It has been a day since passing of the first deadline by which North Korea was supposed to have repaid a portion of the debt it accrued in the form of food loans from South Korea in the 2000s, but North Korea has given no indication that it is going to make the payment. The South Korean government says it intends to respond if the North does not make the repayment, but there is no indication that a viable response is actually available.
The “rice loans” extended by the South Korean government between 2000 and 2007 are not insubstantial; 2.4 million tons of rice and 20,000 tons of corn worth a total of slightly more than $720 million. Under the contract signed between Korea Eximbank and Chosun Trade Bank, North Korea is supposed to pay back the loan over the next 20 years plus annualized interest of 1%, making a total of around $875 million.
Accordingly, Korea Eximbank informed its North Korean counterpart on the 4th of last month that the first loan repayment was about to fall due: $5.8 million repayable by June 7th.
South Korea has said it plans to counter any default by the North Korean side, but with almost all experts saying it is highly unlikely that North Korea will pay back anything, there is little expectation of a good result. One North Korea expert told Daily NK, “Other than urging North Korea to pay back the money, there is no other way.”
If North Korea cannot afford to pay back the principle and interest at the time of asking, then there is the need for them to renegotiate repayment in good faith, rather than ignoring the problem. If North Korea does not show a willingness to comply with minimum global standards such as these then there will be little choice but to isolate Pyongyang internationally.
The deeper problem is that this first loan repayment is liable to establish a future precedent. If North Korea is permitted to simply ignore rather than address the issue of repayment in the future, then getting back any of the Sunshine Policy era debt will grow remoter still.