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This cartoon depicts former President Lee Myung-bak (2008-2013) watching President Park Geun-hye announcing business deals during her visit to Iran. While he was president

While the Blue House announced that President Park Geun-hye’s trip to Iran had brought in more than US$37 billion in economic deals, which would be the largest such amount in history, critics are noting that most of the deals are MOUs (memoranda of understanding), which are not legally binding. Thus, there is still a long way to go before they lead to actual contracts. The Blue House may have been deliberately exaggerating when it published a tally that includes the tentative figures in these MOUs.

Reviewing the progress on 30 construction projects (worth US$37.1 billion) that the Blue House claimed on May 2 were economic accomplishments of the South Korea-Iran summit, the greatest number, 13, were MOUs. There were also four MOAs (memoranda of agreement), three term sheets, three HOAs (heads of agreement), two provisional contracts and four others.

The list only included two provisional contracts, which are considered to be more binding, since they are similar to the internationally recognized concept of selecting a preferred bidder. The majority of the agreements were MOUs and MOAs.

But since MOUs and MOAs are low-level agreements that are not legally binding, at the present moment it would be rash to assume that they will lead to actual contracts. And while HOAs and term sheets represent more progress than an MOU, they still do not guarantee that the actual contract will be signed.

In particular, the list of results proclaimed by the Blue House included one instance of “resuming negotiations” (US$3.5 billion for a liquefied natural gas plant in South Pars) and one instance of “resuming efforts” (US$1.2 billion in ship orders for the Hyundai Mipo Dockyard). Such projects were basically tacked on to make Park’s trip look more impressive, critics suggest.

But even if these projects were not added to exaggerate Park’s accomplishments on her trip, the inherent limitations of MOUs mean that they frequently do not lead to an actual project. Since 2010, one South Korean public company has signed 37 MOUs, but so far just six of them have led to signed contracts, while five have been canceled and the rest are still pending.

“An MOU basically means that two parties have agreed to do their best. At the current stage, it‘s impossible to know whether these MOUs will lead to actual contracts and projects,” said a source at a public company that signed an MOU with Iran during Park’s visit.

It is also possible that the value of the orders was somewhat exaggerated. While the Blue House listed the total expected project expenses as the order value for each project, the order value that appears in the final contract might be lower, depending on the scale and manner of construction handled by South Korean companies.

“The MOUs signed during the South Korea-Iran summit give us an advantage for landing actual contracts, but we’ll have to wait and see whether we can actually win the orders on all of these projects,” said a source at a large construction company.

This is not the first time that controversy has been provoked by government cheerleading about the outcome of economic diplomacy that largely consists of MOUs.

Last year, Jeon Jeong-hee, a lawmaker with the New Politics Alliance for Democracy (NPAD) who was on a special committee in the National Assembly tasked with reviewing “resource diplomacy,” said that while the administration of former President Lee Myung-bak (2008-2013) had publicized 96 MOUs that resulted from its resource diplomacy, only 16 of these had actually led to a formal contract.

When President Park visited Saudi Arabia in March of last year, there were also allegations that the government exaggerated the contracts and MOUs about medicine exports that it had advertised.

“Considering that the projects we have announced specify the scope and plans in greater detail than ever before, we believe that there is a significantly high likelihood of their being realized,” Blue House Senior Secretary to the President for Economic Affairs Ahn Jong-beom said on May 3 in response to this criticism.

The previous day, Ahn had said that the Blue House had been conservative in adding up the results of the trip. But Ahn noted that, “just as even completed contracts can be broken, there are risks in every transaction.”

By Choi Jong-hoon and Kim Kyu-won, staff reporters and Choi Jung-hye, staff reporter in Tehran

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