In March 2014, President Park Geun-hye unveiled an ambitious plan to build a multilateral bank to develop North Korea and other areas in Northeast Asia, saying it would help bolster inter-Korean exchanges, ease cross-border tensions and lay the groundwork for reunification. Park continued to tout the initiative most recently at the G20 summit last month.

But the much-trumpeted plan faces a series of hurdles including Pyongyang’s opaque financial dealings and its insistence on developing nuclear arms -- a major stumbling block to securing active support from potential participants in the envisioned institution.

Arguing that the “Northeast Asia Development Bank” would be the “first concrete outcome” of Seoul’s efforts to secure international consensus over peninsular unification, Park has actively promoted the bank to both international and domestic audiences.

Although experts agreed on the need for a bank focusing specifically on North Korea, doubts have persisted over whether the plan could be realized when there are already international banks specializing in Asia’s infrastructure development -- the Asia Development Bank and the recently launched Asian Infrastructure Investment Bank.

“There is obviously a need for the NEADB specifically for North Korea. Yet, I doubt whether major countries like the U.S. and China would make more contributions to it when they already have entities that they lead such as the World Bank and the AIIB, respectively,” said Chang Yong-seok, a senior analyst at Seoul National University’s Institute for Peace and Unification.

“Plus, it would be realistically difficult to create political momentum to actively support the NEADB designed for the construction of infrastructure in the North when Pyongyang is sticking to its nuclear adventurism that poses a threat to the region.”

Mindful of such criticism, Seoul officials have said the role of the NEADB would not overlap with those of the ADB, AIIB and other similar financial institutions, and that it would play a “complementary role” in areas where the existing institutions have paid less or little attention. 

They also stressed that the institution should support the infrastructure development of not only North Korea, but also other underdeveloped areas including in Mongolia and Siberia, so as to spur the overall regional development.

Above all, China’s role in the establishment of the NEADB would be critical in terms of securing international recognition and support for the envisioned bank and bankroll the institution’s financial activities, analysts noted.

But China has so far been focused on stabilizing the operations of the newly built AIIB, a core multinational financial institution that would support massive infrastructure projects to develop Central Asia, Southwest Asia and other regions.

“China’s role may be critical in launching the NEADB. But as Beijing is now engrossed with the AIIB, it would be difficult to encourage its active participation in the NEADB at least for the time being,” said Cho Bong-hyun, a senior researcher at the Industrial Bank of Korea.

Another major hurdle for the envisioned bank is Pyongyang’s hitherto opaque financial dealings, analysts pointed out. Amid long-standing financial sanctions, the isolated North has little experience with international financial rules and norms.

“From obtaining its accession to the new international institution to participating in it, what is required is North Korea’s transparency in its international activities,” said Park Won-gon, professor at Handong Global University.

“Even many of the humanitarian nongovernmental organizations have withdrawn from the North as the authorities did not allow them to monitor how their aid is distributed and used -- just basic things for their operations.” 

Despite these challenges, proponents say that it is still worth a try as a bank specifically focusing on the infrastructure development of the North would help lessen the burden the South may have to shoulder on its path toward reunification.

By Song Sang-ho (sshluck@heraldcorp.com)