* North Korea's debts to Russia stood at about $11 bln
* Russia to reinvest outstanding debt in North Korea
* Points to closer engagement with new Pyongyang regime
By Maya Dyakina and Lidia Kelly
MOSCOW, Sept 18 Russia said on Tuesday it agreed
to write off 90 percent of North Korea's $11 billion debt and
would reinvest the balance in the reclusive Asian state, in a
sign of closer engagement with Pyongyang under new leader Kim
By writing off most of the sum owed by North Korea, one of
the world's poorest countries, Russia granted a level of
forgiveness in line with debt reduction deals it has given to
its most impoverished debtors.
Moscow said the remaining $1 billion or so of the debt
racked up by Pyongyang when it was a client state of the Soviet
Union would go towards energy and education deals as well as
"It will be decided later by the parties for what purposes
the funds received for the repayment of this debt will be used,"
Konstantin Vyshkovsky, head of the debt department at the
Russian Finance Ministry, told Reuters.
Parts of the international community have been seeking to
re-engage with North Korea since the death of Kim Jong-il, amid
hopes that his son and successor would seek ways to end years of
isolation and poverty.
RAIL AND POWER LINES
Analysts believe infrastructure deals will likely be a big
part of the investments, including in railway and power lines.
Russia is also considering building a gas pipeline to
energy-hungry South Korea - which Alexander Vorontsov, head of
the Korean and Mongolian Studies department at a Russian Academy
of Sciences institute, said Pyongyang would be bound to welcome.
"Yes, they're in conflict (with the South), but undoubtedly,
North Korea is very interested in the pipeline," he said.
The two Koreas remain technically at war and are separated
by one of the world's most militarised frontiers.
Analysts say those tensions and other sources of gas that
South Korea benefits from mean the pipeline project is unlikely
to get off the ground, at least for the time being.
"Nothing will happen immediately," Vorontsov said. "But the
(debt) agreement is a success - first, it will improve economic
cooperation with North Korea itself and this could gradually
lead to the expansion of Russia's influence in Eastern Asia."
North Korea traditionally played off China, its main
economic and political backer, against the former Soviet Union
until the latter's collapse in 1991. Negotiations on
restructuring the debt to Russia stalled for most of the past
two decades, with fresh talks starting only a year ago.
Russia, which hosted an Asia-Pacific summit earlier this
month near the North Korean and Chinese borders which Pyongyang
did not attend, is keen to increase its influence in Asia's fast
Moscow ships half of its exports to Europe but, prompted by
the region's debt crisis, the government wants to double the
share of exports that go to the Asia-Pacific region, which now
make up a quarter of the total.
At the summit in Vladivostok, gas export monopoly Gazprom
signed a draft deal with Japan on a liquefied natural
gas export terminal on Russia's Pacific seaboard that dealt a
blow to the trans-Korea pipeline's prospects.
The outstanding debt owed by North Korea will be managed by
Russia's state development bank, Vnesheconombank.