PSPD in English Int. Solidarity 2010-11-09   2965

the Korean government to improve its ODA policy which has a high ratio of tied aid , before propagandizing Korea as the lead in setting the development agenda at the G20

PSPD urges the Korean government to improve its ODA policy which has a high ratio of tied aid , before propagandizing Korea as the lead in setting the development agenda at the G20 Summit


The ODA policy report <Current Status & Problems of Korean Tied Aid>(2010.11) shows that the ratio of Korea’s tied aid to untied aid is low and that Korean conglomerates monopolize Korean aid projects



The Lee Myung-bak government has emphasized development as one of the most important agendas at the table of the G20 summit in Seoul. It has propagandized that the Korean government plays an essential role in selecting the development agenda at the G20.


In contrast to the publicized aspect, the ODA policies of the Lee Myung-bak government reveal serious problems. According to the ODA policy report <Current Status & Problems of Korean Tied Aid>(2010. 11. 3) published by the PSPD, the ratio of Korea’s tied Aid is very high. Other problems with the Korean ODA policy are that there are fragmentations of the aid system, a very high ratio of the ODA loan (compared to the Development Assistance Committee members of OECD) and ineffectiveness of aid. The Institute at Brookings measured how much aid contribution actually met the ODA goals and the Korea was shamefully ranked the lowest among the 23 DAC members.
 
It means the Korean ODA(Official Development Assistance) policy has a long way to go. The advanced donor countries have chosen untying aid principles to enhance ownership of recipients and increase aid effectiveness. It is also recommend for donors to apply the principle as manual. Traditional donors have recognized the significance of untying aid and practiced actions in accordance with the “recommendation of Untying Aid to the Least Developed Countries” and the “Paris Declaration for Aid Effectiveness” adopted in 2001 and 2005, respectively. On the other hand, the Korean government has insufficiently implemented untying aid principles and norms.


In conclusion, it is not appropriate that the Korean government contributes to setting the development agenda as one of G20’s key issues, while neglecting the reality of the high level of tied aid of Korea. First of all, it should fulfill the international aid standards and increase untying aid to low income countries. G20 should discuss how to contribute to overcoming poverty of developing countries’ people as discussing development agenda. At the same time, it should prioritize how to assist actually help the people of low income countries.
 


We introduce the summary of PSPD Report below:


Current Status and Problems of Korean Tied Aid 
(Published by International Solidarity Committee of PSPD on 3 November 2010)

1. Ratio of Korea’s Untied Aid is Low
Untied aid of DAC members accounted for nearly 90% in 2008 while Korea’s remained at only 36%.
[Table 1] Untied aid ratio of DAC members’ Bilateral ODA (2008)






























 


Bilateral ODA


Others


 


Untied


Partially Untied


Tied


Total


Reported


DAC Members


87.3


0.2


12.5


100.0


99.6


Korea


35.8


7.5


56.7


100.0


100.0


Source: OECD/DAC (2010)

2. Korea’s Untied Aid of Grants and Loans are Low
The Export-Import Bank of Korea (EXIM Bank) is in charge of bilateral loans and all EDCF (Economic and Development Cooperation Fund) had been tied until 2005. Even the ratio of untied grants is much lower than other traditional donors.


[Table 2] Untied aid ratio of Korea and DAC countries (2007)






















 


Bilateral ODA


 


Loans


Grants


DAC average (%)


91.8


81.5


95.1


Korea (%)


24.7


24.2


26.1


Source: ECD/DAC main norms and standards, and ODA policy measures, KIEP (Korea Institute for International Economic Policy) (2009)

3. Korea’s untying aid to the poorest recipients is low
International aid organizations consistently request Korea to prepare specific guidelines and provide more untied aid to the poorest countries where development infrastructure is weak. However, Korea’s ODA policy is still focused on economic interests rather than development and poverty reduction of the recipients.


[Table 3] Korea’s untying aid to the world’s poorest countries (2007)

























 


Total


The poorest


Heavily indebted poor countries


Korea’ bilateral aid (%)


24.7


19.9


18.8


Loans (%)


Grants (%)


24.2


26.1


20.2


18.1


20.4


7.5


DAC average (%)


84.6


98.1



Source: OECD/DAC main norms and standards, and ODA policy measures, KIEP (2009),

4. Korean Conglomerates Monopolize Korean Aid Projects
Most tied aid projects are contracted by Korean conglomerates. Almost 60% of EDCF contracts in terms of number and amount are awarded to four major Korean conglomerates.

[Table 4] Contracts awarded to conglomerates (2000~July 2010)



































Rank


Conglomerate


Number of contracts (%)


Contracted amount (%)


1


Samsung


24.76


24.36


2


LG


9.52


14.92


3


Hyundai


10.47


11.47


4


Daewoo


12.38


8.50


 


Total


57.13


59.25


Source: EXIM bank on PSPD’s public information disclosure request

Suggestion
PSPD is concerned that the Korean government still maintains the philosophy of donor interests-centered aid. The international aid community expresses their concerns that the Seoul Summit’s Approach to Development is based on the interests of the G20 and that it fundamentally aims to ‘raise consumption of emerging economies as well as new investment flows to Low Income Countries.’


Based on that, PSPD urges that first of all, the Korean government improve its ODA policy which has high ratio of tied aid, before propagandizing that Korea leads the development agenda at the G20 Summit. In addition, the Korean government and the G20 should implement aid policies based on local ownership and actual development of recipients.


PSPD demands that the Korean government and the G20 contain effective untying aid policies in the Development Agenda. Last but not least, PSPD suggests that the Lee Myung-bak government endeavor to increase untying aid ranked in the lowest of DAC and overcome the monopolization of Korean conglomerates in aid projects. It also insists that the Lee Myung-bak government endeavor to provide aid that will actually help the people of recipients’ countries and overcome poverty.



 



 



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