How to pay for Korean unification

With estimates on the cost of unification providing such alarming figures (as in the last post), it is natural for people to wonder where the money will come from. A paper by Yang Un-Chol at the Sejong Institute gives a good summary of how this could be achieved. Amongst the methods, he lists:

  1. Inter-Korean cooperation projects. Basically, paying now to reduce the burden of paying later or as Yang states: “inter-Korean economic exchanges can, in the long run, contribute to reducing unification expenses by transforming North Korea’s economy in a market-friendly manner”
  2. Tax burden. South Korea has a relatively low tax burden, but gaining national consensus on raising taxes for unification would still be very difficult, as it has been in Germany.
  3. Issuance of public bonds. South Korea used this process to aid its recovery from the 1997 financial crisis. Similar methods could be used to defray the costs of unification.
  4. Overseas borrowing. If unification occurred in the near future, this could be very difficult due to the negative effect unification would have on South Korea’s fiscal position. If unification occurred much later, South Korea could have time to secure assistance from international organizations and neighboring countries to promote a much smoother process.
  5. Other Government funds. As Yang notes there are “some of the 56 government-managed funds, which are linked to assistance for North Korea… Inter-Korean exchange and cooperation projects are reflected in the National Sports Promotion Fund, Culture and Arts Promotion Fund and Broadcasting Development Fund, among others…”

Yang doesn’t actually mention the potential for reparations from Japan that could contribute to unification costs. I read somewhere this could amount to around $10 billion. But I guess reparations are not a certainty, and indeed if normalization occurs before unification, a good deal of the funds will be spent on fine cognac and the rest stored safely for future generations in a Swiss Bank account.

To be certain, there are some pretty keen minds that have been working on this issue for some time. Indeed, the Sunshine Policy is basically the public face of saying ‘we gotta pay a bit now so we don’t have to pay so much later’. Can anyone point me to some good papers on unification costs?

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