North Korean Economy Watch

AFP
1/5/07

Russia has agreed in principle to write off up to 80 percent of some eight billion dollars owed by North Korea, a South Korean newspaper report has said.

The Chosun daily quoted diplomatic sources in Moscow as saying Russian Deputy Finance Minister Sergei Storchak and his North Korean counterpart Kim Yong-Gil reached the agreement in December.

“They have agreed to finish negotiations on this issue before March,” the source said.

Finance officials from the two countries met last month for talks on the debt. Storchak had previously said he expected Russia to write off much of the debt but that the final amount would depend on Pyongyang’s ability to pay.

A South Korean foreign ministry official said he believes no agreement has yet been reached in the talks.

North Korea borrowed 3.8 billion roubles from its ally the Soviet Union since the 1960s to build power plants.

Russia’s Vneshtorgbank and North Korea’s Trade Bank agreed to re-estimate the debt at eight billion dollars including interest, the daily said.

“Russia backed down from its earlier position that it won’t continue eocnomic cooperation unless the North repays all its debt, in order to persaude it to take part in trilateral economic cooperation involving Russia and        South Korea and return to the six-party nuclear talks,” it quoted a diplomat as saying.

The three-year-long negotiations aimed at scrapping North Korea’s nuclear programmes resumed in December for the first time in 13 months but they ended without setting a date for the next round.

The negotiations resumed after North Korea conducted its first nuclear test in October and the UN Security Council imposed sanctions.

NKEcon Watch
11/30/2006:
According to Russia’s RIA Novosti (Hat tip to DPRK Studies), the Russian Foreign Ministry is preparing to forgive a large fraction of its US$8 billion claim on the DPRK treasury.

It could just be a simple financial decision that the two sides have decided to close the books on these particular loans.  The DPRK is still in default from loans it took in the 1970s (Japan is still waiting).  In the face of US led financial isolation, these outstanding loans give the DPRK a powerful incentive to settle its accounts so it can attract more banking services.  

But let’s be realistic, Russia is not doing this out of a Bono/Sachs inspired development plan.  They are cleary getting something for it.  Only last month, Russia announced it was renovating rail lines between itself and the DPRK:

The idea was to connect the South Korean port of Pusan with western Europe, by way of North Korea and then on to the 10,000- kilometer (6,200-mile) breadth of Russia. The route may become a major transportation line, challenging maritime routes through the Suez Canal by cutting the travel time in half and trimming costs by up to 75 percent.

What better way to pay for the railway line than with money the seller already owes you–particularly if you never planned on collecting that money in the first place?

This entry was posted on Thursday, January 5th, 2006 at 1:00 pm and is filed under Finance, Fiscal & monetary policy, Railways, Russia. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.