Deafening silence from North Korea greeted the first repayment date on Thursday for loans given by the Kim Dae-jung and Roh Moo-hyun administrations. The Export-Import Bank of Korea faxed a notice to North Korea's Foreign Trade Bank on behalf of the South Korean government on May 4 informing them of the date of maturity and amount, but Pyongyang ignored it.
North Korea was supposed to repay US$5.83 million including principal and interest by Thursday. The amount is the first tranche of maturing loans extended in 2000 of $88.36 million in the form of 200,000 tons of corn and 300,000 tons of rice. Between 2000 to 2007, the South gave the North 2.6 million tons of food worth $720 million. North Korea must repay $875.3 million by 2037 at an annual interest rate of 1 percent.
The South Korean government already included the $5.83 million the North was scheduled to repay in its budget for this year. "If North Korea does not respond by Friday, we will notify it again of the repayment date and take additional measures," a Unification Ministry official said.
But the chances are slim that the cash-strapped North will repay the debt amid chilly inter-Korean relations. North Korea has been hurling abuse and threats at South Korea since mid-April. The North's official KCNA news agency on Wednesday called President Lee Myung-bak a "rat" and compared him to Adolf Hitler.
The Kim and Roh administrations failed to make back-up plans in case the North fails to pay back what it owes except for a penalty clause in case of default boosting the interest to 2 percent.
In 2007 and 2008, South Korea also gave the North $80 million worth of raw materials to produce textiles, shoes and soap. At the time, North Korea repaid 3 percent of the loan with $2.4 million worth of zinc ingots. Repayments of the remaining $77.6 million become due after a five-year grace period, so North Korea must start repaying $8.6 million a year every year for 10 years starting in 2014.
Seoul also loaned Pyongyang W585.2 billion (US$1=W1,172) from the Inter-Korean Cooperation Fund so it could re-connect railways and roads with the South that were severed in the 1950-53 Korean War. And it provided W149.4 billion worth of equipment to the North. The North must repay that loan in 20 years with a 10-year grace period at an annual interest of 1 percent.
It also seems unlikely that South Korea will be able to recoup W1.37 trillion plus around W900 billion in interest it provided North Korea through an abortive project by the Korean Energy Development Organization to build a light-water reactor.
The loans amount to a total of around W3.5 trillion, which the South will probably have to write off.