Fri, Nov 23, 2001 page24

• Hyundai set to lose big on inter-Korean resort

  CRUMBLING DREAM The Mount Kumgang resort looks set to become a monument to the dangers of leaving national reconciliation to the private sector

  • THE GUARDIAN
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  The lights are flickering out on one of the world's most ambitious and expensive tourism projects: the Mount Kumgang resort in reclusive North Korea.

  The billion-dollar venture was launched three years ago by Hyundai, the South Korean conglomerate, amid hopes that it would spur reconciliation on the divided peninsula. But, today, its operator is on the verge of bankruptcy, visitor numbers have nosedived and, far from promoting harmony, the two nations are squabbling over development fees.

  Embarrassing power cut

  The sorry decline of the resort was emphasized recently when government ministers met at Mt Kumgang for a bilateral meeting. No sooner had they started than they were plunged into darkness by a power cut.

  Newspapers in South Korea showed pictures of the grim-faced negotiators illuminated by candlelight as they failed to break a year-long impasse in talks between the two nations, which are still technically at war. The power failure was a humiliation for the cash-strapped, under-developed and starving North. It could also mark the end of Hyundai Asan, which has seen Mt Kumgang become a black hole for investment.

  In 1998, Hyundai promised to pay US$900 million over seven years for rights to run the first tourist service into North Korean territory. It has since invested another US$141 million on building much of the resort's infrastructure, including a hotel, concert hall and spa -- and making extensive improvements to the dilapidated port.

  To pay off this enormous investment, it anticipated attracting 500,000 visitors a year from the South, each paying about US$1,500 for the cruise across the border (there are no land routes).

  These forecasts have proved to be calamitously misjudged. Even during the first two years -- when enthusiasm for the project was strong -- only 370,000 people made the journey. This year, the figure will be less than 50,000 as Hyundai Asan has been forced to cut three of the four ships on the route in response to mounting debts and falling demand.

  To make matters worse for the operator, its founder Chung Ju-yung -- the richest man in South Korea, who enjoyed a close relationship with North Korea's "Dear Leader" Kim Jong-il -- has died. His sons have since been entangled in a feud over succession that has left the Hyundai conglomerate divided and Hyundai Asan bereft of partners.

  The company's last hope is that North Korea will keep a promise to open a land route across the border, which would make travel to Mt Kumgang much easier, and to declare the area a special economic zone, which would encourage other developers with tax breaks. "The only way to solve our financial difficulties is by opening a land route," said Jang Whan-bin, a director of Hyundai Asan. "This is a matter of life and death. Otherwise, I think we can survive until December." But the North has been in little mood to offer concessions since June, when Hyundai said it could not afford the US$12 million-a-month development fee stipulated in the contract.

  No more sunshine politics

  The prospect of a breakdown is a nightmare for South Korean leader Kim Dae-jung, who staked his presidency on a "sunshine policy" of engagement with the North. In three years of stop-start moves towards reconciliation, Mt Kumgang is the only common ground to be carved out.

  To buy time, the South Korean government paid Hyundai Asan about US$45 million in June in return for assets in Kumgang. The cash from this partial nationalization of the project allowed the resort operator temporarily to resume payments to the North. "The government didn't want to give up," said Chung Kyu-nam, of the South Korea National Tourism Organization, which is now responsible for Kumgang.

  "It regards the project not only as a commercial venture, but as the sole link between the two nations."

  But even with the injection of public funds, the monthly payments to the North have slipped from US$12 million a month to just US$400,000. This is an enormous loss to Pyongyang, which was earning almost as much foreign currency from Mt Kumgang as from every other source of trade income combined.

  The two sides are now back in the stalemate they have been trapped in for most of the past 50 years. Pyongyang is accusing the South of reneging on Hyundai Asan's contract. Seoul is blaming the North for failing to open up a land link as promised. The talks at Mt Kumgang last week were seen as an opportunity to break this impasse.

  Running out of time

  But after opening with a power failure, the meeting ended prematurely with an acrimonious dispute.

  Although South Korea has promised to continue talks, Mt Kumgang and the sunshine policy are running out of time.

  President Kim Dae-jung, who came to power on a wave of expectation, has lost support in parliament and with little more than a year left of his term in office, is increasingly seen as a lame duck.

  The engagement policy with the North is losing support among South Koreans and even officials in South Korea's usually optimistic unification ministry are preparing for the worst. "Mt Kumgang is a symbol of reconciliation, so we hope that tourism will continue, but it is possible that it will come to a stop," said Park Chan-bong, deputy assistant minister of unification. "The project is basically a private enterprise. Its survival is up to the function of the market."

  Without a last-minute rescue plan, Mt Kumgang looks set to be remembered not as a step towards reunification, but as a monument to the dangers of leaving national reconciliation to the private sector.
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