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The North Korea issue and the little question of costs

The North Korea issue and the little question of costs
by Anthony Rowley

Compared with the recent flurry of shuttle diplomacy involving North Korea - by South Korean government emissaries to Pyongyang and Washington followed by North Korean leader Kim Jong-un's undercover trip to Beijing - reports that Asian Development Bank president Takekiko Nakao had met South Korean president Moon Jae-in in Seoul seemed like small beer.

But there could be more to this than meets the eye. From all accounts the Moon-Nakao talks were routine and there was no mention in a joint statement of North Korea. This is hardly surprising given the sensitivity of the North-South issue. Potentially big financial and economic issues could be involved, however, affecting most powers in Northeast Asia.

The ADB itself (along with the World Bank and IMF) could become heavily involved if the proposed talks between US President Donald Trump and Mr Kim talks should begin a process leading to the opening up of the "hermit" state to outside aid and investment, and even to eventual reunification of the two Koreas.

The US along with South Korea, Japan and China would be expected to stump up money, as would multilateral development banks such as the ADB. Just how much money is all but impossible to say at this stage. Some estimates suggest that the cost of eventual reunification of North and South Korea could reach around $12 trillion or even much more than that.

Well before such an historic development takes place, however, it is highly likely that part of any deal whereby North Korea agrees to limit if not abandon its nuclear weapons program would be a demand from Pyongyang for financial aid (not to mention possible quid pro quo demands for a reduction of US troops in South Korea).

But what is at stake goes beyond the issue of costs. As reports by the Tumen River Area Development Program, the United Nations Development Program and others have said, enormous opportunities could open up for investment and development in Northeast Asia if only a thaw could begin in regional political and economic relations, and North Korea is critical.

The possibility of a thaw has sometimes appeared tantalizingly close. For example, when then US Secretary of State Madeleine Albright went to Pyongyang in 2000 to meet Korean "Dear Leader" Kim Jong-il (Kim Jong-un's father), to be followed two years later by then Japanese prime minister Junichiro Koizumi and in 2008 by Russian president Vladimir Putin

Whenever a breakthrough on North Korea seems possible, the question of who would finance rapprochement between North and South always arises, and it is a very vexed question. Apart from the obvious candidates such as Pyongyang's close neighbors in Beijing, Tokyo and Seoul (as well as Washington and others) attention focusses on multilateral development banks

As a matter of form, North Korea would need to join the IMF and the World Bank in order to establish its credentials. But it is very likely that the Asian Development Bank would become a main conduit for channeling aid and loans because of the predominant influence of the US and Japan, along with other Asian powers in the Manila-based bank.

Back in 1997, North Korea began making friendly approaches to the ADB after behind-the-scenes diplomacy extending over several years. At that time, Seoul had stepped up its financing contributions to the ADB and, as President Nakao noted in his visit there last week South Korea has since contributed to the bank through capital, trust funds and cofinancing aid.

The time for Seoul to look to the ADB for reciprocal help could be not so far away if South Korean president Moon's initiative in helping broker talks between Trump and Kim pays off. This would be welcomed in Beijing and Tokyo as they are no more anxious than is Seoul to be left with the burden of financing reconciliation between the two halves of a divided peninsula.

Pyongyang was among the 70 or so nations that applied to join the China-led Asian Infrastructure Investment Bank (AIIB) a couple of years ago and its acceptance seemed likely given traditionally close relations between Beijing and Pyongyang. But the application was turned down because the AIIB was concerned about inadequate information flows from North Korea.

Mr Nakao's visit to Seoul can thus be seen as being replete with diplomatic as well as economic significance for the Northeast Asia region at this delicate juncture. The visit might also serve to move the ADB back more toward center stage at a time when the AIIB, plus China's Belt and Road Initiative have been stealing much of the limelight.

From a wider regional perspective, any progress in lessening tensions centering upon North Korea could also allow debate to be rekindled on economic development of Northeast Asia. There are various forums through which this could be done, apart from the ADB itself and within the Beijing-based AIIB.

There is also the Tumen River Area Development Program which has proposed ambitious schemes for economic cooperation in areas where China, Japan, Mongolia, Russia, North and South Korea share land or sea borders. The area could become to Northeast Asia what the Mekong River development has become to Indochina, a symbol of regional cooperation, some experts say.

A proposal was drawn up some years ago for a new North East Asia Development Bank (NEADB). This was prepared under the auspices of the North East Asia Economic Forum (NEAEF) and would have been modelled along the lines of existing development banks, but it appears to have been superseded by the AIIB. The NEAEF which drew up the plan still exists however.

Northeast Asia has been termed the world's 'last frontier.' It is, as a study headed by former ADB vice president Stanley Katz noted, rich in deposits of just about every metallic mineral from manganese to gold, in energy, timber and multiple other physical resources as well as in human resources. But they cannot be tapped without a geo-political breakthrough.


Anthony Rowley is a former Business Editor and International Finance Editor of the Hong Kongbased Far Eastern Economic Review and has spent some 40 years writing on Asian affairs from Singapore, Hong Kong and Tokyo. He currently writes for the Singapore Business Times, among other publications.

Published in: April 2018

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