Agenda for International Cooperation on Mobilizing Development Assistance for North KoreaHyoungsoo Zang and Young-Gon Park
The economic integration of the two Koreas will inevitably induce an additional fiscal burden for South Korea. The relentless trend of the severe economic conditions in North Korea, since 1990 - including the shortages of food, raw materials, and foreign exchange - is likely to continue in the short to medium-term, at the very least. South Koreas economy has also recently been challenged by its own financial crisis and, as a consequence, the weight of the burden has become relatively heavier.

The motivation of this study comes from the fact that South Korea, unfortunately, does not have enough financial resources to support rehabilitation of the North Korean economy. It is obvious that North Korea needs substantial amount of foreign funding for the rehabilitation and reconstruction of its economy, and it is also obvious that South Korea is not rich enough to cover all of the expenses. Thus, the financing needs stemming from Korean economic integration should be satisfied by foreign financing on a much larger scale than in the German unification case. In this regard, there is a need for creating a framework for initiating multilateral international cooperation.

Once North Korea joins the international financial institutions (IFIs), it will be able to receive financial assistance on concessional terms as well as various technical assistance from the IFIs. Helping North Korea to join these international financial institutions would be the first step in laying the foundation for a practical framework for international cooperation. However, the process of North Korea gaining membership in the key IFIs needs some time in order to clear all the hurdles. Therefore, it is equally important to discuss what other modes of support are available to North Korea in the context of its current non-member status.

This study puts forward two conceivable proposals in this regard. One is the creation of the Interim North Korea Development Assistance Group (INKDAG) through which financial, as well as technical assistance to North Korea will be channeled and a multilateral policy dialogue with North Korea will be maintained. Participants of the group could comprise major donor governments, major IFIs, UNDP, Non-Governmental Organizations (NGOs), and international aid agencies. In the early stages of its operation, South Korea would need to take a central role in one way or another. As North Koreas involvement in the international community deepens, and finally, as major IFIs are allowed by major stakeholders to participate more intensely in the Group, INKDAG could incrementally transform itself into a formal Consultative Group (CG) led by the World Bank with Banks financial allocations.

The benefits of INKDAG are the following. First, assistance through multilateral mechanism is less susceptible to political concerns than bilateral channels, for both donor and recipient countries. Second, a collective approach of coordinating resource mobilization is cost-effective and also compensates for the recipient country's lack of diplomatic capacities to reach out to many donors. Third, from the donors point of view, a multilateral policy dialogue mechanism is better suited for preventing aid duplication and for assuring transparency of the economic assistance provided. Fourth, but not the last, development assistance needs a more sophisticated policy coordinating mechanism among donors than humanitarian aid does.

The mechanism need not involve substantial financial assistance from major IFIs so that it would be able to evade the domestic legal problem of a major stakeholder. This is also needed for the swift provision of needed financial and technical assistance to North Korea. Even though all hurdles inhibiting North Koreas admission to international financial institutions are cleared, actual disbursement of substantial financial assistance would take some more time. The mechanism could act as an interim assistance mechanism during the transition period.

The second proposal concerns North Koreas external debt problem. Without the initiation of debt relief talks on rescheduling or reductions, North Korea is, for all intents and purposes, out of the international financial market. Because of North Koreas default history, without collateral or guarantees international financial community does not normally provide new loans until North Koreas debt overhang problem should be cleared. Practically, without initiating debt relief talks on rescheduling or reductions, North Korea will be out of the international financial market, not receiving any commercial bank loans, and so the burden of official donors will be heavier. It is time to think about bailing-in of the international private sector creditors to North Korea, let alone Paris Club official creditors participation in the debt relief negotiation process.

Furthermore, even with North Korea still not having been introduced into the international financial community, utilizing non-governmental organizations (NGOs) in dealing with North Koreas commercial debt overhang, could be of some practical use. The following proposal could be considered as a complement to straightforward debt relief.

Nowadays, there are increasingly many cases in which economic assistance funded by donor governments, but delivered through NGOs. Greater participation by NGOs in aid operations would be more acceptable to North Korea than would explicit provisions by the donor governments. An interesting example of the utilization of NGOs in the course of clearing the insolvent debts of heavily indebted countries through debt-for-equity swaps need to be examined.

A debt-for-equity swap is a deal converting debtor country's foreign debt into foreign equity in domestic asset. Lets assume that a country defaults on a payment to its external debt with a face value of one dollar. Due to the default, the market price of the debt would drop to 10 cents in the secondary market. Then, the debt relief required for clearing all the debts of the country would cost only 10 cents. Now, suppose that a donor country makes a contribution of 10 cents, buys the debt in the secondary market and gives it to an NGO. The NGO goes to the debtor country and swaps the (foreign exchange denominated) debt for local currency, with some degree of discount being applied (e.g. equivalent of 5 cents). With the local currency, the NGO conducts projects to meet its own objectives. The idea of swapping debt for some kind of domestic asset that provides a guarantee that the NGO will be able to protect the debtor country's natural resources may be termed debt-for-environment or debt-for-nature. If the objective of the NGO is the provision of development assistance, then we may call the scheme debt-for-development or debt-for-aid.

The donor community does not lose too much since the debt is already in default and 10 cents is the prevailing price on the secondary market. The debtor country ends up by clearing its debt of one dollar by paying only 5 cents in local currencies and also receiving either environmental or developmental assistance. The debtor country's central bank, however, ends up with domestic monetary liabilities or domestic debt. We think that North Korea may very well be interested. The task would be made more feasible under a multilateral coordination mechanism, such as INKDAG, in which policy dialogue among major donors as well as with the recipient country is well coordinated.

An important task is that South Korea should consider taking the lead in organizing an international coordination mechanism comprised of major donor governments, major international financial institutions, UNDP, NGOs, and international aid agencies, to develop a framework for international cooperation on the Korean peninsula. Under the umbrella of the mechanism, it is time to consider the possible debt negotiation process of Paris Club official creditors. Debt-for-equity swaps, especially through utilizing NGOs, would be a good starting point. On the other hand, the international community will recognize the economic benefits of an increasingly stable and secure Korean peninsula as the North-South dialogue progresses, and be ready to make due contributions. It should be noted, however, that North Korea needs to request on its own the international community of any conceivable support.

서언
국문요약

제1장 서론
1. 연구의 목적과 배경
2. 연구의 내용 및 보고서의 구성

제2장 북한 개발지원을 위한 재원조달 방안에 대한 검토
1. 재원조달의 방향
2. 북한의 국제금융기구 가입
3. 북한의 신탁기금 설립
4. 동북아개발은행에 대한 검토
5. 북한 외채문제 처리

제3장 다자간 국제협력체 설립방안 : "잠정북한개발지원그룹 (INKDAG)"
1. INKDAG 설립의 필요성
2. INKDAG의 기본골격
3. INKDAG의 장점
4. 원조조정그룹과 원조조정사례
5. INKDAG 추진시 고려사항

제4장 결론
<부록 I> 원조조정그룹 개요
<부록 II> 원조조정 사례
<부록 III> 북한의 농업부문 개발 지원을 위한 원탁회의 (Round Table)
<부록 IV> 세계은행의 신탁기금 (Trust Fund)
<부록 V> 유엔개발계획

참고문헌

Excutive Summary