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Title Cooperation Measures to Procure Finances for North Korean Economic Development

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  • Date
    2018-12-06

Cooperation Measures to Procure Finances for North Korean Economic Development


Published on 6 December 2018
Published by Economic Analysis Coordination Division of the Economic Analysis Department

 

The Inter-Korean and North Korea-US Summits, multiple rounds of working-level meetings as well as exchanges on various fronts between North and South Korea that took place in 2018 have elevated expectations toward North Korean reform and openness. Reflecting upon recent media reports and government announcements, measures for inter-Korean bilateral cooperation appear to have been discussed in detail, and the National Assembly is also deliberating on budget proposals regarding programs related to inter-Korean economic cooperation. However, prudent review is still required regarding the demand for North Korean social infrastructure development as well as the types and scope of financing available, due to the uncertainty of North Korea making progress toward denuclearization and the financing limitations of the Korean government.

This report identifies the demand for social infrastructure development in North Korea in areas such as transport, energy and finance, through research on the status of the regime’s economic trends and social infrastructure; and examines the potential size and application of resources that could be linked to the development of North Korean social infrastructure development, by category. In particular, through case studies of economies that have pursued reform and openness initiatives such as Vietnam and China, a review was conducted on the financing methods and processes via public-private cooperation financing led by international financial institutions (IFIs).

 

Given that international sanctions are relaxed, North Korea accedes to international financial institutions and institutional foundations are built by the regime, it would be possible to utilize Korea’s finances, bilateral cooperative resources provided by neighboring countries, multilateral cooperative resources mainly provided by IFIs and global private funds for the development of North Korean social infrastructure. The maximum amount of loans that IFIs had granted to each country in the study over three years (2015-2017), on average, was 1.8 billion dollars in concessional loans and 2.46 billion dollars in non-concessional loans from the World Bank, and 210 million dollars in concessional loans and 970 million dollars in non-concessional loans from the Asian Development Bank. It could take three years or longer until the actual financing is made available depending on the pace of North Korean reform and opening as well as its development of a national cooperation strategy.

 

Once the conditions are created through a relaxation of international sanctions against North Korea, the regime’s accession to IFIs and the development of institutional foundations, diverse financing schemes could be utilized for North Korea’s infrastructure development. The actual size of resources that could be potentially procured by North Korea will vary depending on the scale and pace of its reforms and openness policies. In this process, if Korea takes pre-emptive action by identifying the potential demand for North Korean social infrastructure development and spearheading multilateral cooperation through IFIs, it could share in the benefits incurred by the development of North Korean social infrastructure as well as reduce its financial burden in the long term. Korea needs to utilize consultation bodies among relevant institutions for international cooperation to pursue efforts such as the accumulation of statistics on North Korea and development of multilateral cooperation led by IFIs.

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