Debt Deal Looks Like Set Deal*

Russia has decided that if North Korea’s Soviet-era debt is never going to be repayed, it might as well not stand in the way of better trade relations and geopolitical influence. Over the weekend, Russia’s finance ministry said it has agreed to write off 90% of North Korea’s debt of $11 billion. This is a huge sum, obviously, equivalent to 20-25% of North Korea's GDP, depending on which set of made-up statistics you like best. North Korea's previous attempts -and failures - to free itself from the burden of Cold War era debt are well documented, including asking Hungary to write off 10 million in debt two years ago and, more curiously, offering to pay part of a similar sized debt to the Czech Republic in Ginseng. The debt that Russia holds dwarves the amounts owed the other former Eastern-bloc states. As such, it represents a huge victory for the budding Kim Jong Un era.

Kim Jong Il's "fun trip" to Siberia last fall to meet President Medvedev was partly about political succession, but was also in no small part about debt, aid and economic co-operation. It was then that the debt restructuring was agreed upon and now looks set to be implemented.

The debt forgiveness maintains a fairly broad Russian policy in recent years to forgive debt in Asia and Africa in exchange for access to trade and investment deals. However, it also reflects a specific interest in peninsular affairs that Russia has not demonstrated since the fall of the Soviet Union.

Russia's re-emergence as an economic player on the Korean peninsula has already begun with its gradual investments in the Rason SEZ. As of late last year,the SEZ is connected via a shiny new rail line to Vladivostok. Russia has also leased a berth at Rason's ice-free port, which is envisioned as a link between the Russian Far East and markets in Japan, South Korea and beyond.

Russia is also interested in extracting North Korea's reserves of zinc, lead, and other non-ferrous metals. On top of that, there is also apparently a plan to lease 200,000 hectares of land to North Korea  in the Amur region. Finally, there is the Russia to South Korea gas pipeline, which still faces significant political hurdles, but comes a step closer to reality if North Korea's debt to Russia disappears.

Back in February, Russian Ambassador Valery Sukhinin told Bloomberg that “All these existing agreements are supported by the new leadership in North Korea" (mostly referring to the pipeline). Kim Jong Il's deal with Russia looks especially shrewd and well-timed, given his death just five months later. The harmony in interests looks set only to increase, as Kim Jong Il's successor appears increasingly focused on economic management issues, while Medvedev's successor/predecessor is interested in increasing Russia's influence in the Far East.

Maybe, for all of this, the DPRK will publicly acknowledge the Russian Federation as the USSR's legitimate successor. Carefully worded, of course.

*Apology for the rhyme.