It is a pleasure to be here in Songdo to open Korea Week together with the Vice Minister of Strategy and Finance, Mr. Hyung-hwan Joo.
We are gathered together to celebrate the 60th year of a successful partnership between Korea and the World Bank Group (WBG). This partnership, which spans several decades, has come full circle since Korea became the 58th member of the International Bank for Reconstruction and Development (IBRD) in 1955.
At the time, Korea was one of the poorest countries in the world. Today, Korea is among the wealthiest economies not only in Asia but around the globe. It has also made the transition from aid recipient to aid donor, playing an increasingly role in international development cooperation.
As Korea developed over time, our partnership has also been evolving. This has been an exciting and productive journey.
I would like to organize my remarks along three topics:
- First, I would like to highlight some of the key achievements of Korea’s economic miracle.
- Second, I will reflect on some of the lessons learned from Korea’s development experience.
- Third, I will review how the partnership with the Bank has evolved over time and propose ways to deepen our partnership further.
Korea’s Economic Miracle
Korea’s success story is often referred to as a miracle (“the Miracle of the Han River”). At the end of the war in 1953, Korea’s GDP per capita was about $70, comparable to the poorest countries in Sub-Saharan Africa, with 60-70 percent of the population living in extreme poverty.
In those early years, foreign aid was virtually the only source of capital, financing about 90 percent of the budget and over 70 percent of imports.
A country with no natural resources, emerging from years of occupation, and then a devastating war, has become the 13th largest economy in the world (2014).
Korea’s nominal GDP increased 21 times from $68 billion in 1980 to $1.4 trillion in 2014, the fastest among the Asian Tigers after Singapore (whose GDP increased 23 times).
Korea’s high growth has been the most sustainable in terms of the number of consecutive decades in which GDP grew, on average, by more than five percent per year. Going forward, Korea realizes the need to manage natural resources and greenhouse gas emissions, and is making a transition to a greener model of economic growth.
What is remarkable about Korea’s growth experience is not only its speed but its inclusiveness. With the ensuing rapid increase in per-capita GDP (which stands at around $25,000), Korea has virtually eliminated absolute poverty (2% in 2012). Moreover, while the Gini coefficient has increased in recent years, it has remained below 0.4.
Korea was the first aid recipient to become an aid donor. In 2010, it joined the OECD Development Assistance Committee (DAC) and since then has increased its ODA contributions from $1.17 billion in 2010 to $1.85 billion. As a share of GNI, Korea more than doubled its share from 0.6% in 2004 to 0.13% in 2014, and has committed 0.15% in 2015.
Equally important is how Korean people have managed to preserve their dignity, humility, and cultural values despite the harsh past of the country’s history. This is a remarkable achievement that other countries could potentially learn from.
What Lessons Can We Learn from Korea’s Development Experience?
Korea’s exemplary economic development can be attributed to various factors. Let me mention just a few, which I believe are very important.
A key lesson is that economic growth brought along shared prosperity across the Korean population. Income growth was shared with low-income earners, including rural households. Between 1970-1979, the ratio of rural household income to urban household income grew from 67% to 104%[1]. By the beginning of the 1980s, the income of rural households was on par with those of urban households. This equalization of incomes reflects, in part, successful land reform in the post-war period.
Investment in human capital was key for long-term growth. Korea’s focus on education—a value widely shared among the population—created a highly trained labor force and the foundation for Korea’s remarkable economic success.
By 1960, primary school enrollment had increased to 86% (from 60% in 1953) and the literacy rate to 72% (from 22% percent in 1945). At the time, Korea’s primary and secondary education enrollment rates were already comparable to countries with 2-3 times its income level. Today’s Korea’s secondary school students top OECD rankings. And over 70% of Koreans undertake post-graduate level education.
A long-term development vision, embedded in a series of economic plans since 1961, provided a predictable policy framework and guided the implementation of reforms to support competitive industries and a strong export-oriented economy. This helped Korea charter the economy’s course and transition from a light manufacturing to heavy industries (1980s) and high-tech industries (1990s).
Innovation and risk. Korea has been at the forefront of innovation and risk taking, combining efforts of public and private sector actors.
- Pohang Integrated Mill in 1973—in 2009 Korea became 4th largest steel producer.
- Semiconductor industries—2nd largest producer after the U.S.
The experience of the Korean automobile industry is also instructive. Unlike many countries around the world whose exports take place through international subcontracting to subsidiaries of large multinational car companies, Korea started to export complete automobiles produced by wholly domestic firms with no involvement by large multinationals. This approach of having an independent sector under wholly Korean management paid off as we can see today. Korea’s long-term vision and focus on shared prosperity have been important aspects of its success.
Finally, Korea knows best what is good for them. While the Bank has provided a lot of advice, we also got it wrong at times. A good example is a rather sober assessment of Korea’s economic prospects written in a Bank report of the early 1960s. And I quote:
An appraisal of Korea’s economic situation and policies must fully take account of the intractable nature of Korea’s basic economic weakness. Far removed from the main trade routes of the world, with a dense and rapidly growing population, but only meager natural resources, the country would, in anycase, find it difficult, without foreign aid to provide its people with more than the bare necessities of life. And it must be recongized that even with the best of intentions and the soundest of policies, the country’s achievement of a self-supportive economy would be a very distant goal and progress towards it slow.
This assessment shows how we underestimate the potential of Korea.
The Korea and WBG Partnership
Korea’s partnership with the WBG has evolved from one of recipient to one of aid donor and knowledge partner.
Korea as a recipient of WBG assistance:
Through the early decades of its development, the World Bank assisted Korea through financing, policy advice, and technical assistance. Korea joined the IBRD in 1955, and IDA in 1961. The first project that the World Bank supported in Korea was the IDA-funded railway construction project approved in 1962. The project funded the expansion of the Yeongdong-line that, to this day, links Gyeongsang and Gangwon provinces.
Korea graduated from IDA in 1973 and from IBRD in 1995. From 1962 to 2001, Korea received over $15 billion for 133 projects, including $7 billion received in the wake of the 1997 Asian financial crisis, after Korea had already graduated from IBRD.
Over time, the sectors of assistance changed reflecting Korea’s shifting development priorities.
For example, in the 1970s, Bank assistance focused on rural development, and transport. This gradually moved to heavy industries, education, social infrastructure, and environment from the 1980s and throughout the 1990s.
The 1980 World Bank project for the Gwangju region (in southwestern Korea) was critical for supporting Korea’s balanced development. Before 1980, Gwangju was one of the least developed regions. The World Bank’s support of US$65 million helped to build roads and housing.
The World Bank supported the Sector Program on Higher Technical Education (1980-86), providing $100 million to enable Korea to cope with the increasingly sophisticated manpower demands of the country's industries in the wake of the economic boom. It built on an earlier project of $23 million that successfully contributed to the development of a larger and more effective vocational training system in Korea.
Korea joined IFC in 1964, and the first IFC project was approved in 1968 to establish the Korea Development Finance Corporation (KDFC), Korea’s first private industrial investment institution. An example of successful IFC-Korea collaboration is IFC’s support to LG Electronics (formerly known as Goldstar). Through IFC’s assistance, LG began expanding its operations, and today employs 82,000 people with global sales in 2013 of US$53 billion.
Korea as a donor:
Korea provides its first contribution to IDA in IDA05 ($1 million). Since then, Korea has contributed about $2 billion to IDAs’ replenishments, including $324 million for MDRI.
More recently, Korea has increased its burden share from 0.91% in IDA15, to 1% in IDA 16, and 1.1% in IDA 17.Total contributions for the last three replenishments (IDA15-17) amounted to $1 billion.
During FY12-14, contributions to WBG managed trust funds amounted to $180 million, of which $89 million for Bank-implemented activities.
Korea as a knowledge partner:
Korea’s membership in IDA and financial partnerships with the WBG, have provided important vehicles for sharing Korea’s unique development experience with other countries, and for supporting development projects in low-income countries.
Currently, Korea supported technical assistance programs within the World Bank Group (outside IDA) total 20 and cover diverse sectors such as the financial sector, climate change, urban, ICT, and e-learning, to name a few.
In implementing these programs, the WBG is working with about 50 Korean institutions and partners. By bringing our comparative advantages together: the global knowledge and presence of the WBG and local know-how and networks, together we have managed to develop a robust and solid platform for knowledge exchange.
Korea Office: Now that the WBG has a local presence in Korea (our office is located here in Songdo, Incheon), we see enormous opportunities to scale up our engagement with Korea.
Building on the last 60 years of the solid partnership, the WBG is ready to support Korea’s ambition and vision of becoming a key global player in development. Korea’s credibility and track record in development coupled with our global knowledge and world-wide presence should allow us to together make a significant impact in addressing global development challenges and in supporting development at the country level.
The Strategic Plan for International Development Cooperation has outlined three priority sectors out of eight areas for expansion in low-income countries, namely: health, education, and gender (women). To continuously expand involvement in these three sectors, the Korean government may benefit significantly from the global knowledge and footprint of the WBG.
In addition, as Korean firms explore new business opportunities outside Korea, the WBG (through IFC and MIGA) can promote and partner with Korean companies in making investments in emerging markets. For example, the MIGA Korea Office has initiated underwriting four projects since its establishment in 2013. This is a huge advancement from two projects invested by Korean firms in the past 26 years.
Concluding Remarks
There can be no doubt of Korea’s remarkable economic success over the past 60 years. Today, Korea’s ships, cars, motorbikes, mobile phones, laptops, and flat screen televisions are used everywhere. And Samsung, LG, Kia, Hyundai - are all household names across the world.
The WBG is proud to have been partner to Korea on this remarkable journey. The key to our successful partnership lies in the fact that it has been a long term engagement and one that has evolved over time. The form of partnership may have changed, but the depth and importance of the partnership remains. In the Korean culture, 60 years refer to a cycle of one’s life, and there is a saying that ‘life starts at 60’. I hope Korea Week will mark the beginning of a new partnership that will last another life cycle.
Thank you.
[1] Source: Ministry of Internal Affairs
