Russian President Vladimir Putin has ratified an agreement to write off 90 percent of North Korea‘s outstanding Soviet-era debt, signing the law on May 5, 2014, after the State Duma approved it on April 18 and the Federation Council followed suit on April 29.
North Korea’s total debt to Russia stood at approximately $10.94 billion, accumulated during the Soviet period when Moscow extended loans and subsidized energy supplies to Pyongyang. The deal reduces that figure to roughly $1.09 billion, which North Korea is required to repay in six-month installments over the next 20 years. Payments will be transferred from North Korea’s Foreign Trade Bank to an account at the Russian Development Bank, with Russia committing to reinvest the funds into North Korean health, education, and energy projects.
The debt write-off ratifies an agreement first signed in September 2012, following a meeting between then-President Dmitry Medvedev and then-North Korean leader Kim Jong Il in Siberia the previous year. North Korea is not the first former Soviet ally to receive such treatment — Russia wrote off 90 percent of Cuba’s debt in July 2014 under similar terms.
The strategic motivation behind the deal is widely seen as Russia’s long-standing ambition to build a natural gas pipeline from its Sakhalin Island fields to South Korea via North Korean territory. Russian Deputy Finance Minister Sergei Storchak indicated that repayment funds could be channeled into the construction of that pipeline or a parallel railway connecting Russia to South Korea through the North — a project that would carry an estimated 10 billion cubic meters of gas annually and dramatically reduce transit times between Europe and Asia.
The deal signals a broader push by Moscow to deepen economic ties with Pyongyang at a time when Russia’s relations with the West have deteriorated sharply following its annexation of Crimea in March 2014.
