FSC says unification will cost $500B

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FSC says unification will cost $500B


The South Korean government will need as much as $500 billion to help North Korea develop after reunification, according to a report by the Financial Services Commission.

According to the internal report based on opinions and predictions of various experts on the North Korean economy, helping the North raise its per capita GDP from the current $1,251 to $10,000 will require $500 billion.

The FSC has been studying the North Korean economy in preparation for a possible sudden collapse of its government or another kind of rapid and unexpected reunification.

Unification finance was a key initiative announced by the Park Geun-hye government this year. It was included as a major part of the administration’s three-year economic innovation plan.

The main idea of the report unveiled Tuesday is to narrow the gap between the economic development status of the two Koreas as soon as possible. Based on the South’s experience of economic growth in the past, the South will lead development of the North by preparing the needed funds in advance.

According to the report, South Korea’s GDP is about 43 times larger than that of North Korea. In the case of German unification, West Germany’s GDP was about 10 times higher than the GDP in East Germany.

The report said the South will need to spend at least $140 billion to develop infrastructure in the North, including railways, roads, electricity, telecommunication, airports and sea ports.

At least $35 billion is estimated to be needed to grow North Korean industries.

About half of the needed funds, about $250 to $300 billion, will be financed by public policy finance institutions in the South, the report suggested. The rest will be financed by development assistance from advanced countries and multinational organizations such as the World Bank, Asia Development Bank and United Nations.

The FSC plans to attract around $180 billion from the private sector overseas.

The financial regulator’s scenario also includes increasing tax revenues from North Korea in line with its economic growth. It estimates there will be about $330 billion worth of tax revenues 20 years after unification and about a third of the revenues will be needed for economic development, the report said.

“It will be difficult for the South Korean government to rely on its coffers alone because the estimated cost is huge,” said Lee Dong-hoon, director of financial market policy at FSC.

North Korean development will be led by the South Korean government in the initial stages, but overseas businesses and multinational organizations will join in as the plan progresses, the report said.

The report suggested starting a state-run commercial bank in order to create a financial system in the North.


BY SONG SU-HYUN [ssh@joongang.co.kr]

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