SEOUL, KOREA - It is estimated that as much as US$500 billion won of development money will be needed to reconstruct the North Korean economy after the two Koreas are unified. In order to reduce the financial burden when the time comes, the government will soon come up with plans to strengthen official development assistance schemes while issuing treasury bonds to pay for unification cost. In addition, it is reviewing ideas of establishing a separate central bank in the north and running a fix exchange rate regime in a limited time period.

 

According to financial service industry sources on October 8, the government will announce a package of plans in preparation for upcoming union between the north and the south by the next month, with a task force consisting of representatives from public agencies such as the Financial Services Commission, the Ministry of Strategy & Finance, Ministry of Unification, the Bank of Korea, Korea Development Bank, Korea Finance Corp., Korea Institute of Finance, and Korea Institute for International Economic Policy.

 

The government set four main tasks to this end: support for North Korean economic reconstruction, reform of the monetary system, creation of the exchange rate system, and modernization of the financial infrastructure. For all this, the government estimated it would cost a total of $500 billion. It includes the investment cost to bring up the North Korean economy comparable to that of South Korea within 20 years' time from now such as $10,000 per-capita GNI, or a half of that of the south today, by 2035. But the cost did not count costs such as social insurance, pension, and social cohesion funds.