South Korea has signed a deal to reschedule US$2.24 billion of loans to Russia, paving the way for a strengthening of relations with one of North Korea's closest allies, Seoul's finance ministry said yesterday.
The agreement provides Russia with significant relief on debt service payments as South Korea is to write off most of the interest arrears, the ministry said in a statement.
Analysts said the deal, ahead of a pending visit by South Korean President Roh Moo-hyun to Russia, would help lay the foundations not only for improved diplomatic ties but better economic cooperation between a major exporter and an expanding consumer market.
"The size of trade with Russia is not big but it's a very important and profitable market for South Korea," said Oh Seung-koo, chief researcher at Samsung Economic Research Institute.
"Russia supplies crucial raw materials such as crude and gas, while it has a great potential to grow as one of Korea's key export markets," he added.
The US$2.24 billion included US$1.47 billion in principal South Korea extended to Russia in 1991 as an economic cooperation loan.
After the write-off, Russia will have to repay US$1.58 billion over the next 23 years at an interest rate of 50 basis points over London Interbank Offered Rates, the ministry said.
The loan has expanded trade with Russia to US$3 billion a year. South Korean electronics goods are popular in Russia.
Russia, which has built a closer relationship with North Korea since President Vladimir Putin came to power, was a key player in six-way talks last month in Beijing with China, Japan, South Korea and the US on Pyongyang's nuclear aims.
A spokesman at Seoul's Foreign Ministry told reporters officials have been in talks about Roh's trip to Russia.