A brief encounter: North Korea in the Eurocurrency market, 1973–80

ABSTRACT

This article examines the engagement of North Korea in the Eurocurrency market in the 1970s. In the Cold War regime competition for economic prosperity, the communist regime turned to the City of London to raise capital for economic development. Despite the diplomatic efforts of South Korea against its rival, the judges were international banks. The failure to manage its indebtedness resulted in the retreat of the North in the Western financial market. Lost creditworthiness was hard to restore. The divergence in the access to foreign capital resulted in the different paths of economic growth of the two Koreas.

KEYWORDS:

• Creditworthiness
• Eurocurrency market
• financial diplomacy
• indebtedness
• North Korea

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ ‘North Korean Bonds? Now Could be the Time’, Wall Street Journal, 23 December 2011. More recently, see, ‘The Elusive North Korean Bonds that Few Know How to Find’, Bloomberg, 14 June 2018.

² Drawing on contemporary periodicals and official statistics, scholars have examined North Korea’s indebtedness to address the succession issue. For example, see, Y. D. Tak, ‘A Study on the Management of North Korea’s Foreign Debt Securities Bonds’, North Korean Studies Review 22, no. 1 (2018): 29–56; and M. S. Han, ‘A Study on the Succession of External Debt of North Korea after Korean Unification’, Kyung Hee Law Journal 56, no. 3 (2021): 161–98.

³ Carlo Edoardo Altamura, European Banks and the Rise of International Finance: The Post-Bretton Woods Era (London and New York: Routledge, 2017). On the origins of the Eurocurrency market, see Catherine R. Schenk, ‘The Origins of the Eurodollar Market in London: 1955–1963’, Explorations in Economic History 35, no. 2 (1998): 223–48; and Gary Burn, ‘The State, the City and the Euromarkets’, Review of International Political Economy 6, no. 2 (1999): 225–61.

⁴ Early research includes Stephany Griffith-Jones, ‘The Growth of Multinational Banking, The Eurocurrency Market and their Effects on Developing Countries’, Journal of Development Studies 16, no. 2 (1980): 204–23; Barbara Stallings, ‘Euromarkets, Third World Countries and the International Political Economy’, in The New International Economy, ed. Harry Makler (Beverly Hills: Sage, 1982), 193–230; Philip A. Wellons, Passing the Buck: Banks, Governments, and Third World Debt (Cambridge, MA: Harvard Business School, 1987); Anne O. Krueger, ‘Origins of the Developing Countries’ Debt Crisis: 1970 to 1982’, Journal of Development Economics 27, no. 1–2 (1987): 165–87; and Jeffry A. Frieden, Debt, Development, and Democracy: Modern Political Economy and Latin America, 1965–1985 (Princeton: Princeton University Press, 1991).

⁵ For example, see, Sebastian Alvarez, ‘The Mexican Debt Crisis Redux: International Interbank Markets and Financial Crisis, 1977–1982’, Financial History Review 22, no. 1 (2015): 79–105; Fritz Bartel, ‘Fugutive Leverage: Commercial Banks, Sovereign Debt, and Cold War Crisis in Poland, 1980–1982’, Enterprise and Society 18, no. 1 (2017): 72–107; Paul V. Kershaw, ‘Averting a Global Financial Crisis: The US, the IMF, and the Mexican Debt Crisis of 1976’, International History Review 40, no. 2 (2018): 292–314; Emmanuel Mourlon-Druol, ‘The Role of Creditor in the Making of a Debt Crisis: The French Government’s Financial Support for Poland, between Cold War Interests and Economic Constraints, 1958–1981’, Financial History Review 27, no. 1 (2020): 73–94; Carlo Edoardo Altamura and Juan Flores Zendejas, ‘Politics, International Banking, and the Debt Crisis of 1982’, Business History Review 94, no. 4 (2020): 753–78; and Carlo Edoardo Altamura, ‘Global Banks and Latin American Dictators, 1974–1982’, Business History Review 95, no. 2 (2021): 301–32.

⁶ Literature on the economic history of North Korea in the 1970s has paid attention to the planning on a domestic level. It has relied on published materials, official accounts by the Workers’ Party of Korea, and sources from Russian archives. For example, see, C. H. Lee, ‘Review on the North Korean Style on Economy in 1970s’, Review of North Korean Studies 17, no. 3 (2014): 129–75.

⁷ S. R. Hong, ‘Modern Korean History in the Context of the Cold War: Exceptionality and Regularity of the Cold War’, Critical Review of History no. 110 (2015): 112–35 (120).

⁸ Ibid., 121.

⁹ S. R. Jo, ‘The Draft of the First Five-Year Plan (1957–1961) and the Beginning of De-Sovietization in North Korea’, Yoksa Hakbo no. 249 (2021): 183–215.

¹⁰ See Nicholas Eberstadt, ‘Financial Transfers from Japan to North Korea: Estimating the Unreported Flows’, Asian Survey 36, no. 5 (1996): 523–42.

¹¹ Joan Robinson, ‘Korean Miracle’, Monthly Review 16, no. 9 (1965): 541–9 (547).

¹² As Sanchez-Sibony shows, it should be noted that the Soviet Union during the Cold War period imagined and pursued a totally different economic system from the capitalist one. However, its ambitious attempts to create a socialist economic bloc such as the Council of Mutual Economic Assistance ended up with failure, which drove them into the capitalist system. See, Oscar Sanchez-Sibony, Red Globalisation: The Political Economy of the Soviet Cold War from Stalin to Khrushchev (New York: Cambridge University Press, 2014).

¹³ B. H. Suh, ‘The Rise of Western Diplomacy, its Development and Features’, in Ancient Future? Revisiting North Korea in the 1970s, ed. B. H. Suh (Seoul: Sunin, 2015), 197–220 (216).

¹⁴ C. H. Lee, ‘Revisiting the North Korean Economy and its Implications – Kim Jungeun’s Recall of the 1970s Economy’, in Ancient Future?, ed. Suh, 111–40 (122).

¹⁵ Seung Woo Kim, ‘Knowledge, Contestation and Authority in the Eurodollar Market, 1959–64’, in Money and Markets: Essays in Honour of Martin Daunton, ed. J. Hoppit (Woodbridge: Boydell Press, 2019), 145–60.

¹⁶ Bank of Korea, ‘The Mechanism of Euro-Dollar Market and Its Implications’, Monthly Review 24, no. 4 (1970): 4–25 (5).

¹⁷ Paul Einzig, ‘Some Recent Changes in the Euro-Dollar System’, Journal of Finance 19, no. 3 (1964): 443–9 (447). Also, see, Oscar Sanchez-Sibony, ‘Capitalism’s Fellow Traveller: The Soviet Union, Bretton Woods, and the Cold War, 1944–1958’, Comparative Studies in Society and History 56, no. 2 (2014): 290–319.

¹⁸ International Money Markets – 1958/66, November 23, 1966, C160/58, Bank of England Archives, London, UK.

¹⁹ Re: East-West Initiatives, September 30, 1966, Papers of Anthony M. Solomon, Box 3, Lyndon Baine Johnson Presidential Library.

²⁰ ‘Landing of the Eurodollar’, Maeil Business, June 10, 1970.

²¹ ‘The Use of Eurodollars – Controls on Unnecessary Short-Term Trade Credits’, Maeil Business, September 24, 1970.

²² ECGD cover for North Korea, 1 March 1965, PREM13/634, The National Archives, Kew, UK (hereafter TNA).

²³ North Korea: ECGD Insured Debt Position, 3 September 1975, T362/160, TNA.

²⁴ See Altamura, European Banks and the Rise of International Finance.

²⁵ Letter from the UK Ambassador to the Minister, 27 April 1973, BA04881447, National Archives of Korea, Seongnam, South Korea (hereafter NAK).

²⁶ Visit to North Korea by J. Thresh and J. E. Bull, 26-31 July 1974, 18 September 1974, 80/6136, Barclays Banking Group Archives, Manchester, UK (hereafter BBGA).

²⁷ See, K. Wilen and L. Weltfort, ‘The International Bank of Comecon’, Soviet and Eastern European Foreign Trade 7, no. 1 (1971): 68–74; and David R. Stone, ‘CMEA’s International Investment Bank and the Crisis of Developed Socialism’, Journal of Cold War Studies 10, no. 3 (2008): 48–77.

²⁸ Letter from the Ambassador to the UK, 27 April 1973, BA04881447, NAK.

²⁹ Letter from the Minister to the Ambassador to the UK, 12 May 1973, ibid.

³⁰ Letter from the Ambassador to the UK to the Minister, 26 June 1973, ibid.

³¹ Letter from the Ambassador to Japan to the Minister,28 June 1973, ibid.

³² Contacts and Communications with North Korea, 28 February 1977, Box 43, Zbigniew Brezinski’s Country Files, 1977–1981, Jimmy Carter Presidential Library, Atlanta, GA, USA (hereafter JCPL).

³³ On the regime competition in the international diplomacy, see, D. M. Kim, ‘A Study on the Diplomacy of South and North Korea towards “Neutral Countries” from 1948 to 1968’ (PhD diss., Seoul National University, 2020).

³⁴ UKW – 0674, 8 August 1973, BA04881447, NAK.

³⁵ UKW – 0186, 10 August 1973, BA0881523, NAK.

³⁶ Introduction of Bank Loan from Europe, 13 August 1973, ibid.

³⁷ Opinion regarding Ways to Check the Flotation of ‘Eurodollar’ by North Korea, 30 August 1973, BA0881447, NAK.

³⁸ Ibid.

³⁹ Check on the ‘Euro’ Dollar Loan of North Korea, 4 September 1973, ibid.

⁴⁰ Euromoney, various issues in 1974.

⁴¹ ‘The Features of the Euromarkets in 1975 and 1976’, Euromoney, March 1976, 35–41 (41).

⁴² North Korea – Foreign Trade Bank of DPRK, 11 September 1974, 80/6136, BBGA.

⁴³ North Korea, 20 December 1974, 80/6136, BBGA; Foreign Trade Bank of North Korea; North Korea – Foreign Trade Bank of DPRK; North Korea, 2 December 1974, 80/6136, BBGA.

⁴⁴ North Korea – Foreign Trade Bank of DPRK, 11 September 1974; Foreign Trade Bank of North Korea, September 18, 1974, ibid.

⁴⁵ North Korea, 2 December 1974, 80/6136, BBGA.

⁴⁶ Visit to North Korea by J. Thresh and J.E. Bull 26-31 July 1974.

⁴⁷ ‘The Three Countries on the Edge of Default’, Euromoney, February 1976.

⁴⁸ Euromoney, March 1976, 27.

⁴⁹ North Korea, 24 December 1974, 80/6136, BBGA. Other terms include the limit in the lending for North Korea, no moral commitment for Western shareholders to participate in syndicates for North Korea’ and the management of ‘day to day operations’ by ‘qualified British bankers’. North Korea, 16 December 1974, ibid.

⁵⁰ North Korea, 24 December 1974, ibid.; North Korea: ECGD Insured Debt Position, 3 September 1975, T362/160, TNA.

⁵¹ Foreign Trade Bank of the Democratic People’s Republic of Korea, 24 December 1974, 80/6136, BBGA.

⁵² North Korea – Foreign Trade Bank of the DPRK, 11 December 1974, ibid.

⁵³ Re: Syndicate Loan of DM 60 Million to the Foreign Trade Bank of the Democratic People’s Republic of Korea, 14 July 1975, 80/4066, BBGA.

⁵⁴ North Korea – Trade Debts, 24 January 1975, ibid.

⁵⁵ DPRK – European Consortium Bank Project, 10 February 1975, ibid.

⁵⁶ North Korea – Trade Debts.

⁵⁷ ‘North Korea Hint on Trade Debts’, Financial Times, 17 July 1975.

⁵⁸ Re: Syndicate Loan of DM60 Million to the Foreign Trade Bank of the Democratic People’s Republic of Korea.

⁵⁹ Ibid.

⁶⁰ North Korea – Trade Debts.

⁶¹ ‘North Korea Hint on Trade Debts’.

⁶² North Korea: ECGD Insured Debt Position.

⁶³ North Korean Debts, 18 September 1975, T362/160, TNA.

⁶⁴ Contacts and Communications with North Korea.

⁶⁵ North Korea – Trade Debts, 24 January 1975.

⁶⁶ The Bank of England approached other European central banks to stress ‘the desirability of the commercial banks adopting a common negotiating position … to prevent the Koreans from playing off one bank (or group) against another’. North Korea’s Debts to UK Banks, 19 August 1975, T362/160, TNA.

⁶⁷ North Korea: Commercial Debt, 30 July 1975, ibid.

⁶⁸ North Korea – Debt Rescheduling Points for Consideration, n.d.; North Korea: Commercial Debt, July 30, 1975, ibid.

⁶⁹ North Korea Debts: Paris Club Meeting, 10 September 1975, ibid. For this reason, the UK, Japan and Sweden attended the meeting as observers. The United States, with which North Korea had no debts, did not respond to the invitation for fear of the political implications of its participation.

⁷⁰ North Korean Debt, 26 September 1975, ibid.

⁷¹ North Korean Debt, 25 September 1975, ibid. In this regard, there was a speculation that the Soviet Union and China were ‘putting forward North Korea as a test case to see whether other Iron or Bamboo curtain countries could get away with defaults’. Yet, the British saw it as unlikely for the massive amount of North Korean debt to these allies. North Korean Debt, 19 September 1975, ibid.

⁷² North Korea: Commercial Debt, 6 August 1975, ibid.

⁷³ Untitled Document, 13 March 1977, ibid.

⁷⁴ For example, in February, the French declined the request for an extension of payment for three years. Untitled Document, n.d., DA0098377, NAK.

⁷⁵ Untitled Document, 30 March 1976, DA0098377, NAK.

⁷⁶ Untitled document, n.d., DA0098377, NAK.

⁷⁷ Korea Travel Report, 13 September 1976, 80/5893, BBGA.

⁷⁸ Republic of Korea, 13 February 1976, F/1/BD/Far/8, Lloyds Banking Group Archives, London, UK (hereafter LGBA).

⁷⁹ The Republic of Korea – A Political and Economic Assessment, February 1976, ibid.

⁸⁰ Korea Travel Report; Republic of Korea.

⁸¹ Outlook for Korea’s External Debt and Debt Service, 24 August 1977, Box 460, Council of Economic Advisors, International Finance and Economic Developments Country Files, JCPL.

⁸² As Altamura shows, the British bank also judged that the risk of North Korea’s aggression was ‘unlikely’ and that President Park’s leadership was capable of maintaining the domestic political stability. Altamura, European Banks and the Rise of International Finance: 145–6.

⁸³ Korea, 20 December 1976, 80/5893, BBGA.

⁸⁴ Untitled Document, 10 December 1976, 80/3433, ibid.

⁸⁵ E.C.G.D. Country Gradings, 27 August 1976, 80/6196, BBGA. Other countries included in Grade D were Argentina, Egypt, Indonesia, Sudan and Zaire.

⁸⁶ Untitled Document, 27 November 1976, DA0098377, NAK.

⁸⁷ Untitled Document, n.d., DA0098377, NAK.

⁸⁸ Untitled Document, 27 January 1977; Untitled Document, February 28, 1977, DA0098377, NAK.

⁸⁹ North Korea’s Foreign Loans, 4 April 1980, CA0331360; Untitled Document, March 30, 1977, DA0098377, NAK.

⁹⁰ Merchant Banking in the Far East, December 1977, F/1/BD/Far/6, LBGA.

⁹¹ ‘The State of Country Credit’, Euromoney (October 1977): 63–111 (101).

⁹² Contacts and Communications with North Korea.

⁹³ Status of North Korea’s Bid to Introduce New Loans in the West, n.d., DA0098377, NAK.

⁹⁴ On the Asian Dollar Market, see, Seung Woo Kim, ‘The Asian Dollar Market’, in Handbook of the History of Money and Currency, ed. S. Battilossi (Singapore: Springer, 2020), 315–33.

⁹⁵ Untitled Document, 9 April 1977, DA0098377, NAK.

⁹⁶ Newspaper clippings, ibid.

⁹⁷ Untitled Document, 16 May 1977, DA0098377, NAK.

⁹⁸ Untitled Document, 27 May 1977, DA0097669, NAK.

⁹⁹ Ibid.

¹⁰⁰ ‘Korea Counts on Its Bankers’, Euromoney, February 1976, 84.

¹⁰¹ In December 1976, North Korea attempted to contact the United States and President Carter via President Bongo of Gabon. In a meeting with Carter and the US secretary of state, the minister of foreign affairs expressed the country’s strong opposition to the direct contact between the North and the United States, which would sever the US relationship with the South. Stopping the Attempts of the North to Directly Contact the US, n.d., DA0097669, NAK.

¹⁰² ‘North Korea Starts to Put its House in Order’, Far East Economic Review, 17 August 1979, 42–4.

¹⁰³ The Trend of North Korean Bankers’ Contact with the United Kingdom, February 1980, CA0331338, NAK.

¹⁰⁴ Untitled Document, n.d., DA0745935, NAK.

¹⁰⁵ Untitled Document, 29 June 1979, ibid.

¹⁰⁶ Untitled Document, 13 November 1979, ibid.

¹⁰⁷ Untitled Document, n.d., CA0331360, NAK; ‘Rock-Bottom Terms are a Must for Foreigners’, Far Eastern Economic Review, 21 September 1979, 61–3.

¹⁰⁸ North Korean Mission’s Visit to the United Kingdom, 8 February 1980, CA0331338, NAK.

¹⁰⁹ North Korean Bankers’ Visit to the United Kingdom, 15 February 1980, ibid.

¹¹⁰ The Trend of North Korean Bankers’ Contact with the United Kingdom.

¹¹¹ North Korean Activities in the Host Country, 14 March 1980, CA0331338, NAK. The countermeasure of the North was to emphasise the latest political developments of the South such as the Gwangju uprising. ‘Acquisition of North Korea’s Propaganda Materials’, 11 July 1980, ibid.

¹¹² Untitled Letter, 18 April 1979, FCO21/1775, TNA.

¹¹³ Untitled Document, 4 June 1980, CA0331338, NAK.

¹¹⁴ Lee, ‘Review on the North Korean Style of Economy in 1970s’, 151–7.

¹¹⁵ Untitled Document, 4 June 1980; Contacts and Communications with North Korea.

¹¹⁶ ‘The Uncontrollable “Stateless Money”’, Far Eastern Economic Review, 21 September 1979: 43–48 (43).

¹¹⁷ ‘The Bankers’ View: Uncertainty’, Far Eastern Economic Review, 13 June 1980: 90–1 (91).

¹¹⁸ ‘North Korea Starts to Put its House in Order’, Far East Economic Review, 17 August 1979, 42.

¹¹⁹ Lee, ‘Review on the North Korean Style on Economy in 1970s’, 162.

Additional information

Funding

This work was supported by the Pony-Chung Foundation [Year 2021]; Swiss National Science Foundation; Schweizerischer Nationalfonds zur Förderung der Wissenschaftlichen Forschung [Ambizione Grant no. PZooP1_179892/1].