI (0.3%) of DAC member nations and the target ratio of the UN by 2015 (0.7%).

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ODA Assistance per Year (Total Net)

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Source: International Development Statistics Online DB, OECD

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– The amount of ODA surged in 2005 to 752.3 million USD, showing the rate of growth as much as 0.1% of GNI. This result is attributable to external factors such as increase in post-war recovery support to Afghanistan, Iraq, subscription to IDB, and so forth.

– Since those external factors which took place in 2005 disappeared, the to-tal ODA (net disbursement) in 2006 decreased by 39.5% from the previous year to 455.3 million USD.

Examples of Projects/Programs in Three Categories of Rural Development

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Bilateral Assistance and Multilateral Assistance

– Bilateral Assistance has been increasing since 1996, and temporarily jumped up to 463.3 million USD in 2005 by assisting post-war reconstruc-tion in Iraq, Afghanistan, and natural disasters in South Asia. Those factors disappeared, and in 2006, bilateral assistance decreased by 18.8 % (YoY) to 376.1 million USD.

– The amount of multilateral assistance remained constant for the last decade, with the exception of a subscription within 100 million USD. How-ever, joining the IDB, and increasing subscription toIDA in 2005, the size of assistance grew sharply to 289.0 million USD. Multilateral assistance in 2006 plummeted to 79.2 million USD (YoY), 72.6% decrease, due to elimi-nation of exceptions in 2005.

– Factors which increased multilateral assistance in 2005 Initial subscription and contribution joining IDB (81 million USD), increase of IDA subscription (76 million USD)

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Multilateral Assistance and Bilateral Assistance (Total Net)

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Source: International Development Statistics Online DB, OECD

Loans and Grants

– Bilateral assistance is divided into loans and grants in which amount of loans was larger than that of grants until 2002. However, as assistance to troubled areas such as Afghanistan and Iraq were expanded in 2003, the pattern of assistance has been reversed, grants taking up 70% and leaving loans only to 30%.

– In 2006, the amount of grants reached 259.0 million USD, 18.6% lower than the previous year; KOICA (193.11 million USD), the Ministry of Information and Communication (10.94 million USD), the Ministry of Education and Hu-man Resources Development (10.37 million USD), and relevant government ministries were accorded most of the grants (82.8%). Loans in 2006 de-clined by 19.4% compared to 2005 to 117.1 million USD. Assistance in 2006 comprised of 68.9% grants and 31.1% loans.

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Relatively smaller Korea’s ODA disbursements

– Korea’s ODA in terms of its portion of GNI only amounted to 0.05% in 2006. This is the lowest volume when compared to that of OECD-DAC member countries. The Korean government has announced its goal to gradually in-crease its total ODA to 0.1% of GNI in 2009, and by 2015 reach 0.25% of GNI.

– Meanwhile, it is also important to understand that while South Korea pro-vides vast amounts of assistance to North Korea, this amount is not in-cluded in its ODA statistics. If assistance to North Korea were to be added, South Korea’s ODA/GNI ratio in 2006 would go up to 0.11%. However, this is not done so because South Korea’s constitution states that state territory includes the entire peninsula, thus identifying aid to North Korea as an in-ternal matter.

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ODA of Korea, 1987-2007

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Source: Ministry of Foreign Affairs and Trade, http://www.odakorea.go.kr

Korea’s Success Story in ODA

TodayYesterday

Aid Recipient

Aid

Donor

the world's successful

case

Korea’s participation in OECD DAC in 2010

Korea’s Per Capita Income

U$ 78

1960

U$ 19,200

2008

Foreign AidU$ 33.1bn 48

Korea’s ODA Structure

Bilateral ODA Multilateral ODA

EDCF*Loan Grant

Korea Eximbank KOICA

Ministry of Strategy &

Finance

Ministry of Foreign

Affairs & Trade

* Economic Development Cooperation Fund

Contributions to

MDBs UN and Others

Ministry of Strategy &

Finance

Ministry of Foreign

Affairs & Trade

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Economic Development Cooperation Fund (EDCF)

Objective 1

To help developing coun-tries achieve industrial

growth & economic sta-bility

Objective 2

To share Korea’s de-velopment experience

and knowledge

To strengthen bilateral economic cooperation

Objective 3

Established in 1987

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Operational Result of EDCF (’87~’09)

Disbursement

Commitment

-

23

1987

29

131

1995

85

204

2000

138

310

2005

265

1,067

2009

( USD million)

Operational Result of EDCF (’87~’09)

Europe(6.7%)

Africa(14.8%)

Asia(68.8%)

South America(5.9%)

Middle East(3.4%)

Oceania(0.3%)

Water and Sewage(15.1%)

ICT(9.8%)

Transportation(35.4%)

Education(8.1%)

Health(10.9%)

Energy(10.3%)

Public Administration

(4.0%)

Other(2.3%)

Agriculture, Fishery, Forestry

(3.6%) Environment(0.4%)

Types of EDCF Loan

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Development Project Loan

Equipment Loan

Public – Private Partnership(PPP) Loan

Project Preparation Loan

EDCF Mid-Term Goals

Increasing its assistance volume

600500

1,2301,180

Disbursement

Commitment

20122011

430

1,140

2010

( USD million)

Korea’s ODA/GNI : 2008 (0.09%) 2012 (0.15%) 2015 (0.25%)

Korea’s ODA: Challenges Ahead

– Aligning ODA goals in line with the international standards– Expanding ODA volume– Reshaping ODA portfolios– Avoiding aid fragmentation through harmonization with other donors– Coordinating aid implementation along with sufficient staff

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EDCF Mid-Term Goals

– Maximizing aid effectiveness through ‘focusing strategy’– Commitment to global issues such as climate change and food crisis– Further development of the Knowledge Sharing Program(KSP)– More support for public-private partnership (PPP) projects to provide more

customized services– Strengthening its cooperation ties with MDBs and bilateral aid agencies

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Scope of Working Together

– Co-financing– Joint initiative or statement– Consultation meetings– Joint research, studies or evaluations

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ODA Policy Direction of Korea

DAC(Development Assistance Committee) Membership -Member Status, November, 25, 2009. -Hosting the 4th High Level Forum on Aid Effectiveness (HLF-4) in 2011.

Definition of ODA -Flows of official financing administered with the promotion of the economic development and welfare of developing countries as the main objective, and which are concessional in character with a grant element of at least 25 percent (using a fixed10 percent rate of discount). By convention, ODA flows comprise contributions of donor government agencies, at all levels, to developing countries (“bilateral ODA”) and to multilateral institutions. ODA receipts comprise disbursements by bilateral donors and multilateral institutions.(OECD, Glossary of Statistical Terms )

.

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2007 2008Total Expense 699 802Bilateral Aids 493 539 Grants 361 369 Loans 132 170Multilateral Aid 206 263ODA/GNI 0.07% 0.09%

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(Unit: Mill.USD)

Source: OECD/DAC

ODA of Korea

Increase in ODA

-Act of International Development Cooperation as effective from July 26, 2010 and evaluated the committee for IDA. The Committee decided the portion of united aid to be 75% by 2015. -Introduced the “International Poverty Elimination Fund’s which is a public-private operation in 2007

Bilateral and Multilateral Development Aids for Developing Countries -Grants through KOICA (Korea International Cooperation Agency), established in 1991. -In 2009, donated 112 million dollars for Asia and 9million dollars for Africa. -Major recipient countries are Afghanistan, Vietnam, Indonesia, Mongolia, Philippines, Tanzania, Laos, Palestine, Cambodia, Uzbekistan (10 countries),and the next group of countries.

Reconstruction of Iraq and Afghanistan -International Compact with Iraq (ICI), 200 million dollars for 2008-2011. -Grants has been donated to Afghanistan Cooperation in addition to activities including med-

ical care, education, rural development, etc. -Cooperation for Palestine reconstruction

Korea Initiative for African Development -The “Korea Initiative for African Development” was announced t in 2006. In 2008, e.g.,

Grants of 74 million dollars was donated to Africa. -Invited more than 2,000 students in 2006-2008. -Participating UN’s DA

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Future Direction of Korea's ODA

– Korea is striving to help meet the Millennium Development Goals (MDGs) as set out by the United Nations. To this end, Korea plans to expand its ODA to achieve the ODA/GNI target of 0.1 percent of by 2010 and 0.25 per-cent by 2015. Korea will also endeavor to gradually increase the portion of grant aids of total ODA in order to meet the demand of least developed countries and alleviate the economic burden of recipient countries. Untying aid to meet the standards recommended by OECD-DAC at 90 percent for grants and 40 percent for concessional loans will be applied to Korea's mid-term ODA plan.

– Korea will take steps to strengthen its policy-making and implementation capacity as a donor. It will actively support the swift legislation of the Framework Act on ODA to achieve policy coherence among ministries and aid implementation agencies. Strengthening the mechanism for assessing aid performance is also in the agenda for improving Korea's ODA.

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– Furthermore, Korea will formulate an original Korean assistance model that transmits the country's successful development experience aligned to the recipient country's national development strategies.

– Forming strong partnerships with recipient countries as well as donor coun-tries is essential in increasing aid effectiveness. Active participation in policy dialogues with recipient countries will be sought. Also, to better coordinate with other donor countries in achieving the goal of poverty eradication, Ko-rea is making preparations to join the OECD Development Assistance Committee (DAC) by 2010.

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References

Choi, Jin-Wook. 2010. “ODA of Korea: Achievements and Chal-lenges”. (google/pdf)

Cha, Kwang-Soo. 2010. “Korea EDCF and New Partnerships in Global Development Finance”. (google/ppt)

Maeil Business Newspaper. Nov. 27. 2009. Ministry of Foreign Affairs, ROK. 2010. 2010 Diplomacy Whitepaper. Scott Snyder(2009). “Korea’s Challenge and Opportunity as Chair of the

G20”. Asia Foundation.(http://asiafoundation.org/in-asia/).