[Exclusive] Government's Overseas Economic Cooperation Fund Records Only 5 Private Investment Cases in 35 Years

[Asia Economy Reporter Boo Aeri] It has been revealed that over the 35 years of operating the Economic Development Cooperation Fund (EDCF), there have been only five cases of private sector investment performance. Additionally, the guarantee system introduced to promote the participation of domestic private financial institutions in EDCF projects has recorded zero cases for the tenth consecutive year. The EDCF is a fund used for concessional aid projects in developing countries, operated and managed by the Export-Import Bank of Korea under delegation from the Ministry of Economy and Finance.

According to data submitted by the Export-Import Bank of Korea to Hong Sung-guk, a member of the National Assembly’s Planning and Finance Committee from the Democratic Party of Korea, the EDCF, established in 1987, had cumulatively approved KRW 23.9565 trillion for 485 projects across 58 countries as of the end of last year.

This funding has mainly been used for government-to-government projects such as constructing water and sewage facilities, schools, and hospitals in developing countries. Development project loans amounted to KRW 19.954 trillion, and equipment loans for procuring necessary materials for development projects were about KRW 2.1848 trillion. Although successive governments, including the recent Yoon Suk-yeol administration, have consistently emphasized the need to increase private sector participation, related performance has been minimal.

Specifically, private sector investment performance amounted to only five cases, with support funds totaling approximately KRW 404.9 billion (1.69%). Public-private partnership projects accounted for four cases (KRW 401.4 billion), and private project support was one case (KRW 3.4 billion). In particular, public-private partnership projects typically involve private companies investing capital and participating as partners, which can share the fiscal risk burden of the recipient country and serve as a foothold for Korean companies to enter the market.

In fact, in the case of the Solomon Tinagang Hydropower Project EDCF loan agreement signed by the Export-Import Bank of Korea in 2019, Korea Water Resources Corporation and Hyundai Engineering also established a private investment project corporation and participated. At that time, the Export-Import Bank praised the project as "a foothold for our companies to enter hydropower and other renewable energy businesses and an opportunity to promote infrastructure development through public-private partnership (PPP) methods," but there have been no related performances since then.

Furthermore, the guarantee system introduced in 2013 to promote the participation of domestic private financial institutions in EDCF projects has not been executed even once to date. The EDCF guarantee system was introduced with the purpose of guaranteeing investments with EDCF funds because developing country governments have a high risk of default due to reasons such as civil war, project confiscation, and foreign currency remittance restrictions.

Therefore, although the Yoon Suk-yeol administration declared an expansion of private sector projects, there are concerns that due to the lack of related performance and experience, future project management and operation may be insufficient. Representative Hong pointed out that it is also important to expand the participation of Korean private finance beyond the government loan-centered system to revitalize private support in developing countries.

Representative Hong said, "Korea’s EDCF is not following the global trend of gradually expanding private sector investment for the sustainable development of developing countries at all. The Asian Development Bank (ADB) already established a dedicated department for private cooperation projects (OPPP) in 2014," and added, "It is necessary to review preconditions such as strengthening the Export-Import Bank’s own capabilities, establishing compliance systems, and improving institutional frameworks."