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Diverse scenarios considered to develop North Korea's economy

Businessmen who have factories in Gaeseong Industrial Complex clap their hands as they watch the historic summit between North Korea and the United States on TV at Korea Federation of SMEs headquarters in Seoul, Tuesday. / Yonhap

By Yoon Ja-young

With the historic first summit between North Korean leader Kim Jong-un and U.S. President Donald Trump adding to a peaceful mood on the peninsula, diverse scenarios are being considered to help North Korea develop its economy.

If international sanctions are lifted following North Korea's denuclearization, inter-Korean economic cooperation as well as support from the international community will gain momentum.

The government is looking into inter-Korean economic cooperation projects that had been agreed upon during the former Roh Moo-hyun administration. These include building a special economic zone, further developing the Gaeseong Industrial Complex, and repairing roads and railways.

There could also be support and investment through international organizations. As a first step, North Korea will likely join the International Monetary Fund (IMF) since international organizations demand IMF membership as a priority to receiving development funding.

To join the IMF, North Korea should openly disclose its economic condition and offer diverse statistics. The IMF needs the data to determine how much of a stake North Korea will have, the equivalent to voting power in the international organization. As statistics on North Korea are a prerequisite, the government is considering supporting a population census. It usually takes around two years from application to admission.

Strategy and Finance Minister Kim Dong-yeon also said earlier that other international organizations such as the World Bank, Asia Development Bank (ADB) and European Bank for Reconstruction and Development (EBRD) have contacted the ministry to show their willingness to participate in North Korea's economic development. He highly evaluated their vast experience in helping countries with similar transformations, as seen in cases such as Russia. Support through the World Bank is considered a fast track since it offers technical assistance and financial support to non-members.

Developing the North Korean economy will need huge funding. According to the Bank of Korea, the per capita gross national income (GNI) of North Korea was 1.46 million won ($1,354) as of 2016, which compares with 32.1 million won in the South. A report released by the Financial Services Commission in 2014 estimated that it will take $500 billion over the next 20 years to pull up North Korea's per capita gross domestic product (GDP) to $10,000.

Building infrastructure such as railways, roads, electricity and telecommunication facilities will take $140 billion. The Korea Development Bank, meanwhile, estimated it will cost 705 trillion won to pull up North Korea's per capita GDP to $10,000 by 2036. The Hyundai Research Institute expected North Korea to develop light industries such as textiles, shoe manufacturing and food processing where it can make accomplishments based on cheap and abundant labor.

Due to such huge costs, setting up a multinational fund for the development of North Korea is one of the most probable options.

Kim said at an international conference held in Japan, Monday, that Korea, Japan and China may set up a joint fund.

He stressed that lifting of sanctions was a prerequisite for any support. "As North Korea is sanctioned, the consent and cooperation of the international community comes as a priority," the minister said.

"In theory, it is possible for neighboring countries including Korea, Japan and China and others to set up a multinational fund to support North Korea."

Kim cited the Iraq reconstruction fund as an example. The International Reconstruction Fund Facility for Iraq (IRFFI) was set up in 2003 to reconstruct the Iraqi economy, led by the World Bank and the United Nations. Twenty five countries including Korea provided $1.85 billion.

Korea is likely to shoulder a considerable portion of any development fund for North Korea. Korea paid 70 percent and Japan 22 percent of the cost for the construction of light-water nuclear reactors in the North back in the 1990s, which was led by Korean Peninsula Energy Development Organization (KEDO).