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Kaesong’s end halts South’s cash flow to North

Feb 18,2016
Since Jan. 15, 1999, about a month after the two Koreas kicked off the Mount Kumgang tourism program, South Korea has paid the North Korean regime in hard U.S. currency.

At the time, senior North Korean official Hwang Chol withdrew $25 million in $100 bills from the state’s Asia-Pacific Peace Committee account at a Bank of China in Macau. The money was then divided into 2,500 pouches and delivered to Pyongyang.

But the money was just the tip of the iceberg in a $942 million lump-sum contract between the two Koreas, in which the South agreed to pay the North for seven years regardless of the number of tourists who visited the Mount Kumgang resort.

Since then, more than $400 million has been sent to Pyongyang.

When the first South Korean ferry arrived at the North Korean port near the resort, the project was hailed as a monumental outcome of the Sunshine Policy, a foreign policy plan designed by Kim Dae-jung meant to foster profoundly closer relations with Pyongyang.

Still, controversy surrounding the tourism project and the payments persisted for almost a decade. The Kumgang tourism project was criticized over claims that it was a “private” project carried out by South Korea’s Hyundai Asan - a Hyundai Group affiliate that spearheads inter-Korean-related businesses - despite the fact that North Korea’s Asia-Pacific Peace Committee is under the direction of the United Front Department, which handles diplomatic affairs with South Korea.

In October 2006, when North Korea conducted its first nuclear test, it was suspected that the greenback bundles had been funneled into the country’s nuclear weapons program.

The number of tourists to the Mount Kumgang in North Korea swiftly dwindled, and Hyundai Asan delayed its payments.

But in July 2008, everything changed when South Korean tourist Park Wang-ja was shot to death by a North Korean soldier. The shocking news led the government to suspend travel to Mount Kumgang, and the stores and facilities in the resort area were seized by North Korea.

Yet even though travel to Mount Kumgang has now been blocked for almost a decade, the jointly run Kaesong Industrial Complex was never subjected to similar scrutiny regarding its cash flow, and North Korea’s laborers continued to get paid for their work.

However, that all changed last week, when the last remaining symbol of inter-Korean cooperation was shut down after the South Korean government concluded that the money sent to the North served as a lucrative source for the regime to finance its weapons of mass destruction. The decision to pull the plug on the complex was the direct result of North Korea’s fourth nuclear test on Jan. 6 and a subsequent long-range ballistic missile launch carried out on Feb. 7, both of which are banned under United Nations Security Council resolutions.

When word came that the venture park was being shut down, more than 120 South Korean firms with factories at the Kaesong Industrial Complex withdrew U.S. dollars at the Woori Bank branch there and brought the bundles to North Korean officials.

The greenbacks were put on board a cash truck and carried by armed agents who directly transferred the money to Pyongyang.

The South Korean government has determined that 70 percent of the cash that flowed into the Kaesong Industrial Complex was diverted to help finance the regime’s nuclear and missile development programs, Unification Minister Hong Yong-pyo said on Sunday.

Hong had said last week that about $120 million in cash was sent to the complex last year, with a total of $560 million being sent since it began operations more than a decade ago. The incoming foreign currency was then transferred to the Workers’ Party, which funnels it toward its nuclear and missile programs or to purchase luxury goods, he explained.

Efforts by the South Korean government to track the flow of cash sent to North Korea, however, have consistently failed.

The former government under the late President Kim, who was responsible for the Sunshine Policy, vowed to make a check list to follow up on the flow of cash sent to the North, though former Unification Minister Chung Se-hyun confessed that he never once seen or heard about such a list.

The current ruling party, which served as the main opposition in 2008, urged the government to introduce a direct payment system at the Kaesong Industrial Complex but never introduced such measures.

BY LEE YOUNG-JONG [kim.sohee0905@joongang.co.kr]


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