From the Joong Ang Daily:
Guarantees for Kaesong
Detailed plans for providing private loans to companies moving to the Kaesong Industrial Complex are being made. Even though the relationship between the two Koreas is in a state of confusion because of the recent missile crisis, several senior officials from big banks and the credit guarantee funds are planning to visit the industrial complex in North Korea.
The administration’s rationale for the visit is to get immediate financial support from the private sector to implement its special loan guarantee program to companies in Kaesong. The banks are certainly willing to give the loans once they have a guarantee certificate from the fund, which is backed by the government. The guarantee fund has nothing to worry about because the government will probably patch up the damage if the companies default on the loans.
Although the funding is considered private capital, it is in effect a loan using tax money as security.
It is not right to support an inter-Korea project through such means. Even if the Kaesong Industrial Complex is a symbol of the economic cooperation between South and North Korea, the competitiveness and the business potential of companies moving to the complex should come first.
The companies should be able to make profits on their own and without any special treatment or support from the government. The banks will be making loans as if they are only hypothetical. They have no intention of giving out loans without the government guarantee. This demonstrates just how uncertain the business potential of the Kaesong Industrial Complex really is.
There is also the problem of getting products made at Kaesong acknowledged as South Korean products. The United States, which is Korea’s most important export market, is not accepting the idea. Without solving this problem, the prospects of the Kaesong Industrial Complex are uncertain.
Giving huge financial support to the Kaesong Industrial Complex at a time when tension in the international community is rising because of the test launch of North Korean missiles sends the wrong signal to the international community. The United States is worried about the cash that the project will generate for North Korea and probably its military programs. This funding is contradictory to the international mood.
Also from the Joong Ang: Apparently the subsidy-providing agency says it needs a bigger budget!
‘Guarantees’ and ‘North Korea’ sound risky to a state-run fund
As corporate bankers and the Korea Credit Guarantee Fund trek to the Kaesong Industrial Complex today for an inspection visit, the state-run loan guarantor sounds less than happy about its role in funding companies at the North Korean complex.
Last month, the Finance Ministry said the government would give loan guarantees of up to 10 billion won ($11 million) per company to help South Korean companies who have set up plants there.
Several of the big banks here will join the group visiting the complex ― they include representatives from Kookmin, Shinhan and Hana ― and say they are looking for business. “This visit is a step in our preparations for possible financial dealings with the companies there,” said an official at one of the banks who asked not to be identified.
But a credit guarantee fund spokesman seemed to hope that won’t happen under the present ground rules. “We feel the companies at Kaesong present enough financial risk that without special funding from the government, it would be difficult to guarantee all the loans on our own,” he said.
Seoul estimates that about 1.2 trillion won in aggregate will have to be made available to companies operating at the complex; most of them are smaller manufacturers. The program announced by the government on June 16 said the loan guarantees would extend for as long as seven years. So while from the lenders’ point of view any loans would be nearly free of risk, the credit guarantee fund has a different perspective.
“We will do what the government tells us to do,” the fund’s spokesman sighed, “but the government should be responsible [for our losses].”
Seoul has about 7 trillion won available in its Inter-Korean Cooperation Fund, but those funds are spread across many programs, including tourism at Mount Kumgang and funding of both North and South Korean visitors at conferences and festivals.
Fifteen companies have set up plants in Kaesong; 24 more have reserved sites, and Seoul’s ambitious plans call for about 800 manufacturers to set up shop by 2012.
