Korea has increased its lending to emerging-market and developing economies but faces risks if their debt problems grow

Julieta Contreras and Adnan Mazarei

No PB23-12, Policy Briefs from Peterson Institute for International Economics

Abstract: Over the last few decades, South Korea has transitioned from an aid beneficiary to a provider of financial aid to emerging-market and developing economies (EMDEs). This Policy Brief examines Korea's role as a creditor to EMDEs and how EMDE debt problems affect it as a creditor. For now, Korea's direct exposure to EMDEs is not large. In 2021, the latest year with comprehensive data, the stock of Korea's claims on EMDEs amounted to almost $11 billion, about 0.6 percent of its GDP. Although this share is larger than those of some countries with similar GDP per capita, such as Italy and Spain, it is well below the shares of others, such as China and Japan. The immediate risks from Korea's lending are limited, but it is vulnerable to risks from a systemic EMDE debt crisis in other ways, particularly through trade. It is therefore in Korea's interest to continue to play a constructive role in ongoing international efforts, especially through the G20, to establish more effective debt restructuring frameworks.

Date: 2023-07
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