5 May 2014, 19:20

Russia writes off nearly $10 bln in North Korean debt

Russia writes off nearly $10 bln in North Korean debt

Russia has written off 90% or nearly $10 billion in North Korean debt, with some of the remaining $1 billion to be reinvested in projects in North Korea, possibly including preparations to build a gas pipeline and railway to the South.

Russian President Vladimir Putin has signed a law to ratify an agreement between the governments of the two countries to settle debt on Soviet-era credits.

The State Duma passed the law on April 18 and the Federation Council approved it on April 29. The agreement provides for a discount of 90% on the debt, which exceeds $11 billion. The remaining $1..09 billion must be paid in equal semi-annual tranches over a period of 20 years to an interest-free account to e opened by Vnesheconombank (VEB) and North Korea's Foreign Trade Bank.

The money will be used to finance projects in health care, education and energy in North Korea, as agreed by the countries. It might also be invested in a gas pipeline and railway via North Korea to South Korea.

Russian Deputy Finance Minister Sergei Storchak has said Russian companies are involved in plans to build a pipeline and railway across North Korea. "When we were negotiating [with North Korea on debt settlement], the issue was raised of some of the debt being used as payment for rights of way [for the pipeline and railway]. We have not received a firm positive answer, but there has been a response in the sense that this is subject to negotiation," Storchak said.

During almost 20 years of talks with North Korea, agreements on specific aspects of financial, political and economic relations between Russia and North Korea were considered and taken into account for the final agreements.

Russia and North Korea resumed talks on debt settlement in 2011 after a long pause. The parties could not agree on debt repayment up until 2007. In particular, Russia did not rule out the possibility of writing off part of the debt and giving an extension for paying the rest or repaying as investments.

In August 2011 Russian and North Korean leaders at the time, Dmitry Medvedev and Kim Jong-il, developed approaches to resolving the issue of the North Korean debt at a meeting in Ulan-Ude.

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