Interview with Georgy Davydovich Toloraya, Head, Regional projects department, Russky Mir Foundation; Director, Korean Studies, RAS Economics Institute.
On 17 September, Russia and the Democratic People’s Republic of Korea signed an agreement on settlement of North Korea’s debt to Russia worth $11 billion. What are the reasons for Russia’s forgiveness of North Korea’s debt? Why did it happen at this particular moment in time?
Interview with Georgy Davydovich Toloraya, Head, Regional projects department, Russky Mir Foundation; Director, Korean Studies, RAS Economics Institute
– On 17 September, Russia and the Democratic People’s Republic of Korea signed an agreement on settlement of North Korea’s debt to Russia worth $11 billion. What are the reasons for Russia’s forgiveness of North Korea’s debt? Why did it happen at this particular moment in time?
– This news is not, in fact, new at all. Arrangements on the solution of the issue were reached as early as 2011 which fact has been repeatedly reported. The agreement is signed but the process is not yet completed as the document needs to be ratified. So the attention to this matter is of a somewhat artificial nature given that we forgave many other countries’ debts already back in the 1990s. This matter was settled with Mongolia and Vietnam in a similar manner. The relations between Russia and North Korea were rather strained in the 1990s – that was the problem. In addition, Korea declared that it was not going to repay the money as the loans the USSR had extended were used to strengthen the defense capability of the socialist block and that is it had been granted by the USSR itself.
It was only after a meeting between Kim Jong-il – the then DPRK leader – and Vladimir Putin in 2000, that we managed to raise this issue, incorporate it in the Joint Declaration and the North Koreans agreed to start negotiations. Frankly speaking, the parties’ respective positions differed too much. The Korean side stated that it was ready to start negotiations but was not going to make payments, while the Russian side invoked the obligations to the Paris Club. In my view, there was no special commitment – at the Finance Ministry, anyway – to settling this issue back then, that is why it had been suspended for so long. After the August 2011 meeting between Vladimir Putin and Kim Jong- il a decision was taken to resolve the issue as the prevailing situation started to impede implementation of multilateral projects in the Korean Peninsula, development of relations with South-East Asia and the fulfillment of the advancement-to-the-east strategy declared by Russia. I believe that this agreement is, in essence, rather beneficial for Russia, since we have not just written off the debt. One has to bear in mind that part of the $11 billion debt is a kind of artificial, for it is accrued interest. In fact, the DPRK got less money. However, the North Koreans agreed with this figure and the transferable ruble exchange rate. This figure as well as the repayment profile was agreed upon rather long ago.
The profile is the following: 90% of the debt will be written off while the equivalent of one billion and one hundred US$ will be credited to special bank accounts with the DPRK Bank. North Korea may use the funds deposited in these accounts solely for investment in educational, humanitarian and linguistic programmes. Ultimately, the North Koreans will decide when and which projects to allocate the money for, while Russia will gain certain rights in such investments. Knowing the Koreans, one can assume that they will try to link the solution of this issue to potential supplementary aid. For example, they will say: “We want to build a hospital with this money. We will pay for the construction. And you are kindly requested to supply equipment and pharmaceuticals.” This is a notional example which helps to get an idea what future developments may be like. Anyhow, the essential thing is that once settled, the matter is no longer an obstacle to the development of not only bi- but also multilateral cooperation.
– Georgy Davydovich, you have mentioned that Russia’s debt forgiveness opens up ways for this country to resolve many matters in North-East Asia. What specifically are you referring to? In what way can solution of North Korea’s debt issue affect the alignment of forces in the APR as a whole?
– I’d like to point out that North Korea is currently witnessing most interesting developments linked to the coming of Kim-Jong-un - the new leader and the young son of the former one - who seems to be initiating limited economic reforms. Experience of other countries, for example, Myanmar, shows that this often elicits a flurry of interest both in the Western camp and elsewhere. The global community may be expected to pay increasingly more attention to North Korea in the short-term with more focus coming, specifically, from China already pursuing a policy of the country’s economic colonisation. Under the circumstances, it is vitally important for Russia to have positions of its own in North Korea, primarily in promoting bilateral economic relations. The North Korean issue covering not only nuclear and non-proliferation matters but those of its overall security have both a regional as well as a global dimension. This is an issue whose solution Russia can discuss as an equal with major world powers and her voice means a lot. That’s why the country needs strong leverage to pursue its policy in addressing the issues of not only the Korean Peninsula, but the entire APR where the Americans have been gradually shifting their attention.
I believe that North Korea is a key to the entire APR, to strengthening our role -not in words but in deeds – in resolution of the region’s conflicts and issues and economic cooperation is a mechanism to this end. It is precisely through North Korea that a gas pipeline will reach South Korea and a railway that will, at long last, enable to arrange transit and develop not only the contiguous territories but the entire Far East and Siberia. Other projects are also a possibility. Thanks to the decision on debt forgiveness, Russia can play a certain role in North Korea’s economic growth. So, it is a rather timely decision.
– Have any changes occurred, in your opinion, in Russia-Korea relations since the new leader Kim-Jong-un came to power?
– Our relations are rather warm today, though such country as North Korea can hardly pride itself on confident or sincere relations with other countries. The meeting with Dmitry Medvedev turned out to be the last international one for North Korea’s leader Kim-Jong-il and it was also his last trip. Their country needs to be friends with Russia – it was Kim-Jong-il’s last will. This is of major, even sacral importance for the North Koreans and the idea is being consistently implemented at various levels. The North Koreans are by far more willing to engage in joint projects of humanitarian nature, including those under the Ryssky Mir Foundation that I have the honour to work for. They spare no words describing the Russian-Korean friendship and recollecting on what it was like in the past, they cite our traditionally good neighbourly relations and express confidence that they will continue into the future.
I am somewhat reluctant to mention it straightforwardly, but North Korea, in my opinion, feels frustrated to some extent by China’s increasingly strong political and economic influence. A search for alternatives is essential for North Korea from a geopolitical point of view and one of potential alternatives is Russia.
– Georgy Davydovich, thank you for your answers.
Interviewed by Natalia Evtikhevich, Programme manager, RIAC
