A basic solution for Korean reunification

The Unification Ministry of South Korea plans to use the Inter-Korean Cooperation Fund and raise taxes to prepare the financial resources needed for reunification in case North Korea experiences a dramatic change. The ministry is considering saving around 1 trillion won (942 million U.S. dollars) returned to the national coffers every year out of 1.1 trillion won (1.04 billion dollars) in the cooperation fund, and creating resources worth more than 20 trillion won (18.8 billion dollars) by increasing income and corporate tax rates.

The estimated cost of Korean reunification including spending on integration, risk management and investment in North Korea after reunification ranges from 500 billion dollars to 5 trillion dollars depending on think tanks. North Korea`s collapse will come as no surprise because it is a failed country in every aspect. It maintains its communist regime through fear while allowing its people to die of hunger due to a misguided national strategy and incompetence. If East and West Germany, which had much stronger economies than the two Koreas, is any guide, the two Koreas could face huge obstacles unless they discuss reunification cost.

Though reunification might impose a huge economic burden on the South Korean people, free and democratic reunification remains a basic assumption to all Koreans. If land and people are wisely used as a critical foundation for national power, South Korea can expect increased labor and a larger market size if the 24 million North Koreans become part of the South Korean economy. The discussion over reunification costs, however, should be made with an economic mindset and cool-headedness to reduce the burden and shocks of integrating the extremely poor Stalinist country.

If reunification costs are saved, financial resources that are supposed to be spent on investment or consumption will be reduced. As a result, the South Korean government should manage its economy conservatively, something which could undermine the South`s economic growth potential. Even if taxes are raised, a careful decision should be made to choose between increasing corporate and income taxes or raising value-added taxes. Not only the Unification Ministry but also other economy-related government agencies should put their heads together to discuss reunification cost.

If the national economic pie gets bigger, people could feel less pressure though the cost remains the same. If the economy shrinks, the government will spend more to boost the economy while tax revenues decrease, which makes it harder to create financial resources. Continued economic growth is essential to prepare for reunification.

In addition, coping with emergencies requiring a lot of financial resources is easier if South Korea`s financial status is sound and healthy. A sound financial status lifted the South Korean economy from the 1997 Asian financial crisis earlier than expected. The ruling and opposition parties say they want reunification, but if they care nothing about economic growth and financial health and just threaten national coffers, they do not truly work for reunification.