South Korea, once aid dependent, has announced a plan to boost funding for global financial aid institutions to help secure its international status as an aid donor.
The Finance Ministry, in a recent report to the National Assembly, unveiled its intention to allocate 8.8 trillion won ($8 billion) next year to organizations that specialize in giving aid to countries with financial difficulties.
The organizations include the two major Washington-based entities ― the International Monetary Fund and the World Bank ― and the Manila-based Asian Development Bank.
Korea’s position in the international stage has changed radically since the country was an IMF loan beneficiary during the 1997-98 Asian currency crisis.
Through continuous yearly funding to the IMF, World Bank and ADB over the past few years, the country has been seeking to increase its voting rights in those institutions.
An official at the Finance Ministry predicted that “the quota (voting rights) of Korea could be raised to 1.8 percent (under the G20 agreement in 2010), compared with the current 1.4 percent.”
Finance ministers of Korea and other major Asian nations have continued to call for a review of the IMF’s quota system to reflect the region’s rising economic power.
Voting rights in the IMF are determined by quotas. Each member country’s quota broadly reflects the size of its economy: The larger a country’s economy in terms of output and the larger and more variable its trade, the larger its quota tends to be.
The initial IMF members hold the dominant portion of the pie, but they were established more than six decades ago when Asia was in ruins. Today, Asian nations hold $2.5 trillion in foreign reserves, two-thirds of the world’s total.
The United States has the largest quota at 17.67 percent, followed by Japan with 6.56 percent, Germany with 6.11 percent, the U.K. and France with 4.51 percent each, and China with 4.0 percent.
At a high-profile officials’ meeting in Washington, D.C. last month, Deputy Prime Minister and Finance Minister Hyun Oh-seok called for the IMF to conduct the quota reevaluation as soon as possible.
Hyun reiterated the agreement during the Group of 20 Seoul Summit in 2010 in which members reached a consensus on transferring a 6 percent share of the IMF quota held by developed countries to emerging and developing countries.
In consideration of the quota competition and the significant role of the IMF, Seoul is set to spend the bulk of the budget ― 8.4 trillion won ― on the IMF, with an additional 38.2 billion won for the World Bank.
“Like the IMF case, Korea’s quota at World Bank is likely to climb to 1.63 percent from the present 1.0 percent,” said the official.
The government is poised to provide the ADB with 36.5 billion won, while planning to allot 13.2 million won for the International Development Association and 6.45 billion won for the International Finance Corp.
The IDA and IFC are sister agencies of the World Bank that have been set up to cater to supporting underdeveloped nations.
The ministry also plans to offer funds to global financial bodies that focus on African countries. Its budget for the African Development Bank has been set at 4.3 billion won.
Korea’s foreign exchange authorities including the Bank of Korea have been utilizing the country’s sizeable foreign reserves, which reached a record high of $343.2 billion in October, to invest in international financial organizations.
For effectuation, the state funding plan must be ratified in the National Assembly.
