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North Korea cornered with snowballing debts

Recent news reports that North Korea offered to pay part of its debt to the Czech Republic with ginseng illustrated how badly the cash-strapped regime is pinched under toughened international sanctions.

Like the number of its nuclear warheads, all figures related to North Korea are a mystery as the world’s most isolated regime neither discloses crucial economic data nor allows international verification.

The South Korean government has given respect to the Kim Jong-il regime in Pyongyang by not officially confirming anything the North hasn’t formally announced.

North Korea watchers in the West estimate the North’s outstanding debts to be around $12 billion, two thirds of which is owed to former communist states.

In 2008, a ruling Grand National Party lawmaker had suggested allowing North Korea to pay back its loans from South Korea with mineral resources or development rights.

Rep. Kwon Young-se said during a parliamentary audit two years ago that North Korea’s debts amount to $18 billion, nearly as much as the country’s economic output in the year 2007.

About five percent of it, or $920 million, was borrowed from South Korea.

“Loans for North Korea’s economic development from socialist countries in the 1950s and 60s, and Western nations in the 1970s have accumulated with overdue interest on outstanding debts,” Kwon said.

“North Korea’s per capita debt is around 930,000 won, slightly less than the country’s annual per capita income of 1.07 million won.”

Last year, a top South Korean government official said Seoul could pay for tours to North Korea with commodities instead of cash.

He said the issue of paying cash to North Korea had to be reconsidered based on the U.N. Security Council Resolution 1874, which slapped tightened sanctions on the reclusive state as punishment for its nuclear and missile programs.

The crossborder tours have been suspended for the past two years after a South Korean tourist was shot to death in the North’s mountain resort.

Czech officials confirmed that Pyongyang had offered last month to settle 5 percent of its $10 million in accumulated debt in ginseng, an invigorating root used in dietary supplements and teas that is known for improving memory, stamina and libido.

Communist Czechoslovakia was a leading supplier of heavy machinery, trucks and trams to North Korea.

Non-cash trade and settlement of debt has been common among socialist countries. Cuba compensates Venezuela for discounted oil by sending doctors to work in deprived areas.

Czech officials, however, did not jump at the offer of ginseng.

“We have been trying to convince them to send, for instance, a shipment of zinc, which is mined there. We would sell it ourselves,” Tomas Zidek, deputy finance minister, told the Czech Republic’s MF Dnes newspaper.

Radek Lezatka, finance ministry spokesman, said Prague was still discussing whether North Korea would ultimately pay in cash or a commodity.

MF Dnes calculated that 5 percent of the North Korean debt would amount to 20 tons of the curly white root. Retail prices of North Korean ginseng in Taiwan suggest a figure closer to 12 tons. Both sums are much higher than the Czech Republic’s ginseng consumption of about 1.4 tons year, although North Korean ginseng is known for its superb quality in east Asia.

A U.S. court ruled earlier this month that the Foreign Trade Bank of Korea, a North Korean state bank, owed a Taiwanese counterpart $6.77 million over an unpaid loan.

North Korea’s military runs the export companies that ship foodstuffs, such as shellfish, ginseng and mushrooms, to gain hard currency. Intelligence agencies say the ginseng trade is controlled by Pyongyang’s shadowy “Bureau 39”, which runs the country’s foreign funds.

By Kim So-hyun and news reports  (
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