Finance and Korean re-unification

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As President Park Geun-hye underscored, re-unification is a golden opportunity to take a quantum jump for Korea’s economy. It addressed low growth and aging population in the South. At the same time, it helps the North escape from extreme poverty. With re-unification, the Korean economy can build a stronger, sustainable, and good economy.

However, re-unification requires tremendous cost. The fear of high cost has been lingering around. “This is where ‘Re-unification Finance’ comes in”, FSC Chairman Shin Je-Yoon mentioned.

“It will replace the ‘fear of re-unification cost’ with the ‘hope for re-unification bonanza’.”

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Finance will primarily serve to alleviate the economic impact of the re-unification. Afterwards, it will facilitate the economic integration.

To make sure that the current fear turns into the hope for bonanza, there are four key areas to focus on. First, North Korea’s monetary system must be reset. Its current mono-banking system needs to be changed into a two-tier banking system. Moreover, introducing a single exchange regime and restructuring its external debts will help the North gain competitiveness in the global financial market. Surely, such approaches should be undertaken in an orderly manner to minimize the impact of resetting the monetary system.

Second, the North’s financial infrastructure must be reformed. It is not an exaggeration to say the North Korea has no financial infrastructure. Essential financial infrastructures such as deposit insurance system, payment and supervisory system need to be established.

Third, there must be appropriate ways to finance development needs of the North. Rebuilding the North Korean economy is an investment that ensures brighter future for both, not a one-time cost. Therefore, funding plans for a wide range of areas need to be formulated pre-emptively. The government will use various measures to encourage private and foreign investors, and international organizations to invest in the North taking full use of Korea’s experience of achieving the ‘Miracle on the Han River.’

When the South’s rich capital and invaluable experience are combined with the North’s young and disciplined labor force, it will create tremendous synergy and lead to a sustainable economy. It will also benefit the global community since countries would be provided more room to spend for the good of their people instead of an arms race.

Chairman Shin sited Ahn Chang-ho, a Korean independence activist, “A building stands firm when it is build on a strong foundation, and good fruits come from a tree with strong roots.” It is clear that ‘One Korea’ would provide tremendous growth opportunity for the two Koreas and the rest of the world, however, it cannot happen without sufficient preparations, which means that we need to strengthen competitiveness and encourage innovation for the financial industry.

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