Today is the 22nd anniversary of the Korea International Cooperation Agency, the implementing organization of Korea’s official development assistance. KOICA has earned a good reputation by transferring Korea’s development experience to developing countries around the world. It has also dispatched more than 10,000 volunteer workers abroad.
ODA is classified into two types ― grants and loans. Grants are provided by the Ministry of Foreign Affairs and KOICA while loans are offered by the Ministry of Strategy and Finance and Eximbank. Both are useful for the economies of developing countries.
Everybody agrees that Korea should play a bigger role in helping developing countries grow and get out of poverty by increasing its ODA volume. ODA should not be seen merely as a transfer of Korea’s national wealth to developing countries. It is not only about helping developing countries but is in fact a form of mid- and long-term investment Korea makes for its own benefit.
ODA improves Korea’s image as a mature and advanced country willing to share its growth and development experience. It also helps Korean enterprises make inroads into foreign markets by enhancing Korea’s national brand, a job that cannot be carried out by individual enterprises.
Korea became a member of the Development Assistance Committee of the Organization of Economic Cooperation and Development in 2009. That means Korea has become an advanced donor country by all measures.
But Korea’s ODA volume is too small compared with the United States, France, Germany, Great Britain or Japan. That’s why the Seoul government has pledged several times to raise Korea’s ODA/GNI ratio to 0.25 percent by 2015 from 0.1 percent in 2010.
But even if Korea attains the target, it will be still way below the DAC average of 0.35 percent or the 0.7 percent recommended by the United Nations. Korea has been under pressure to meet its international responsibilities as the 14th-largest economy in the world.
Moreover, Korea needs to improve the quality of its ODA. In Korea’s ODA, loans account for a large share while many developed countries provide only grants or keep loans below 10 percent of their ODA.
Most ODA experts in Korea say grants are more effective in helping developing countries eradicate poverty. Grants are the mainstream trend in the ODA world. Nobody denies the need to increase grants to achieve the U.N.’s Millennium Development Goals.
However, officials at the Ministry of Strategy and Finance and Eximbank insist that Korea increase the share of loans in its ODA in consideration of the burden that ODA expansion would place on the Korean economy. They also say that we have to guard against idealism in providing ODA.
According to them, boosting Korea’s ODA/GNI ratio to 0.25 percent by 2015 requires the government to increase its ODA volume from $1 billion to $3.2 billion within three years. Not a small burden for the government, they say.
To the criticism that expanding the share of loans in Korea’s ODA would increase the burden on recipient countries’ state finances, they counter that their loan repayment burden would not be great because 90 percent of the loans Korea offers are in effect grants.
Doesn’t this sound contradictory? They say that loans would not be a burden to recipient countries because 90 percent of Korean loans are grants in nature. But they also say that Korea should increase the share of loans because expanding grants increases the burden on the Korean government.
I have retired after spending my whole life implementing ODA projects in developing countries. Most of the top leaders, policy makers and ordinary beneficiaries that I have met did not appreciate it much when they received loans. They said they had to pay back the loans with interest, even though the grant ratio of the loans from Korea was 90 percent.
In many cases, donors cannot collect the loans offered to recipients because of their poor economic situation. They usually write off the loans in the end. If a donor country tries to collect the loans, it only gives the impression of a miser. Therefore Korea would do well to assist developing countries with grants from the beginning. This will ensure amicable relations between Korea and recipient countries.
As far as I know, Korea’s ODA loans are to be repaid over 15 years after a grace period of 20 years. The interest rate is a mere 0.1 percent. In light of this, I’d like to suggest the following:
1. Korea should transform all its loans into grants as soon as possible. The shift will not cause a big burden on the finances of the Korean government because Korean loans’ grant ratio is 90 percent. If this wholesale shift is too much of a burden, then we can transform only 90 percent of our loan volume into grants and reserve the remaining 10 percent.
2. If the Korean government has to keep offering loans for the time being, it should stop charging interest on them. Collecting interest on ODA loans is hardly justifiable and the 0.1 percent interest rate Korea collects only complicates the calculation and leaves a bad impression.
Developing countries are eager to learn and follow what Korea has achieved in one generation. Korea deserves to feel proud of it. At the same time, Korea is asked to fulfill its responsibilities and play a role pertinent to its economic status.
Korea’s development experience has become an asset of the world. Sharing it with other countries has become Korea’s responsibility and mission. We must not forget the assistance we have received from other countries such as the United States, the United Nations, Germany and others in the past.
By Song In-yeup
Song In-yeup is general project manager of a water project in the Philippines promoted by Korea International Cooperation Agency. ― Ed.
