The Problem of the DPRK’s Outstanding Debts

|Korean Peninsula

For 9 years until June 2001, I represented the Payment Council, so I believe that I ought to use this opinion section to write about the problem of outstanding debts. In this three-part series, I plan to write about the themes of 1) the current situation in the DPRK (the debtor nation); 2) the current situation in the creditor nations; and 3) steps to be taken to solve the problem, and I would be very happy to hear the opinions of/be corrected by those with an interest in this topic.

(1) The Current Situation in the DPRK (the debtor nation)

In the early 1970s, when President Kim Il Sung noticed the ROK’s rapid industrialization, he competitively pursued the introduction of capital goods from Japan and Western Europe. The fact that this was not included in the six-year plan at that time was a problem, as was the securing of hard currency for repayments, due to the two oil shocks in 1973 and 1979. As a result, the third rescheduling of the 1983 conclusion with Japan is still in place today without the loan having been repaid, and a group of Western European banks issued a declaration of default in 1987.

The DPRK has not made any formal announcements about its foreign debt. According to OECD reports based on information provided by creditor nations, the DPRK’s foreign debt amounted to $7.5 billion in 1997. There is a viewpoint in existence at the moment that, if cumulative interest and the issue of evaluating exchange rates on open accounts (Chinese won, rouble, etc.) are included, the rough total is $10 billion. I believe that the DPRK falls clearly into this category in the latter half of the 1990s if the measure of per capita GNP below $700 and a debt service ratio of over 2.2 is applied, in line with the IMF’s definition of Heavily Indebted Poor Countries. Leaving aside the matter of it being a poor country, the DPRK’s heavy debt burden is extremely serious.

In the 1990s, the DPRK’s annual average value of exports was $1 billion (this is the figure obtained from each country’s total of imports from the DPRK, so it is highly accurate data). Consequently, the debt service ratio is between 7.5 and 10, making it prominent in the Far East and Southeast Asia. In such conditions, it is almost impossible for the country to gain trade credit from other nations.

In the IMF also, it is the case that debt relief for heavily indebted countries has been debated, but even if it is a saving in this case, it is obvious that they will plunge heavily into debt again, so the argument seems to run that at the same time, it would be necessary to provide funds and various other support for infrastructure development, industrial development, the nurturing of human resources, etc.

Several years ago, an official from a DPRK trade bank made a low-key announcement about debt relief. The results of the experimental policy of opening up the economy have yet to be acknowledged and a clear explanation of the content of the “our-style” policy of opening up has not been provided. The debt issue has weathered such an environment and a 20-year period of idleness, so one could even believe that it is the furthest thing from the minds of trade and economy officials.

[Translated by ERINA]