Issue Focus

● Establishing a stable peace regime on the Korean peninsula with the success of the North-South Korea summit and the North Korea-U.S. summit is a prerequisite for building a Northeast Asian economic community including the Korean Peninsula, China, the Russian Far East, and Japan and Mongolia. Through the establishment of a peace regime on the Korean Peninsula and the establishment of a Northeast Asian economic community, Korea can restore its connection with the Eurasia continent. However, in order to physically realize the continental linkage, the process of improving and expanding the underdeveloped and poor infrastructure of North Korea should be premised on. ● The demand for infrastructure, as is included in the strategic plan established by the North Korean authorities, is as high as $ 100 billion. The volume of the demand alone suffices to make it difficult to expand North Korea's social and economic infrastructures only through North-South economic cooperation. Further, given the limited size of public resources that a government or an international organization can supply, participation of private capital is indispensable. Furthermore, it is necessary for both the international organizations and international financial markets to participate together to more effectively mitigate the political risks inherent in North Korea's infrastructure development, which probably takes a long time. Given the possibility of establishing a Northeast Asian economic community, North Korea's infrastructure improvement and expansion is likely to be realized through economic cooperation among nations in Northeast Asia, especially in practical terms, cooperation with China’s One Belt and One Road initiative and Asian infrastructure investment bank. ● In order for the North Korean infrastructure development project, which is indispensable for establishing a Northeast Asian economic community, to be effective, blended finance should be activated through which multilateral development financial institutions such as the Asian Infrastructure Investment Bank or IFC, the 'neighboring governments' such as Korea, China, Japan, Russia, U.S. and 'private financial institutions' collaborate organically. First of all, development financing from Korea, China, Russia, Japan, US, EU, etc. should be set as facility in AIIB destined for North Korean infrastructure development projects. The AIIB will utilize this facility through loans, equity investments, guarantees, and donations in order to encourage the participation of other multilateral development banks and private financial institutions. If South Korea intends to participate more actively in North Korea's infrastructure development process than its neighboring nations, it may consider promoting inter-Korean economic cooperation projects by means of bended financial funds. In this case, domestic and foreign private capital can invest in those blended funds. ● Given the limited size of public resources, the extent to which the Korean economy participates in the North Korean infrastructure expansion project needed to build a Northeast Asian economic community will depend on the extent to which domestic private financial institutions, including commercial banks, are willing to participate. As a precondition for providing funding for North Korean infrastructure development projects, domestic private financial institutions should stop demanding a guarantee of the Export-Import Bank or the Korea Trade Insurance Corporation. Particularly, they need to participate actively in North Korean infrastructure development projects from the very beginning stage of determining financing structure as multilateral development banks and export and import banks do.