MOSCOW AND PYONGYANG STRUGGLE TO AGREE ON DEBT WRITE-OFF

During rare talks in Moscow on March 23, Russia fell short of delivering on its earlier pledges to forgive Pyongyang much of its Soviet-era debt. The debt write-off was viewed as Russia’s economic incentive to encourage more North Korean cooperation with international efforts to defuse the controversy around Pyongyang’s nuclear program. As Pyongyang’s cooperation was slow to materialize, so, too, were Russian promises to write off the debt.

Convening its fourth formal meeting, the Inter-governmental Commission on Economic and Technical Cooperation was expected to tackle the debt issue. However, the head of Russia’s technical supervision agency Rostechnadzor, Konstantin Pulikovsky, who co-chairs the commission, announced that a debt forgiveness deal remained some time off.

The commission discussed the debt issue, but a final decision would be made by the two countries’ leadership, Pulikovsky said after talks with the North Korean delegation, headed by deputy Foreign Trade Minister Lim Gen Man. “North Korea bluntly and openly said that the DPRK was not able to repay the debt” and suggested making a “political decision” on this issue, he said. The commission released a statement saying that finance ministries would continue talks, aiming at reaching an agreement by the end of 2007 (Interfax, RIA-Novosti, March 23).

During the Cold War, Pyongyang was a leading recipient of Soviet loans, and the government still owes Moscow about 4 billion “transferable rubles,” an accounting device previously valued at between $2 billion and $7 billion. Russian officials have argued that the debt issue was a major obstacle hindering the development of bilateral economic ties. However, Russia and North Korea had not had any debt negotiations for more than five years.

In December 2006, the Russian and North Korean finance ministries discussed a possible debt write-off. In January, Moscow indicated plans to forgive Pyongyang its debt owed to the former Soviet Union. Russia’s Vneshtorgbank and North Korea’s Trade Bank reportedly agreed to re-estimate the debt at $8 billion including interest, and both sides were said to have agreed in principle in December to write off some 80% of the debt. However, hopes for an agreement proved premature.

Nonetheless, Russian officials still came up with some optimistic pronouncements. Pulikovsky appeared to imply that the meeting itself was an achievement per se. Although the commission is supposed to meet annually, the last meeting was held in Pyongyang on October 20, 2000. The fifth bilateral meeting is expected in 2008 in Pyongyang.

The talks produced some encouraging signs in efforts to revive economic and trade cooperation, which have been nearly frozen for the past six years. In the first half of 2007, Russia and North Korea plan to finalize agreements on transportation, customs, and labor cooperation (Interfax, Itar-Tass, March 23).

The North Koreans reportedly suggested raising Russian coal exports to 600,000 tons/year, but requested an installment payment schedule, a condition hardly acceptable to Russian suppliers. The inter-governmental commission said that Gazpromneft had expressed interest in upgrading the Synri refinery, Russian Railways pledged to upgrade the Khasan-Rajin rail link, while Russia’s Eurocement Group proposed modernizing the Sunchon cement plant. Both sides also indicated plans to launch a wood processing joint venture in Amur region, where North Korean workers would produce some 720,000 cubic meters of finished products a year (Interfax, Itar-Tass, March 23).

Both sides reportedly discussed energy cooperation, including possible Russian electricity exports to North Korea and joint construction of power plants in DPRK. North Korea sought Russian assistance in upgrading the Pyongyang 400 megaWatt (mW) and Pukchan 1,600 mW thermopower plants, originally built with Soviet aid. Pyongyang also suggested Russian companies consider building an East-Pyongyang 100 mW thermopower plant. Finally, Russia’s Unified Energy Systems reportedly expressed interest in building a Vladivostok-Chondin power transmission line (Interfax, RIA-Novosti, March 23).

The Russian and North Korean Ministries of Agriculture pledged to work out an agreement on veterinary and sanitary controls to boost trade in food products. Both sides also agreed to convene a joint commission on fishery in the fourth quarter of 2007 to discuss how to use and protect bio-resources (Interfax, March 23).

In sum, Moscow and Pyongyang pledged to develop economic ties, but the two countries will be starting from a very low level. Trade turnover between Russia and North Korea reached $210 million in 2006, with Russian exports amounting to $190 million, while North Korean exports were estimated at some $20 million in 2006. Russia still exports timber, coal, petroleum products, and nitrogen fertilizers, while North Korea mainly exports its cheap labor resources and seafood to Russia.

If Moscow had dangled the possibility of a debt write-off to encourage North Korea to demonstrate more flexibility at the six-party nuclear talks on Pyongyang’s nuclear program, the exercise failed. The latest round of the six-party negotiations ended up with yet another exercise of North Korean obduracy.

Not only did Moscow table its idea to forgive Pyongyang’s debt, Russia warned its bankers against providing financial services to Pyongyang. There were no official requests to Russia to help settle the issue of North Korean funds in Macao, deputy Foreign Minister Alexander Losyukov said on March 22. However, he warned Russian banks against dealing with North Korean money. “I would not recommend Russian banks and organizations to take part in these operations” (Interfax, Itar-Tass, March 22). In sum, the Russian government pledged to expand economic ties with North Korea but simultaneously suggested cautiousness in dealing with Pyongyang.