Canadian Manufacturing

South Korea to provide $270 million in loans to firms shut out of factory park in North Korea

by Youkyung Lee, The Associated Press   

Canadian Manufacturing
Operations justice Korea Manufacturing

Relief funds will help cover debts, operating costs of around 120 companies forced to halt operations

SEOUL, South Korea—South Korea’s government will provide more than $270-million in emergency loans to help companies affected by the shutdown of a jointly-run factory park in North Korea.

The finance ministry said the $273-million in relief funds will help cover debts and operating costs of around 120 South Korean companies that were forced early last month to halt production at factories in the Kaesong industrial complex amid high tensions on the Korean peninsula.

Additional financial support will be provided once the parliament approves a bill for an extra budget this year that is part of a broader stimulus plan for South Korea’s economy, a joint statement from government ministries said.

Pyongyang has blocked the entry of South Korean vehicles and personnel to the jointly-run factory park since April 3.


The move came as North Korea issued a daily torrent of threats aimed at U.S.-South Korean military drills and U.N. sanctions over Pyongyang’s February nuclear test.

Six days later, it pulled out its 53,000 North Korean workers, halting the factories that had run on cheap labour from North Korea and capital and technology from the South.

One of the companies that operated at Kaesong said the funds will help ease the burden for businesses that are facing a financial crunch as they have to make payments to contractors and employees.

But the loans do not cover the financial losses that would be suffered if South Korean business owners cannot return to Kaesong where they constructed factories, installed production lines and made other investments.

“It will give relief,” said Park Yun-kyu, chief executive of a South Korean apparel company that used to employ 700 North Koreans in Kaesong.

South Korea’s government offered insurance to companies at Kaesong through a state-owned bank, which compensates up to $6.4-billion in the event of shutdown lasting more than one month.

However, 27 companies out of 123 did not take the insurance for various reasons, including questions about its usefulness and how the compensation is determined.

Park said he was worried that he would lose a $1.8-billion investment that he made after signing the insurance policy as the additional spending is not covered by it.

The shutdown of production at Kaesong, which remained in business even during North Korea’s attack on a South Korean island in 2010, was the first since it opened in 2004 as a test case for reunification.

When other inter-Korean projects were suspended, Kaesong remained as the last symbol of inter-Korean co-operation, providing a small channel of exchange between the divided Koreas.

Last week, South Korea’s government asked the remaining South Korean workers in Kaesong to return to the South after Pyongyang rebuffed a demand for talks on Kaesong.

Seven South Koreans still remain in the Kaesong complex for negotiations over unpaid wages to North Korean workers.

It is not clear when those talks will end.


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