The government said on the 12th it will cut newly approved amounts for the Economic Development Cooperation Fund (EDCF), a tied aid program that lends money to developing countries at low interest, to an average of 3 trillion won a year for the next three years starting this year. That reduces the target from 4.7 trillion won in average annual new approvals set under the Yoon Suk-yeol administration last year.
The government had steadily expanded the EDCF's new approval targets. The shift this time appears to reflect allegations that the program was turned into a vehicle for favors under the Yoon Suk-yeol administration. The Democratic Party of Korea raised allegations that the surge in EDCF disbursements for Cambodia under the previous government was due to lobbying by the Unification Church.
President Lee Jae-myung said in a briefing from the Export-Import Bank in December last year, which manages the EDCF, "Because the EDCF is not a field that draws much public attention, it seems to keep getting swayed politically, which is concerning," adding it is "an area with many openings for corruption."
The Ministry of Finance and Economy said in its 2026–2028 EDCF midterm operation plan, "We set the target for new EDCF approvals at an average of 3 trillion won a year for the next three years, totaling 9 trillion won." Each year, the government has presented a three-year target for new approvals in its EDCF operation plan. The targets had been on the rise: ▲ 11.4 trillion won for 2022–2024 ▲ 11.7 trillion won for 2023–2025 ▲ 13.8 trillion won for 2024–2026 ▲ 14.1 trillion won for 2025–2027. Actual disbursements are 1–2 trillion won a year.
The ministry said, "Globally, demand for Official Development Assistance (ODA) continues to grow, but support volumes are trending down due to fiscal tightening by donor countries and increased defense spending." It added, "This is a time that calls for qualitative strengthening to enhance transparency and fairness in projects and the sustainability of the fund."
The ministry said future tied aid will continue to focus on Asian countries, while shifting priority areas to artificial intelligence (AI), digital, culture, supply chains, and decarbonization. Currently, it is focused on large-scale social overhead capital (SOC) construction such as roads and water and sewer systems. To improve project transparency, it will push to fully disclose on its website project and manager information at every stage, including identification, approval, and evaluation. It will also select specific regions and sectors each year for on-site inspections and monitoring by overseas missions.
The ministry will consider canceling approvals if procedures are excessively delayed during implementation due to circumstances in recipient countries. Funds freed up by cancellations will be reinvested in core projects. It also plans, over the long term, to raise EDCF interest rates, currently between 0.01% and 2.5%. In addition, it will review setting a cap on interest subsidies for the Economic Cooperation Promotion Fund, under which the Export-Import Bank lends low-interest funds it borrows from the market to developing countries and the government makes up the difference between the bank's rate and borrowing expense.