hankyoreh

Gyeonggi Province.

Rebuilding the North Korean economy after reunification is likely to cost around US$500 billion, but the government said that it can raise this money without increasing taxes, through state-funded financial organizations and investment from the private sector.

This is the argument that Shin Je-yoon, chair of the Financial Services Commission, is planning to make in a presentation titled “Unification of the Korean Peninsula and Financial Policy Challenges,” which he will deliver on Nov. 19 during a conference about unification and finance hosted by the Korea Finance Corporation (KoFC).

The Financial Services Commission estimates that it will cost around US$500 billion to raise the North Korean per capita GDP (gross domestic product) from its current level of US$1,251 to US$10,000 within two years.

US$140 billion will be needed to build up infrastructure inside North Korea, including railroads (US$77.3 billion), roads (US$37.4 billion), and power generation (US$10.4 billion), while US$35 billion will be spent on setting up industries, such as electricity and electronics (US$2 billion) and farming and fisheries (US$27 billion).

In order to raise these funds, the government proposes to have public financial institutions find between US$250 billion and US$300 billion, 50% to 60% of the total, and to allow the private sector to invest between US$107.2 billion and US$186.5 billion in special economic zones and projects with guaranteed profitability.

The government also predicts that it can put US$100 billion of the US$330 billion in tax revenues it collects during the economic development of North Korea to use as funds for further development. These figures were calculated using the South Korean tax rate of 26%, under the assumption that North Korea will experience an average of 8% yearly growth during the first decade of development and 10% of yearly growth during the second decade.

In addition, the government believes that it can secure US$17 billion of funding through overseas development aid (ODA) from other countries.

As of 2013, North Korea’s level of economic development resembled South Korea’s during the 1970s.

North Korea’s GDP is 34 trillion won (US$30.93 billion), its government budget is US$6.62 billion, and its international trade is worth US$7.35 billion.

In contrast, South Korea’s GDP is 1428 trillion won (US$1.30 trillion), its government budget is US$287 billion, and its trade is worth US$1.08 trillion.

At the time of the reunification of Germany, West German GDP was 9.7 greater than that of East Germany. But the South Korean GDP is 42 times greater than North Korea’s, raising doubts about the feasibility of the Financial Services Commission’s plan for raising funds to rebuild North Korea.

By Hwangbo Yon, staff reporter

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