Pyongyang Owes Seoul Huge Amounts of Money

      April 20, 2011 09:23

      North Korea owes South Korea more than W1 trillion in terms of food and other loans, it emerged Tuesday (US$1=W1,092). The North has to start repaying the debt from June next year, but given its economic difficulties and strained inter-Korean relations it is unlikely that Seoul will see a penny.

      According to the Unification Ministry, the Kim Dae-jung and Roh Moo-hyun administrations gave the North 2.4 million tons of rice and 200,000 tons of corn from 2000 to 2007 on condition of repayment over a period of 20 years with a 10-year grace period at a 1 percent annual interest. The loans amount to US$720.04 million, with the interest reaching $155.28 million.

      The South Korean government also spent W585.2 billion from the Inter-Korean Cooperation Fund to re-link cross-border railways and roads from 2002 to 2008. Of the total, W149.4 billion worth of materials and equipment for construction on the North Korean side are also loans to be repaid on the same conditions.

      Besides, Seoul lent the North $80 million worth of raw materials for production of textile, footwear, and soap in 2007 and 2008. At the time, the North paid back 3 percent of the loan with 1,005 tons of zinc ingots worth $2.4 million, leaving a $77.6 million balance.

      All told, the principal on these loans amounts to W1.02 trillion and the total debt including interest to over W1.2 trillion.

      The first repayment of $5.83 million for the food loans provided between October 2000 and March 2001 is due on June 7 next year.

      A ministry official said, "The amount has already been included in next year's revenue plan, on the assumption that it will be paid back. If the North fails to pay, it will be deemed outstanding balance."

      Aside from the food and economic loans, the South also lent the North W1.37 trillion through the Korean Peninsula Energy Development Organization from 1998 to 2006 for the construction of a light-water nuclear reactor. The money was raised by issuing government bonds. The total amount of all loans adds up to W2.25 trillion, if the accrued interest of W877.2 billion is counted.

      But since the KEDO project was scrapped in 2006, there is no way for the South to get the money back. It seems likely that the total amount will be handled as "irredeemable government bonds" that have to be made up for with tax money.

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