Next Year's Budget Alone is 6.5 Trillion Won... Are We Doing Well in Overseas Aid? [Song Seungseop's Financial Light]

Started as the 'Marshall Plan' for Western Europe's Reconstruction
Balancing National Interests vs Humanitarian Goals
Korea Began Official Aid Projects in the 1980s
Significant Increase in Aid Scale but Serious Fragmentation Issues
Poor Performance in Ministries Lacking ODA Capacity

On the 20th of last month (local time), President Yoon Suk-yeol stated in his keynote speech at the 78th United Nations General Assembly held in New York, "Despite this year's fiscal tightening policy, the Korean government has expanded the next year's ODA government budget by more than 40%."

There is a sector in South Korea that will spend 6.5 trillion won in 2024. The budget has increased by 45% compared to this year, and it is expected to rise sharply in the future. President Yoon Suk-yeol also promised the international community that the Republic of Korea would spend a lot of money in 'this area.' This sector is none other than Official Development Assistance (ODA). South Korea is also the first country to transition from being an ODA recipient to an ODA donor. How is South Korea using trillions of won in ODA? And how did ODA begin in the international community?

ODA Began with the Reconstruction of Western Europe... National Interest vs. Humanitarianism

In the international community, the origin of ODA is seen as the 'Marshall Plan.' The Marshall Plan was a U.S. aid program implemented to rebuild Europe, which was devastated after World War II. From 1947 to 1951, the United States provided massive support to 16 Western European countries. American companies participated in the European reconstruction projects and gained enormous profits, and it is evaluated that this successfully prevented the communist takeover of Western Europe.

Later, in the 1960s, major developed countries established specialized aid agencies. Aid projects, which initially focused on development, began to concentrate on poverty reduction and solving inequality issues in the 1970s. In the 1980s, ODA discussions stagnated under the influence of neoliberalism, but in the 1990s, the collapse of socialism and the transition to capitalist economies became major issues. Currently, poverty eradication, sustainability, and balanced development are the key themes of ODA.

The site of the Marshall Plan reconstruction project, known as the origin of modern Official Development Assistance (ODA). This photo shows the state of Germany's reconstruction project in 1948, with the wall in the picture bearing the inscription "Berlin Emergency Plan aided by the Marshall Plan." Photo by U.S. National Archives and Records Administration

The international community views ODA in a somewhat ambiguous way. There is a perspective that ODA is ultimately a project for national interest. In fact, most countries known as 'ODA advanced countries' are those that operated colonies during the era of imperialism. They mainly provide ODA to underdeveloped countries that were former colonies. This has led to criticism that developed countries use ODA as a means to maintain influence over their former colonies.

In particular, there is a view that ODA benefits not only the recipient countries but also the donor countries. When aid is provided to underdeveloped countries and development succeeds, export markets expand and it becomes easier for domestic companies to enter overseas markets. Also, donor countries can profit by supplying goods and services needed during the aid process from their own countries. This is called 'Tied Aid.' There is also the advantage of enhancing the national brand through long-term ODA.

On the other hand, there are arguments that ODA should be operated for humanitarian purposes. Considering economic benefits may distort the economic development of the recipient country and increase aid costs. The international community also recommends, in principle, that companies should refrain from participating in aid projects or pursuing economic benefits. Accordingly, Nordic countries adhere to the principles of grant aid and untied aid when implementing ODA.

Dozens of Ministries Say "We Will Do ODA"... Criticism of Performance and Inefficiency

What about South Korea's ODA? Due to the Korean War that broke out shortly after the establishment of the government, South Korea had no choice but to rely on ODA. It began with receiving $58 million in aid from the United Nations (UN) in 1950. In the 1960s, when South Korea began its full-scale economic development, aid played an important role. Unlike the past when food and materials were intensively received, South Korea signed economic and technical assistance agreements and brought foreign experts into the country. Based on this, the introduction of scientific and technological equipment, development of light industry, and construction of transportation and roads were actively promoted.

In the late 1980s, South Korea began transforming into a 'donor country' with the establishment of the Economic Development Cooperation Fund (EDCF) and the Korea International Cooperation Agency (KOICA). In 2010, South Korea joined the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD), officially becoming a developed donor country. Since then, the scale of South Korea's ODA has rapidly increased. From 2010 to 2022, South Korea spent about 36 trillion won on ODA.

So, what strategy does South Korea take for ODA? The Ministry of Foreign Affairs is responsible for grant aid, and the Ministry of Economy and Finance handles concessional loans. There has been no consensus on whether to pursue national interest through ODA or focus on humanitarian support. Although discussions have been ongoing since the beginning, there has been a significant difference in positions between officials from the Ministry of Foreign Affairs and the Ministry of Economy and Finance. Therefore, currently, the Office for Government Policy Coordination oversees and coordinates ODA.

Government ministries and agencies sharing the ODA budget. After analyzing the 2022 ODA projects using Python, they were visualized with a Voronoi treemap model.

Another characteristic is that many institutions implement ODA in South Korea. Major developed countries have 2 to 3 dedicated agencies handling ODA. By having specialized agencies carry out ODA, they prevent overlapping projects and the proliferation of small-scale projects, aiming to provide successful support. However, in South Korea, the dedicated ODA agencies EDCF and KOICA do not even carry out half of the total projects. Last year, 44 ministries secured ODA budgets. This is called 'fragmentation.'

As a result, there have been many cases where ministries with weak ODA capabilities provided overseas aid but showed poor performance or ineffective project outcomes. For example, the Korea Customs Service spent over 700 million won in 2016 to implement customs administration modernization ODA in Kyrgyzstan, but since Kyrgyzstan is a member of the Eurasian Economic Union (EAEU), it could not adopt the Korean customs system. The Ministry of Agriculture, Food and Rural Affairs invested 3 billion won in Vietnam to establish a pilot vegetable contract farming complex, but faced difficulties due to lack of market access and poor adaptation to local soil.

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