Korea’s Reunification and Financial Policy Tasks – 4 Measures to Support NK Development

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With reunification comes huge cost. It is expected to cost huge amount of money considering NK’s underdeveloped economy. North’s nominal GDP is KRW33.6 trillion, mere 2% of the South’s. What’s more, NK’s basic infrastructure and industries are subpar. If we look into the German reunification case, West Germany’s sovereign debt to GDP rose from 40% to 62% just in 6 years after reunification due to the East’s underdeveloped economy. 11

Now, raising such a huge amount of money to develop NK becomes a crucial issue. Relying heavily on government budget can cause social conflict and accumulating money through foreign ODA has its limits which make the role of finance more important.

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Approximately USD500 billion is expected to be needed to support NK development. Among the total, about USD175 billion will be used to build necessary infrastructure and develop industries.

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USD17 billion will come from foreign ODA from countries such as US, Japan, China, and Germany and international organizations such as the World Bank, Asia Development Bank and United Nations. USD250-300 billion will be raised by policy banks. USD107.2-186.5 billion will be accumulated by attracting private invcestment in profitable projects and special economic zones. Lastly, approximately USD330 billion is expected to be earned in NK through tax and economic development.

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