South Korea in the New Geoeconomy: Development Finance and Infrastructure

On March 23, 2022, the Center for East Asia Policy Studies at the Brookings Institution brought together a panel of experts from the United States and South Korea for the third and final workshop in a series to assess the role of South Korea in the new geoeconomics and its implications. for US-Korean relations and South Korean economic diplomacy in Asia. The theme of the workshop was development and infrastructure financing and the provision of regional public goods.

The workshop opened with framing remarks provided by two experts who offered analysis from the perspective of South Korea and the United States. Dr. Taekyoon Kim, Associate Dean for Public Affairs and Communications and Professor of International Development at Seoul National University, explained that effective aid requires adherence to the five principles of the Paris Declaration – ownership, alignment, harmonization, results-based management and mutual accountability. . Donor harmonization was identified as an area requiring improvement. To strengthen coordination, donors need to share information, establish common arrangements and simplify procedures, but these practices seem to be lacking at present.

Assessing China’s commitment to financing infrastructure and development in the Indo-Pacific, Kim noted that the Belt and Road Initiative (BRI) offers many benefits to beneficiary countries, including the the lack of integration of projects into local policy, the lack of conditionality of terms, and the speed and scale of projects. However, a major drawback for beneficiary countries when engaging the BRI is the risk of falling into a debt trap situation (Sri Lanka being an example). Kim argued that like-minded democracies should create a transparent funding model for the region, giving countries the flexibility to choose the donor that best matches their needs and values.

Kim pointed to several key shortcomings in the current state of affairs. Although there are many ongoing development projects in the region, the system is fragmented as the projects are managed by many different donors. One of the challenges is finding the right umbrella under which these disparate pieces can fit. A distinct challenge in bilateral cooperation between the United States and the Republic of Korea is that South Korea does not currently have a development finance institution (DFI) through which direct coordination of financing plans can be channeled. . Another issue is that of accountability, namely the creation of coordination mechanisms that provide quality control and global standards to prevent problems of indebtedness and corruption. The use of sectoral comparative advantages of various donor countries should be considered. Kim suggested that South Korea’s ICT expertise could be incorporated into a single program that would also leverage contributions from the United States and other Asian donors. Whether or not that could be achieved through the ROK’s engagement with the Quad remains to be seen.

Dr. George Ingram, Senior Fellow at the Center for Sustainable Development at Brookings, began his remarks by highlighting two important commonalities between the recent G7 Global Partnership for Infrastructure and Investment (GPII, successor to the Build Initiative). Back Better World (B3W)), and the Biden administration’s recently released Indo-Pacific Strategy: Digital is a priority in infrastructure development, and infrastructure projects must be accountable and transparent. He noted that the COVID-19 pandemic has accelerated the Fourth Industrial Revolution (rapid changes and integration of technology into all aspects of life), as evidenced by the successful shift to remote work by employees and the transition to digital operations by governments and businesses. By contrast, countries, businesses and individuals with insufficient digital capabilities are being left behind – this includes much of Southeast Asia where the share of the population with internet access in some countries is not is only 40 to 50%.

A number of analogue issues need to be addressed to bring positive digital transformation to the region. This includes fostering digital literacy to drive innovation and help keep user costs low, protecting data privacy and freedom of data flows, defending users against government and social media abuse, and promote effective policies that address interoperability, competition, inclusion and cybersecurity. South Korea and the United States are largely aligned on their vision of digital transformation and could launch a new initiative to close the infrastructure gap in Asia. Ingram suggested that the Power Africa initiative, which links twelve US development agencies, with USAID in the lead, and has used over a hundred public-private partnership agreements to raise both monetary and energy, could provide a valuable model for a new US government. ROK cooperative effort. Moreover, a multilateral effort would allow the United States and others to better compete with what China has to offer. Finding the political will for such efforts remains a challenge, however, particularly in the United States where donor coordination faces significant obstacles from Congress and the bureaucracy.

In the panel discussion that followed, a prominent topic was whether U.S.-ROK development finance cooperation would be best channeled through existing institutions or through existing institutions. a newly created initiative. The Blue Dot Network could be one such umbrella under which cooperation can take place as it emphasizes quality and responsibility, and South Korea may be able to capitalize on technological cooperation given its strength in ICT. On the other hand, those same standards could act as a barrier to broad participation if the bar is set too high, and it’s unclear whether Seoul cares much about the network. In the G7 GPII initiative, there seems to be a desire to offer an alternative to China in financing development and infrastructure, but one participant noted that at the time of this workshop there was no effective coordination mechanism by which to deliver through these forums. Alternative forums and existing institutions mentioned as potential avenues for cooperation included working groups under the Quad, the US-led Indo-Pacific Economic Framework (IPEF), and ASEAN.

A point of debate among participants was whether the greatest impediment to cooperation was a lack of resource commitments rather than donor coordination issues. A participant countered that the commitment of resources is the result of poor coordination, including the misuse of funds. On the role of DFIs, another participant added that attracting and mobilizing private finance is critical, as many DFIs rely primarily on private rather than public finance, and there could be a space of cooperation. The creation of a proper DFI in South Korea could expand opportunities for diplomatic engagement in Asia, which has the largest potential market for DFI engagements and private donor funding. Another participant argued that no DFI can compete with the Chinese BRI, and that the collective efforts of a few DFIs usually lead to a long and costly time to start any collaborative project. Additionally, there are downsides to working through a DFI, as its reliance on private funding can mean an overemphasis on maximizing profits. This point was countered by one participant who indicated that these profits could be used as seed money for the next project, and that DFIs take more risk financing projects than others might think.

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