Seoul Ambiguous Over NK Financing
By Lee Hyo-sik
Staff Reporter
The Roh Moo-hyun administration began drawing up financial plans for a variety of inter-Korean economic projects after Roh and North Korean leader Kim Jong-il signed the accord in Pyongyang last week.
Following the landmark signing of the Pyongyang accord, private institutes were quick to estimate costs for the proposed projects in North Korea but Deputy Prime Minister and Finance-Economy Minister Kwon O-kyu remains mum on the estimate.
The Hyundai Research Institute estimated Friday that the projects would cost $11.2 billion while Rep. Chung Hyung-keun of the conservative Grand National Party (GNP) put the estimate much higher at $32 billion. But there has been no official estimate as of yet.
The estimates are equal to 4.4 percent and 12.8 percent of this year's total budget, respectively. They are also equivalent to 42 percent and 125 percent of the defense budget. The country's gross domestic product (GDP) reached $887.4 billion last year.
Minister Kwon said that the government would tap international financial organizations, including the IMF and World Bank and private funds. He said the government plans to first increase the Inter-Korean Economic Cooperation Fund to finance infrastructure development and other projects. ``We will also closely work with international financial institutions to attract funds from outside,'' he said.
However, analysts say the World Bank and other international organizations will not provide funds unless geopolitical uncertainties associated with the Stalinist state, including its nuclear weapons development program, are resolved.
Seoul Financial Forum Chairman Kim Ki-hwan said the U.S. exercises significant influence on decision-making at the World Bank and other international institutions. ``Unless the U.S. verifies the North's complete dismantlement of nuclear weapons, the Korean government will not be able to get funds from multilateral financial organizations for the North Korean projects,'' he said.
In addition, many CEOs, including tycoons who accompanied Roh during the summit in Pyongyang, are noncommittal with regard to investment in North Korea as they have yet to smell gains from any proposed investment.
Even working-level officials privately said they are unsure where the funds will come from, adding that they are unsure whether Roh's successor will inherit the projects.
The lack of an official estimate illustrates the current dominance of macroeconomic planners like Kwon, who came from the now defunct Economic Planning Board at the sacrifice of financial policymakers who are members of the former Finance Ministry. Curiously enough, the Roh administration has driven out many talented Finance Ministry officials replacing them with Economic Planning Board members.
The latest survey showed that 74 percent of South Koreans support the Oct. 4 summit accord but a Seoul banker said if Roh has a clear-cut financing plan, his inter-Korean projects would get more support.
Many bankers and analysts say that without a detailed and clear financing blueprint, South Korean taxpayers will likely shoulder tens of billions of dollars for implementing inter-Korean agreements.
Roh asked ministers Friday to make a detailed estimate on the cost of implementing summit agreements, saying he did not believe any of the cross-border economic projects would cost much.
He also said the financing cost should be calculated to smoothen inter-Korean cooperation and that a roadmap should be drafted to ensure continued implementation during the next government.
Private think tanks believe the government will have no choice but to resort to issuing state bonds and increasing taxes to raise funds, putting a burden on taxpayers. But Cheong Wa Dae spokesman Cheon Ho-seon ruled out raising taxes Sunday.
Earlier, the state-run Korea Development Bank (KDB) forecast that the government would need to raise some 60 trillion won over the next 10 years to finance planned inter-Korean economic projects.
It has set aside only 1.3 trillion won next year for North Korea-related activities, including a 750 billion won Inter-Korean Cooperation Fund. So, it will likely pass on most of the expenditure to taxpayers.
According to an internal memo produced by the Ministry of Planning and Budget last month, the government plans to create new taxes and run lotteries to raise funds for implementing the projects and providing aid to North Korea.
It said the government would consider creating new taxes, which could be dubbed as either a ``peace tax'' or a ``unification tax,'' as well as running lotteries and issuing bonds to raise funds for inter-Korean economic cooperation.
However, some analysts say the estimated costs for cross-border projects are not excessive given the size of the Korean economy and government spending.
``The KDB projected the proposed inter-Korean projects will cost some 60 trillion won over the next eight years. But it is not a huge amount when you consider how much money the government is spending to expand roads and other infrastructure,'' Citigroup economist Oh Suk-tae said.
He said the government spent some 50 trillion won last year on various infrastructure development projects, adding taxpayers' burden will not be as heavy as it is feared because the size of the economy has expanded.