The Problem of the DPRK’s Outstanding Debts (II)

|Korean Peninsula

In this article, I would like to summarize the current situation regarding creditor nations, based on information I have gathered. The various countries have responded in their own ways, but there are neither cases where putting pressure on the DPRK regarding the implementation of loan repayments has succeeded in achieving the collection of the whole amount of principal and interest, which would be a fundamental solution, nor examples of debt waivers being implemented.

1. Russia

It seems that the total value of unpaid assistance from the Soviet era, in the form of construction costs of steelworks and power stations, is about 4 billion roubles, but the extent to which this has been adjusted and checked by the two nations has not been ascertained. Information from sources in the ROK suggest that the figure has been estimated at $4 billion. The information below about recent developments has been included for reference purposes.

  • In late July 2000, when President Putin visited Pyongyang just after the historic North-South Summit and before the Okinawa Summit, Secretary General Kim Jong Il requested a debt waiver, but it is reported that he met with the response “nyet”.
  • In order to revitalize the Siberian Land Bridge and with the aim of linking up with the Busan container facility, Russia seems to be intent on actively promoting the modernization of the Korean East Coast Railway, but I would suggest that it may also have in mind the appropriation of part of the DPRK’s income from transport fees in lieu of debt repayments. (As yet there are no reports to this effect, but given news such as that about the Siberian wood-felling project and other issues interconnected with loan repayment problems)

2. China

It may be because the issue of how to respond to future moves on the part of the DPRK and the U.S. is a major political topic, but there is hardly any information about how China, which has been the DPRK’s biggest supporter over the last half-century, is dealing with this matter. I hope that some kind of comment will be forthcoming from diplomatic sources or from those connected with international finance.

3. Europe

It is said that the UK and France are together owed about $1 billion, while Germany is owed about DM500 million. In August 1987, rescheduling negotiations collapsed and the English and French banking consortium declared that the DPRK had defaulted. At the time, the Japanese Payment Council had contacts with Morgan Grenfell, the kingpin in this consortium, but there are no contacts at present. After this, the consortium seized the DPRK estate in Europe, as well as securitising some of the debt and issuing it on the market. Apparently, immediately after the North-South Summit the year before last, the market evaluation of these securities showed a dramatic increase of 20% of their face value.

4. Japan

An agreement on tertiary rescheduling was reached in 1983 by the North Korean Trade Bank and the Japanese Payment Council, but not so much as a single yen has been repaid to date. In 1986, a trade insurance payment was made, contributing to an improvement in the creditors’ cash flow, but as the National Tax Administration Agency would not allow the tax-free writing off of the DPRK debt, a bitter aftertaste still remains in the form of financial statements. Recently, it seems that a number of cases have come to light in which they have been sold to overseas speculators as part of the disposal of bad loans by banks. Since the peak in 1980, trade between Japan and the DPRK has been on a continuous downward slope. The political tension between the two countries has been a factor in this, but the biggest stumbling block has been the DPRK’s trade credit, something that is rooted in the repayments problem. It is my conjecture that the Ministry of Foreign Affairs will bring up the issue of repayments if progress is made in diplomatic negotiations between Japan and the DPRK.

[Translated by ERINA]