South Korean Aid to the North III: An Accounting 1991-2015

Stephan Haggard (PIIE), Jaesung Ryu (East Asia Institute) and Kent Boydston (PIIE)
August 12, 2015 7:00 AM

We were pleasantly surprised by the comments and questions we received on our posts a few weeks back on South Korean aid to the North (here and here). Our intention was primarily to trace the path of assistance; as a result, the data was reported in South Korean won. But several asked for the figures in dollars, others wanted some sense of the total magnitude and we can also provide a few more details.

The new figure below provides the same information from the first post in dollars. Our new interactive graph aggregates the entire amount spent on the Inter-Korean Cooperation Fund (IKCF) per year and breaks it down by fund category. For the exchange rate we used World Bank annual exchange rates (except for IKCF data from 2015 where we averaged January – May exchange rates from x-rates.com), then adjusted into constant 2014 dollars.

IKCF Expenditures, 1991-2015 (in 2014 $US)

Total assistance from South to North as measured by this metric—expenditures through the Inter-Korean Cooperation Fund for the period 1991-2015 (to May)—was $6.96 billion. But the following details are worth noting. Of that total a non-trivial share—$1.51 billion or 22% of the total—was South Korea’s commitment to the failed KEDO light-water reactor project. Whatever you think of the Bush administration’s management of the end of the Agreed Framework in 2002-3, this expenditure is a depressing reminder of the potential waste associated with politically-motivated white elephant projects.

Second, although it is a much smaller share of total expenditure it is worth noting that 2% of total aid falls in this category called “trade loss support/insurance.” This “aid” is—again—a cost of politicized business. These are payments the South Korean government was constrained to make as a result of actual political risk insurance policies or as assistance to firms that had lost business as a result of the imposition of sanctions in the wake of the sinking of the Cheonan.

Finally, it is important to underscore that we are looking at the fund’s expenditures only. But it is worth noting that the total size of the IKCF now stands at 12.4 trillion won or $10.7 billion or 154% of total expenditure over the entire period. This is striking. We will report in a subsequent post on the size of the fund over time and some of the accounting gimmicks, such as carrying “loans” to the North Koreans that will never be repaid as assets. But even discounting for this fact, successive South Korean governments have accumulated allocated funds because they simply couldn’t spend them and/or have clearly decided that putting some money aside for unification is necessary.

Recent reports now suggest that the Park administration is thinking about overhauling the fund to move in the direction of project funding rather than the emphasis on humanitarian transfers which has driven the fund to date.  Such projects would constitute the currency of a new stab at Trustpolitik which—as the aid data shows—has not been associated with an increase in bilateral assistance.

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