International ODA: Evolution
and Direction
Lee, Kye Woo
Hankook University of Foreign Studies
Sept. 30, 2010
Table of Contents
•
•
•
•
Why Discussion of ODA?
Concepts of ODA
Origin and Evolution of DAC-ODA
Direction of Korean ODA
I. Why A Discussion of ODA?
• World Expectations and Pressures on Korea as an
effective donor rise:
- DAC New member (2010); G-20 Summit in Seoul (2010); HLF-4 on
Aid Effectiveness in Seoul (2011)
• DAC New member
- DAC norms and recommendations
- DAC periodic peer reviews
• ODA as a Source for Growth (S, I)
- Mutual exchange and benefits (N, I, T, NR…)
- Enhance Soft Power and Brand Name (knowledge sharing, cultural
exchange).
• Humanitarian and National Brand Motives
- A Former aid recipient turned into a donor; k-s responsibility
- ODA enhances national brand
II. Concepts of ODA
 Financial Flows to Developing Countries
 Official Flows
 Private Flows
-Official Development Assistance (ODA)
-Other Official Flows
-Capital Market Flows
- Private Grants
 Official Development Assistance
 Donor: Gov’t + Gov’t agencies (incl. local gov’t, excl. private
sector)
 Recipient (partner): OECD/DAC designated developing
countries (152 in 2009-10)+IGOs (201) +NGOs , etc.(67)
 Aim: Promote Economic development and welfare (excl.
military, religious, cultural aid)
 Condition: grant elements >25%; money or in kind
Classification of Aid
Grant
Repay
Loan/Credit
Bilateral
Agent
Multilateral
Type
(Means)
Fund
Redemption required
Negotiations done directly b/t recipient and donor
Aid via international /regional organizations(IBRD, IDA,
ADB, UNDP, EU, etc.)
Providing capitals
(Grant, loan, credit)
Technology
Providing technologies(Transfer of intellectual assets
such as technologies or know-hows)
Project
Providing funds and technologies to specific
investment /TA projects(Increment of tangible assets)
Modality
Program
Procure
ment
Redemption not required
Tied
Untied
Financial support for sector-wide investment or
policy-based program which is larger than a project
Aid fund can be used to purchase goods and
services produced by donor nationals
Aid fund can be used to purchase goods and
II. Origin and Evolution of ODA
Origin:
• Multilateral aid- IBRD (1945)
• Bilateral Aid-Marshall Plan (1948-51)
- recovery of economy w/ democratic system ($16.4b)in
17 European countries (policy+mart+ humanitarian aid)
- Joint committee to plan the use of aidOEEC (1948)
• OECD(1960):OEEC+ U.S., Canada, Finland, Austr. N.Z,
-
Japan (21 states + EEC)
economic cooperation among advanced economies
assist developing countries(mart + humanitarian aid)
DAC (Development assistance committee): aim
Korea joined OECD (1996)
Korea joined DAC (2010) (23 states + EU)
Evolution of ODA
• 1945-1950s: Cold war + aid to LDCs develop (growth)
- IO: Recovery of Europe + Japan (macro growth through
investment in Infrastructure: Harrod-Domar growth theory)
- US: Ideological fight with Soviet block
- EU: Maintain influence to their former colonies
- USSR: solidarity w/ communist block
• 1960s : North-South conflict +BODA org. for LDCs growth
– Infrastructure development on the basis of Europe success
– OECD trade expansion
– North-South gap in economic development (primary vs.
mfg deterioration of TOT in South)
– USAID, CIDA, BMZ(GTZ+KfW), OECF, ODM
Evolution of ODA (2)
• 1970s: Deepening N vs.S gap + Welfare (basic needs) Aid
- micro welfare improvement thru investment in rural
development + human capital poverty alleviation
• Deepening North- South gap
– Oil crisis (1973) and deteriorating TOT in South
– South demand new economic order in UN (1974)
– Investment in infrastructure results in weak Economic
growth
– Infra- investment needs Human capital, Technology,
Institutions for construction and maintenance
– Trickle down theory didn’t work poverty, inequity
– New economic growth theory: Human capital theory
(Schultz, Becker: 1960s)
– Pearson Report: Aid should be 0.7% of donors’ GDP
– McNamara’s speech in Kenya (1972)
Evolution of ODA (3)
• 1980s: Debt Crisis and Structural Adjustment
Aid:
induce changes in government economic
policy reform (public finances, trade, private
finances, public enterprises)
- Debt crisis in LA, Asia, and Africa
- MODA increased for Structural adjustment
- BODA joined MODA for SAL
- South and UN criticized Multilateral banks for their
assistance without human face: the poorer group
took the brunt of the adjustment costs(e.g.
reduction of subsidies)
Evolution of ODA (4)
• 1990s: Deepening poverty gap + Sharp BODA Reduction;
Governance changes, institutional changes
- Sharp BODA reduction (e.g. U.S. ODA/GNI rate: 1970-80:
0.35%- mid-1990: 0.23% )
• End of Cold War(collapse of E. Germany, USSR in 1989, 1991)
• OECDs in recession; sought recovery thru trade
• Globalization, economic liberalization (U-round 1994), (trade, not
aid); economics of trade and growth; neoclassical economics
• private K moved to South (FDI); demand for ODA declined
– MODA increased for debt reductions and ↓in BODA
– Aid for transitional economies (to market economies)
(governance, privatization, social security system reform)
– Financial crisis and aid for Asia, Russia, LA
– Debt forgiveness for HIPC
– Aid for Poverty Reduction:
• PRSP (1999): Poverty Reduction Strategy Paper by recipients
Evolution of ODA (5)
2000s: Aid for Poverty Reduction
- Attain Millennium Development Goals (2000
at UN Summit) by 2015
- Inter-state, intra-state poverty gap rose
•
•
•
•
•
1970s oil crisis
1980s debt crisis
1990s ODA reduction, financial crisis, globalization
Social Development Summit in Sweden (1995)
DAC declared IMG (1996): Halve poverty by 2015
Evolution of ODA (6)
• 2000s: Aid for Poverty Reduction (1)
-Millennium Development Goals
Goal
Goal
Goal
Goal
Goal
Goal
1: Eradicate Extreme Poverty (halve the poorer -2015)
2: Achieve Primary Education (basic ed. For all-2015)
3: Promote Gender Equality and Empower Women(2015)
4: Reduce Child Mortality (by 2/3 by 2015)
5: Improve Maternal Health (by ¾ by 2015)
6: Combat HIV/AIDS, Malaria & Other Diseases (current
level or reduce by 2015)
Goal 7: Ensure Environmental Sustainability
Goal 8: Develop a Global Partnership for Development
Evolution of ODA (7)
• 2000s: Aid for Poverty Reduction (2)
-Broadening the concept of ODA to include
human security, conflict preventions,
reconstruction after civil conflicts
- Expansion of ODA
• Monterrey Consensus on Financing for
Development (2002): 0.7% of GNI by 2015 (0.51%
by 2009)
• 2006 target of 0.33% was attained in 2005
• But Debt forgiveness was 20% of ODA (2005);
programmable aid was reduced (2006)
Net ODA: Volume and GNI Share
Evolution of ODA (8)
• 2000s: Aid for Poverty Reduction(3)
- Emphasis on Aid Effectiveness
• Paris Declaration on Aid Effectiveness (2005): 5 principles
12 Monitoring Indicators of Paris Declaration
1. Ownership
1. Operational Development Strategy
2a. Reliable System for Public Finances
2b. Reliable procurement system
3. Aid flows are aligned on National Priorities
4. Strengthen capacities by coordinated support
2. Alignment
5a. Use of Country Public Financial Management System
5b. Use of Country Procurement System
6.Avoiding Parallel Implementation Structures
7. Aid is more Predictable
8. Aid is Untied
9. Use of common Arrangements or Procedures
3. Harmony
10a. Encourage Shared Field Missions
10b. Encourage Joint Country Analytic work
4. Results-Oriented Management
11.Transparent +monitorable Performance Assessment framework
5. Mutual Accountability
12. All partner countries have mutual Assessment system in place
Evolution of ODA (9)
• 2000s: Aid for Poverty Reduction(4)
- Reinforce Untied Aid
• Tied aid means that aid recipients can use the aid fund
only for goods/works/services produced by the nationals
of the donor
• DAC Recommendations on Totally Untied Aid for Least
Developing Countries (2001, 2006)
(except TA, food aid, debt reductions)
• Tied aid is inefficient (costs higher) by 15-40% (DAC
Studies) and hurts ownership of aid recipients
• Progress to date: to LDCs -- 82% (2006)
: to all DCs-- 79% (2007)
□ Award of Contracts in ODA Procurement
 Share of Developing Partners declining
 Donors want to secure their share in ODA
Procurement
100%
32.3
26.4
15.6
17.7
50%
11.4
36.3
46.7
0%
60.7
10.0
2003
2004
2005
LDCs
DCs
Non-DAC
Donors
OECD/WB Mid-Term Review (2006) of
Paris Declaration
-Delays in untying aid
-Weak in using partners’ Financial
management + Procurement systems
-Negligible in donor’s use of local offices
Evolution of ODA (10)
• 2000s: Aid for Poverty Reduction(5)
- Relative Increases in Bilateral Grants (net)
(unit: %)
Net Official Development
Assistance
1. Bilateral grants
and grant-like flows
2. Bilateral loans
3. Contributions
to multilateral institutions
Source:DAC
1995-96
average
2002
2003
2004
2005
2006
2007
2008
100
100
100
100
100
100
100
100
63
69
75
72
80
76
73
72
6
1
-2
-4
-3
-3
-3
-1
31
30
27
32
23
27
30
29
Evolution of ODA (10)
• 2000s: Aid for Poverty Reduction(5)
- Increases in Private Flows
•
Rates of increases in Grants by NGOs were greater than
ODA’s
(USD million)
1995-96
average
(A).ODA
(B). Net grants by
NGOs
(B) as % of (A )
(NGO's Share)
2002
2003
2004
2005
2006
2007
2008
57,277
58,297
69,065
79,432 107,099 104,368 103,485 121,483
5,871
8,768
10,239
11,320
14,712
14,648
17,866
23,655
10%
15%
15%
14%
14%
14%
17%
19%
Evolution of ODA (11)
• 2000s: Aid for Poverty Reduction(6)
- Increases in Private Flows
• Rates of Increases in Workers’ Remittances to developing
states were greater than ODA’s
(USD million; %)
States
2001
2002
2003 2004
upper
middle
income
22
23
30
lower
middle
income
48
61
75
86
95
101
110%
low
income
26
32
40
4 1
46
47
81%
Total
96
117
145
188
199
107%
37
163
2005
2006
47
52
↑↓2001~6 (%)
128%
 Evolution of ODA (12)
• 2000s: Aid for Poverty Reduction(7)
- Increases in Private capital market flows were greater than
ODA’s
(unit: %)
1995-96
AVG.
2002
2003
2004
2005
2006
2007
2008
32
80
55
50
35
34
24
46
4
0
0
-3
0
-4
-2
-1
60
8
37
47
59
64
73
46
1. FDI
31
49
39
48
33
42
42
67
2. Bilateral Securities
28
-37
-5
-2
24
20
30
-20
3. Multilateral Securities
0
-4
1
-3
0
1
-2
-4
4. Export Finances
2
0
2
4
2
1
3
2
3
12
8
7
5
5
4
9
100
100
100
100
100
100
100
100
I. ODA
II. Other Official Flows
III. Private Markets
IV. NGOs’ Grants
Total (net flows)
Increases in NON-DAC ODA
Evolution of ODA (12)
• 2000s: Aid for Poverty Reduction(7)
- Allocation of Aid Funds
• By Region
RegionLatin
1995/96
2000/01
2005/06
2008
33.9
33.4
42.8
33.0
12.0
11.2
17.5
15.5
Central-South Asia
11.6
12.6
10.0
16.0
Other Asia + Oceania
15.4
10.5
6.6
21.4
Latin America
12.6
12.8
7.1
9.9
Eastern Europe
5.3
10.9
6.3
4.1
100.0
100.0
100.0
100.0
Sub-Saharan Africa
Middle East + N. Africa
(MENA)
Total
Evolution of ODA (12)
• 2000s: Aid for Poverty Reduction(7)
- Allocation of Aid Funds
• By Income level
Low Income (Lowest +
Lower Middle
Upper Middle Income
other low Income) States
Income States
States
1971
57
26
17
1981
55
19
25
1990
71
21
8
2000
62
34
4
2006/7
63
32
5
Year
• Allocation of Aid By Type
•
1995~96
Avg.
2002
2003
2004
2005
2006
2007
2008
100
100
100
100
100
100
100
100
1. Bilateral Grants
63
69
75
72
80
76
73
72
-Tech Assistance
35
38
34
33
25
27
14
14
-Food Aid
5
2
2
3
0
0
1
1
-Humanitarian Aid
5
7
7
8
7
8
6
7
-Debt Reduction
10
11
17
11
29
23
9
9
-Administration
10
7
7
8
4
4
4
4
2. Bilateral Loans/Credits
6
1
-2
-4
-3
-3
-3
-1
3. Contributions to IGOs
31
30
27
32
23
27
30
29
-UN
22
29
27
19
25
22
6
5
-EC
33
33
40
38
38
33
11
11
-IDA
33
20
13
25
25
22
5
7
-Regional MDBs
12
28
7
6
12
0
2
3
ODA (net)
•Evolution of ODA (12)
2000s: Aid for Poverty Reduction(7)
- Allocation of Aid Funds
By Sector
(unit:%)
Sector
1985/6
2005/6
2008
Social + Adm Infra
25
32
40
Economic Infra
17
11
21
Agriculture
12
3
5
Industry + other Production
7
2
22
3
6
2
8
8
Other
14
41
20
Total
100
100
100
(Support for or through NGOs)
(--)
5
Goods+Program
Humanitarian Support
Questions Raised (1)
1. Humanitarian Aid vs. Economic Development vs. Mutual Benefits?
-What should be the main objectives of our government’s official
development assistance?
2.Tied or Untied Aid?
-To what extent should we untie ODA? How we should untie our ODA
3. Appraisal vs. Evaluation?
-On which part of the project cycle should our government place
emphasis in the allocation of aid-resource for effective aid?
4. Grants vs. Loans?
-On the basis of Korea’s experience with greater amount of loans than
grants, should Korea offer more loans than grants to its partners? Or
should it follow the world trend of more grants?
5. By Sector vs. by type of aid?
-How our grant agencies like MOFAT/KOICA and lending agency like
MOSF/EDCF, should coordinate (or specialize)their activities in terms of
their aims, recipient countries, sectors, and type of aid activities? How
Questions Raised (2)
6. Bilateral vs. Multilateral for North Korea?
-Should Korea convert South-North Economic Cooperation Fund
operations to ODA? Why and How? Should we do it? Through BODA or
MODA?
7. Partner’s System vs. Donor’s system for financial management and
Procurement of goods and services with the ODA funds?
-Should we use recipient government’s financial management and
procurement systems for our ODA? Or we should use donor’s systems?
8. Conditional vs. Non-Conditional ODA?
-Should we use conditional ODA, such conditions as governance reform
(market system, democracy), corruption reduction, gender equality or
environmental preservation, trade opening, fiscal balance, etc.?
9. Global Crisis vs. Development for G-20 agenda?
-Should ODA be on the agenda of the G-20 Seoul Summit? Or should it
focus on the recovery from and prevention of the Global economic crisis?
10. Korean ODA Model or Universal Model for ODA?
-Should there be a Korean ODA Model? Or should we just follow DACmember countries’ models and practices?