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DE RUEHUL #0227/01 0430954
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O 120954Z FEB 09
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3230
INFO RUEHFR/AMEMBASSY PARIS 1635

UNCLAS SEOUL 000227 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS TO USAID 
PARIS PLEASE PASS TO USOECD 
 
E.O. 12958: N/A 
TAGS: EAID ECON KS
SUBJECT: ROKG PLANS FOR EXPANSION OF AID PROGRAM 
 
¶1.  This cable is sensitive but unclassified and not/not 
intended for Internet distribution. 
 
¶2. (SBU)  SUMMARY: The ROKG announced in September 2008 an 
ambitious plan to more than double (as a percentage of GDP) 
its Official Development Assistance (ODA) by 2012 and triple 
its ODA by 2015. Korea's ODA program totaled approximately 
641 billion won (581 million USD) in 2008, up from 624.4 
billion won in 2007 and 490.2 billion won in 2006.  In recent 
discussion with Econoff, representatives from both the 
Ministry of Foreign Affairs and Trade (MOFAT) and the 
Ministry of Strategy and Finance (MoSF) reaffirmed Korea's 
commitment to that goal, but indicated that the ROKG is still 
drawing up a specific strategy to achieve it.  (The ROKG does 
not include aid given to the Democratic People's Republic of 
Korea (DPRK) as part of its ODA.  ROKG help for the DPRK was 
dramatically curtailed in 2008 due to political developments, 
but was roughly equal to its ODA in 2006 and 2007.)  Korea 
believes that as a fairly recent recipient of development 
assistance, it can play a particularly useful role in helping 
developing countries ensure that the aid they receive is 
effectively utilized. 
 
¶3. (SBU) Responsibility for Korea's ODA is currently divided 
between MOFAT, which administers grants (70 percent of total) 
and MoSF, which administers concessional loans (30 percent of 
total).  Four bills are competing in the National Assembly to 
provide a legislative framework for Korean development 
assistance.  Three of these would maintain the division of 
grants and concessional loans between MOFAT and MoSF; one 
would mandate a unified organizational structure to 
administer both grants and concessional loans.  MOFAT expects 
that one of these four alternatives will be passed in 2009. 
MOFAT sees itself as playing an increasingly important role 
on ODA as grants become a greater percentage of Korea's ODA. 
 
¶4. (SBU) Korea has publicly announced that it hopes to join 
the OECD's Development Assistance Committee (DAC) by 2010 
(Korea is currently a member of the OECD but not of the DAC). 
 The DAC recently reviewed the ROK's ODA program, and 
suggested that Korea unify its bifurcated development 
structure, pass overarching development assistance 
legislation, and reduce the high proportion of concessional 
loans.  ROKG officials noted that the bifurcated nature of 
ODA is deeply institutionalized, however, and cannot be 
changed overnight.  MOFAT expects the DAC will announce 
Korea's membership in May 2010.  End Summary. 
 
 
BUILDING OUT THE AID PROGRAM 
---------------------------- 
 
¶5. (SBU) The ROKG has earmarked 667.2 billion won (480 
million USD at current exchange rates) for its ODA budget in 
¶2009.  Actual ODA budget expenditures for 2008 have not yet 
been officially announced, but information from various ROKG 
organizations point to expenditures of approximately 641 
billion won (581 million USD using the average exchange rate 
for 2008).  Expenditures for 2007 were 624.4 billion won (USD 
672 million) and expenditures for 2006 were 490.2 billion won 
(517 million USD).  (Note: The 40 percent decline in the 
won's value since August of last year means that even though 
the won-denominated budget figure has consistently increased, 
the dollar figure reached a high in 2007 and has since 
decreased). 
 
¶6. (SBU) Geographic breakdown for grant aid in 2007: 
- 
-                Percentage of 
Region           Total Grant Aid    Amount of Grant Aid 
------           ---------------    ------------------- 
Asia                32.7              USD 88.4 million 
Middle East         21.6              USD 58.5 million 
Africa              15.7              USD 42.4 million 
Latin America       13.2              USD 35.6 million 
Europe               2.8              USD  7.5 million 
IOs, NGOs and 
 Multilateral Aid   14.0              USD 37.8 million 
- 
- 
Functional breakdown for grant aid in 2007: 
- 
-                 Percentage of 
Function          Grant Aid         Amount of Grant Aid 
--------          -------------     ------------------- 
Governance            18.8            USD 50.9 million 
Health                16.9            USD 45.8 million 
Education             16.3            USD 44.2 million 
Environment and 
 Gender               15.4            USD 41.8 million 
Industry and Energy   12.0            USD 32.5 million 
ICT                   11.0            USD 29.7 million 
Rural Development      6.0            USD 16.2 million 
Disaster Relief and 
  Reconstruction       3.4            USD  9.1 million 
- 
- 
Geographic breakdown for concessional loans in 2007: 
- 
-              Percentage of Total       Amount of 
Region         Concessional Loans     Concessional Loans 
------         -------------------    ------------------- 
Asia                66.0               USD 110.2 million 
Africa              13.1               USD  21.9 million 
Latin America       11.0               USD  18.4 million 
Europe               9.3               USD  15.5 million 
Middle East          0.6               USD   1.0 million 
- 
- 
Functional breakdown for concessional loans in 2007: 
- 
-               Percentage of Total      Amount of 
Function        Concessional Loans     Concessional Loans 
--------        -------------------    ------------------ 
Communications      30.3               USD  50.6 million 
Transportation 
 and Storage        30.3               USD  50.6 million 
Water Supply 
 and Sanitation     12.2               USD  20.4 million 
Education            8.4               USD  14.0 million 
Health               4.9               USD   8.2 million 
Energy               3.5               USD   5.8 million 
Agriculture          2.7               USD   4.5 million 
Miscellaneous        7.7               USD  12.9 million 
- 
- 
In addition to these breakdowns, Korea contributed 205.6 
million USD in multilateral assistance not reflected in the 
above tables. 
 
¶7. (SBU) In September of last year, the ROKG's Committee for 
International Development Cooperation (CIDC), chaired by the 
Prime Minister and including 15 cabinet level ministers, 
announced an ambitious plan to increase Korea's ODA program 
from its current 0.07 percent share of national income 
expenditure to 0.15 percent by 2012 and to 0.25 percent by 
¶2015.  Econoff met separately with Lim Hoon-min of the 
Development Policy Division of MOFAT and Lee Han Chul of the 
Development Cooperation Division in the International 
Economic Affairs Bureau of MoSF to discuss the future of ROKG 
ODA.  Both of these agencies currently distribute ODA, with 
MOFAT being primarily responsible for grants and MoSF being 
primarily responsible for concessional loans.  MoSF also 
plays a key role through its control of the national budget. 
Both Lim and Lee affirmed Korea's commitment to the goal of 
increasing Korea's ODA, but said that the ROKG has not yet 
drawn up a detailed plan to achieve the goal.  The CIDC has 
tasked MOFAT and MoSF with working toward tripling aid as a 
percentage of GNI.  Lim acknowledged that the current 
financial crisis has overshadowed discussions on how to 
realize the expansion of Korea's ODA program, but he expects 
a specific strategy to be drafted in 2009. 
 
¶8. In terms of specific priorities, Lim and Lee noted there 
is no official policy statement regarding the ultimate goal 
of ODA.  Lim said MOFAT's goal is to help nations develop as 
East Asia did.  MoSF's Lee noted that Korea believed it could 
play a particularly effective role in monitoring utilization 
of assistance by developing countries, since it was recently 
an ODA recipient itself and understands the types of 
decisions and administrative work recipient countries must 
undertake. 
 
 
ORGANIZATIONAL STRUCTURE OF ROKG AID BUREAUCRACY 
--------------------------------------------- --- 
 
¶9. (SBU) Responsibility for Korea's ODA is currently divided 
between MOFAT, which administers grants (70 percent of 
total), and MoSF, which primarily administers concessional 
loans (30 percent of total).  As noted above, there is a 
Committee for International Development Cooperation (CIDC), 
chaired by the Prime Minister and including 15 cabinet level 
ministers, that provides senior-level blessing to major ODA 
policy decisions.  Because of the senior level and ad hoc 
nature of this committee, the substantive work generally 
comes from MOFAT and MoSF.  Inter-ministry interaction is 
currently very informal and involves MOFAT's Development 
Policy Division meeting with MoSF's Development Cooperation 
Division monthly to exchange information and forge consensus 
on difficult issues.  Lim said MOFAT sees itself as playing 
an increasingly important role as grants become a greater 
percentage of Korea's ODA. 
 
¶10. (SBU) There are currently four ODA bills pending in the 
National Assembly that seek to provide an overarching legal 
framework and streamline the ROKG's ODA procedures.  MOFAT 
expects one of these bills to pass, though at this point they 
are not certain which will prevail.  Three of the bills are 
largely similar and would maintain the current system of 
splitting grants and concessional loans between MOFAT and 
MoSF.  The fourth bill would have a single organization 
(MOFAT) oversee both grants and concessional loans. 
 
 
DEALING WITH THE DAC 
-------------------- 
 
¶11. (SBU) In November 2007 Korea announced it would try to 
join the OECD's Development Assistance Committee (DAC) by 
2010 (Korea has been a member of the OECD since 1996 but is 
not currently a member of the DAC).  In March 2008, DAC 
representatives traveled to Seoul for a review of the ROKG's 
ODA program.  In September of 2008, DAC officials returned to 
Seoul to brief the Koreans and broader diplomatic community 
on the findings of the review.  The DAC briefed the ROKG 
officials and diplomats about its report.  Although not 
required for DAC entry, the report recommendations are meant 
to help the ROKG expand and improve its ODA.  The DAC report 
reflected concern about fragmentation resulting from the 
ROK's bifurcated aid distribution system as being too 
fragmented.  In meetings with Econoff, representatives from 
both MOFAT and MoSF acknowledged that while having a single 
organization handle aid might be optimal, any change to the 
institutional architecture would be gradual, since MOFAT and 
MoSF each had over 20 years of expertise in grants and 
concessional loans, respectively.  MoSF's Lee pointed out 
that France, Japan, and Spain also have fragmented aid 
bureaucracies.  Lee added that while having a single ministry 
overseeing aid could be more efficient, it would risk losing 
the benefits of the interagency deliberative process. 
MOFAT's Lim noted that there is a growing support for 
deepening inter-ministerial interaction by scheduling regular 
meetings that would be chaired by a senior official, possibly 
the Prime Minister. 
 
¶12. (SBU) Another comment in the DAC report is that Korea 
could benefit from overarching legislation concerning ODA. 
As noted above, four drafts bills that would create such a 
legislative framework are competing for approval by the 
National Assembly.  Reflecting MoSF's fondness for the status 
quo, Lee pointed out that few countries have a single 
overarching piece of legislation that governs their ODA. 
 
¶13. (SBU) The DAC report also recommended that Korea shrink 
the share of its ODA program (currently about 30 percent) 
that is comprised of concessional loans.  MOFAT's Lim 
indicated this seemed likely to occur; he noted what he 
called an irreversible international trend of favoring grants 
over concessional loans, and cited the ROKG's commitment to 
expand grants at the Financing for Development Conference in 
Doha.  He added that Korean academics and journalists, as 
well as members of the National Assembly, are also pressuring 
the ROKG to increase its percentage of grants. 
Unsurprisingly, Lee from MoSF, which administers the loan 
program, resisted this recommendation, asserting that 
concessional loans are an effective means of development for 
recipient countries, including in the ROK's own case.  (Note: 
MoSF's views cannot be lightly dismissed within the ROKG as 
it has the normal responsibilities of a Finance Ministry, but 
also handles strategic economic planning functions and 
manages the ROKG budget process.  End note.)  Lim also noted 
that Korea was beginning a process of untying its bilateral 
aid (currently most of Korea's aid is wholly or partially 
tied -- the recipient country is obligated to use some 
portion of the aid to procure goods or services from the 
ROK).  A plan is being developed to untie the aid program and 
Lim estimated it would take 5-10 years to complete the 
change.  He noted that when Korea began its aid program, 
tying the assistance had helped build support for the program 
among Korean businesses (particularly since they did not have 
much development experience and anticipated losing out to 
more experienced international bidders if the aid were 
untied). 
 
¶14.  As for Korea's prospects for DAC membrship by 2010, 
MOFAT's Lim expressed optimism.  FM Yu Myung-hwan submitted a 
formal application to join the DAC on January 16, 2009 and a 
final OECD DAC fact-finding team will visit Korea in June. 
MOFAT expects that a DAC senior level meeting will de facto 
recognize Korea as a member of the DAC and that the DAC will 
officially announce Korea's membership on May 2010. 
 
 
AID FOR NORTH KOREA 
------------------- 
 
¶15. (SBU) The ROK is also in a unique position because of the 
status of North Korea.  ROKG assistance for the DPRK has been 
sizeable until political tensions curtailed most assistance 
in 2008.  In 2007, for examply, ROKG assistance to North 
Korea totaled USD 432 million, approximately two-thirds of 
the ODA budget.  All DPRK aid is administered by the Ministry 
of Unification and does not pass through normal ODA channels. 
 The ROK does not consider this assistance to be ODA because, 
by its constitution, the ROK does not recognize the DPRK as a 
separate country. 
 
 
COMMENT 
------- 
 
¶16. (SBU) Korea's political leadership and government have 
set their sights on a more active global role for Korea -- 
fuller engagement with countries outside the East Asia 
region, as well as taking on the global responsibilities of 
an advanced economy.  Part of that process is developing a 
meaningful official development assistance program. 
Characteristically, the ROKG has set an ambitious target 
(tripling ODA as a percentage of GDP by 2015) first, and is 
now in the process of working out how to get there.  That 
said, the ROKG's development officials seem to have a fairly 
ambitious agenda of near term steps to improve the quality of 
Korea's aid:   passing comprehensive ODA legislation; 
enhancing inter-agency cooperation in Seoul; and joining the 
DAC (which will in turn sustain pressures to expand and 
improve Korea's aid program).   Increases in aid quantity 
will presumably be more sporadic:  Korea's ODA increased by 
27 percent in 2007 (in won terms), but it appears ODA 
disbursements only increased by about three percent in 2008, 
and will increase by a comparable number in 2009 (in the face 
of economic recession).   With the Lee Myung-bak Government 
repeatedly proclaiming its interest in developing a "21st 
century strategic alliance" with the United States, and ROKG 
officials acknowledging their pool of development expertise 
is limited, expanded coordination on ODA policy can be a 
useful focus of bilateral US-ROK discussions, as Korea 
strives for its goal of establishing itself as a more 
important donor nation in the years ahead. 
STEPHENS