UPDATE 4 (2012-9-18): The Wall Street Journal offers some additional details on the deal:
Deputy Finance Minister Sergei Storchak told Interfax that the “restructuring conditions are standard in connection with our membership in the Paris Club, with a conversion into U.S. dollars at an appropriate discounted rate with the balance of the debt to be used for a debt-for-aid program.”
The $11 billion figure was reached by using the Soviet conversion rate of 67 kopecks to the dollar, the ministry said, which at today’s exchange rate would make the debt just $238 million. Russia has reached similar agreements over the years with many former Soviet-clients in larger part because there was little chance the loans would ever be repaid.
Russian and North Korea had resumed negotiations over the decades-old debt in August 2011, following a meeting between former Russian President Dmitry Medvedev and the late-North Korean leader Kim Jong Il. During the meeting, the two sides agreed to pursue a pipeline project that would send Russian gas to South Korea via North Korea.
The following June, a preliminary agreement was reached and the finance ministry submitted a proposal to the Russian government for approval, Interfax reported.
Experts say the settlement of the long-stalled debt talks represented a change in political will on both sides and would help spur along the pipeline project as well as other railway and electricity deals.
“The decision on a settlement of debt is a significant step as it removes the obstacles for cooperation. Now credits can be granted,” said Alexander Vorontsov, an expert on North Korea at the Russian Academy of Sciences.
UPDATE 3 (2012-9-18): Here is coverage of the deal in KCNA:
Agreement on Debt Settlement between DPRK, Russia Signed
Pyongyang, September 18 (KCNA) — An agreement on settling the debt incurred by the loan provided by the former Soviet Union which the DPRK owes to the Russian Federation was signed between the governments of the two countries in Moscow on Monday.
The agreement was inked by Vice-Minister of Finance Ki Kwang Ho from the DPRK side and Vice-Minister of Finance Sergey Storchak from the Russian side.
The conclusion of the agreement on the debt settlement would create fresh conditions for boosting the relations of economic cooperation between the two countries in the future.
UPDATE 2 (2012-9-18): RIA Novosti reports that the DPRK and Russia have signed a debt deal. According to the article:
Russia and North Korea have signed a deal on settlement of the DPRK’s $11 billion debts to Russia, Deputy Finance Minister Sergei Storchak told Prime news agency on Tuesday.
“It was signed yesterday,” Storchak said.
Russia and North Korea have been negotiating over the issue of Pyongyang’s debt to Russia, left over from the Soviet era, for the last four years without result. Russia did not rule out writing off part of the debt and either rescheduling the remainder or offsetting it against investment.
Storchak previously said it was understood a debt settlement would involve a conversion of the ruble debt into dollars, giving an initial discount of around 90 percent of the debt.
The remaining debt of over $1 billion would be used in a “debt for aid exchange” plan to assist with joint education, health and energy projects in North Korea.
Read more bleow…
ORIGINAL POST (2012-6-24): Since I started blogging back in 2006, the issue of Russian debt forgiveness has come up several times. See here.
Here is the latest iteration (AFP: 2012-6-24):
The Russian government is this month set to agree a framework to settle North Korea’s $11 billion debt to Moscow dating back to Soviet times, a deputy minister said.
Russia’s Deputy Finance Minister Sergei Storchak made a rare visit by a top Russian official to Pyongyang from May 31 to June 2 to discuss the settling of the outstanding debt.
“There now needs to be an internal (Russian government) agreement and I think we will already submit a draft this month so that the government can confirm the results of the accords,” the finance ministry website quoted him as saying.
Storchak did not give precise details on the nature of the debt settlement.
The Izvestia newspaper reported last year that Russia would write off 90 percent of the debt and that the other 10 percent would be used on joint development projects in North Korea.
In a statement on the sidelines of the Saint Petersburg economic forum, Storchak did confirm that part of the settlement would involve investment in energy, health and education projects in the isolated Stalinist state.
North Korea’s poverty makes paying back the full sum unrealistic and analysts have expected Moscow to allow the most favourable terms so that the issue does not impede joint cooperation.
The debt was discussed in August last year at a rare summit in the Siberian city of Ulan-Ude between North Korea’s late leader Kim Jong-Il and Russia’s former president Dmitry Medvedev.
Until recently, the talks on the issue seemed deadlocked with Moscow insisting Pyongyang needed to acknowledge that its owes the money to Russia as the successor of the Soviet Union
But Moscow is keen to pursue several projects with its neighbour, including a trans-Korean railroad, the construction of an electricity line and a pipeline carrying Russian gas to South Korea via the North.
When the Russians issued financial data for the sale of ruble eurobonds (2012-12), they claimed the DPRK owed them $10b.
Read the full story here:
Russia to agree N. Korea debt settlement: official