The government said yesterday it would give loan guarantees of up to 10 billion won ($10.5 million) to companies operating in the Kaesong Industrial Complex in North Korea.
The guarantees, offered as a means of encouraging more manufacturing activity there, will be available beginning late this year.
The Korea Credit Guarantee Fund, a government-owned fund, will guarantee loans extended by banks and other financial institutions. The guarantees will be limited to seven years, and will carry a price tag of a maximum of 3 percent of the loan amount.
The decision was made at a meeting presided over by Han Duck-soo, the economic deputy prime minister.
Finance Ministry officials said such guarantees are limited to 3 billion won for small and medium businesses operating domestically. Those “ordinary” guarantees are also available to exporters and trading companies who want to open or expand domestic facilities.
Companies operating in Kaesong are also eligible for direct loans of up to 5 billion won from official inter-Korean economic cooperation funds.
North Korea has grumbled about the slow pace of building up the Kaesong complex; part of the problem, the ministry said, is that there is some hesitation by companies and difficulty in obtaining loans because of the perceived political risk and the difficulty in using assets located in North Korea as collateral for loans in the South. Those questions, coupled with what the ministry hopes will be a surge in interest in manufacturing at the complex, were the spurs for the new guarantee program, finance officials said.
Seoul is pushing its trade partners to treat goods made in Kaesong as domestic Korean products, a request accepted by some but rejected by others, including the United States. Some trade experts also worry that the new guarantee program could be seen as government subsidies to manufacturers, which could be illegal under international trade rules.
Fifteen companies are operating at the complex now; another 23 are preparing to start.
