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

|Korean Peninsula

In this, the last of my essays on this topic, I intended to write about steps to be taken to solve the problem, as I mentioned in my first piece, but to be honest, I am finding this rather hard to write. Ultimately, there are only simple solutions to the issue of reducing debt.

The only possible responses are probably “We will work to repay the debt but we would like some time”, or “It is impossible for us to pay off all of it, so please reduce it”, or a combination of the two. I think everybody understands this by now, so there is no need to give a long explanation of this. Nevertheless, over the last 20 years at least, although it seems that there have been sporadic endeavors on an individual basis to put out feelers regarding debt waivers, there have been no serious approaches to debtor nations as a whole regarding rescheduling or debt reduction. In terms of policy ranking, I feel that an attitude of “let’s just leave this alone for a while” pervades this issue, so I suspect that it is a waste of time even trying to discuss this.

However, let us look once more at the “common sense” measures that I proposed to the DPRK side when I had the occasion, after taking up the position of Trade Representative. I would like you to recall the debt service ratio. In order to achieve a more favorable ratio, it is necessary to quantify: 1) the reduction of the amount of debt in the numerator; 2) the expansion of the value of exports in the denominator; and 3) the mix of these two elements.

1) Ways to reduce the debt burden and prolong the repayment period

In 1993, I proposed looking at the possibility of joining the IMF. Negotiating debt reduction and extended rescheduling on an individual basis could not be expected to bear fruit. For one thing, there are the Paris Club rules and it is not the done thing for a lone country to secretly offer generous provisions. I hope that the IMF would take on the role of proposing to the debtor nations a rescheduling and debt reduction plan that it would be possible to implement based on a diagnosis of the DPRK economy, and mediate in their acceptance of this, as well as playing a part in supervising the debt repayments to ensure that the DPRK made them. The DPRK would as a consequence have to take the agonizing step of providing the IMF with basic economic data. In studying this possibility, there were officials on the DPRK side who frowned upon the idea, saying that this could constitute the crime of divulging state secrets. The DPRK’s later attempts to make elementary contact with the IMF and the ADB are well known. Moreover, with regard to economic data, it has been reported that the country has begun to provide population and food production data to the United Nations, because of its need for food aid. At some stage, the DPRK is likely to have to move into international society for trade or financial reasons. Therefore, I would like the country to devote even greater effort to conferring thoroughly with bodies such as the IMF.

2) Ways to nurture export industries

Most recent theories of development economics promote the introduction of export-oriented industrialization policies, with a view to emulating the successful experience of the Far East/Southeast Asia. I cannot see any negative factors that would stand in the way of success, were the DPRK to adopt such policies. Even that country acknowledges the merits of economic liberalization. Ten years have passed since the country established the Rajin-Sonbong Zone, during which time it has only put a little infrastructure in place, leaving the majority of infrastructure development to foreign capital. At present, it would be hard to describe the entry of foreign capital as brisk. I have in the past asked why the DPRK does not tackle the nurturing of export industries under its own steam. “Undertaking production that utilizes domestic resources and meets domestic demand is the main mission of industry in our country. If surplus production occurred, it would not be a problem for us to implement exports.” According to this line of thinking, the nurturing of simple export industries with the aim only of acquiring foreign countries does not come into line with national policies and is an area that is left to foreign capital. There are currently three factors that could provide the momentum to change this situation:

  1. Stimulus provided by the rapidly-growing Chinese economy
  2. The dispatch of trainees to developed countries in the process of being revitalized
  3. Joint ventures and economic exchange with Koreans resident in Japan (3rd/4th generation), who have a modern sense of management

3) In conclusion

In the near future, even if the resumption of diplomatic relations between Japan and the DPRK is completed and the rumored payments of compensation/economic cooperation money actually take place, I would suggest that the DPRK economy will not recover instantaneously and it will be difficult to revive trade credit with debtor nations other than Japan.

The people of the Korean Peninsula are perseverant and have endured unspeakable hardships with tremendous fortitude. I hope that, while broad interaction on various levels in international society and exchange between citizens is taking place, thereby gaining the understanding of the DPRK, that country will increase its understanding of how to engage with international society and draw up its own scenarios for economic regeneration and solving the problem of outstanding debts. Specific details of policies aimed at a specifically “Korean-style” liberalized economy will naturally take shape in due course.

[Translated by ERINA]