Little fallout felt yet at Kaesong cash cow

A South Korean soldier checks as usual a truck heading for the South from the Kaesong Industrial Complex on the Unification Bridge in Paju, Gyeonggi, yesterday. [YONHAP]

Hyundai Group Chairwoman Hyun Jeong-eun, who has been in close contact with North Korea recently due to an inter-Korean business project, expressed her condolences over the death of Kim Jong-il yesterday.

“I sincerely grieve the sudden death of North Korean leader Kim Jong-il, who made efforts for the reconciliation and greater cooperation of the nation by launching the Mount Kumgang tourism business and Kaesong Industrial Complex,” she said in a statement.

“We will pay as much tribute as we can within an allowed range,” she added.

This was the first letter of condolence released among South Korea’s business circle for Kim, the news of whose death on Saturday morning was belatedly made public on Monday.

“If the government permits a trip, the chairwoman is willing to visit the North to express her sympathy,” said an official at Hyundai Group.

Hyun is the only businessperson to meet the reclusive “dear leader” during the current Lee Myung-bak administration. She tried to keep close ties to maintain Hyundai’s business interests in the North, including a Mount Kumgang tourism project and the inter-Korean Kaesong Industrial Complex.

The group started tours to Mount Kumgang in 1998 and built the industrial park in 2003. The park brings together South Korean business expertise with cheap North Korean labor and has played a major role in fueling trade between the two Koreas. It currently employs about 49,600 workers from the two Koreas.

Bilateral trade for this year reached $1.27 billion as of September.

Factories in the complex reported that they were operating with no changes yesterday. At the request of the North, its nationals clocked in as usual and South Korean workers were permitted to enter Kaesong.

This was interpreted by experts as a positive sign that the North considers the area as an important way of bolstering its economy and has no intention of jeopardizing the project.

However, uncertainties remain about whether the two sides will pursue further economic cooperation. Expressing concern about their safety, 100 more South Korean workers returned home than usual on Monday. Many workers stay at the site throughout the working week.

Some of the companies are also wary of the prospect of financial losses in the event that the financial situation in the North worsens, meaning they would struggle to repay loans they have taken out to sustain their businesses.

Seoul has already been increasing loans for businesses operating in Kaesong due to the oscillating impact of volatile inter-Korean relations over the past decade.

Korea Exim Bank said as of last year it provided 41.6 billion won ($35.8 million) in total loans for South Korean businesses that were engaged in economic cooperation with the North and operating in Kaesong. The figure shot up from 10.8 billion won in 2008 and 15.4 billion won in 2009.

A total of 25 companies have taken out loans from the Exim Bank fund for South-North economic cooperation to date.

The bank said it had to increase the support fund for those companies because business conditions became aggravated, especially after the sinking of Cheonan warship in March of last year, which the North is widely believed to be responsible for.

As most of the companies in Kaesong are small, the tough business conditions in the North have caused them to face higher risks of bankruptcy. To help them out, Exim Bank decided to expand loans for them in cooperation with the Ministry of Unification.

“Given that the Kaesong complex has recorded high production levels for the last three years, Kim’s sudden death is not expected to have a significant impact on operations there,” an official at the ministry said.

According to an official from the ministry, the Korean government has created a loan pool worth 45 billion won for the companies in Kaesong. Loans from commercial banks would then add to this amount.

Apart from the companies based in Kaesong, more than 700 businesses in the South face an uncertain future due to their dealings with the North.

By Song Su-hyun [ssh@joongang.co.kr]