North Korea may say goodbye to cash-stuffed bags

By Jon Herskovitz

SEOUL (Reuters) - The easing of financial sanctions on North Korea may mean the end of international transactions limited to cash-stuffed suitcases taken abroad, and the beginning of funds flowing through international settlement banks.

The secretive North released on Thursday a long-delayed list of its nuclear activities.

In return the United States said it would start the process of removing Pyongyang from a terrorism blacklist, allowing it to better tap into international finance.

Due to the small size of North Korea's rickety economy, any increases in investment and trade could have major impact, experts said, but the bulk of the gains would likely make its way to Pyongyang's communist leaders and further solidify their rule.

At present, North Korea has almost no standard access to international finance due to decades of isolation and financial restrictions placed on it for behavior seen by most of the developed world as defiant and belligerent.

Since banks have risked the wrath of the United States for facilitating transactions not approved by Washington, the transfer of money often involves hand carrying cash out of North Korea for deposit in overseas banks.

Once the sanctions are lifted, North Korea may become a little more normal in terms of moving capital in and out of the country.

"You lose this completely cash economy," said Carl Baker, director of programs at the Pacific Forum CSIS think tank.

"This is all a part of gaining confidence in that economy's ability to absorb capital and to see some sort of return on your investment, without the fear of it disappearing in a suitcase."

There will be no soaring economic boom because North Korea's decrepit infrastructure limits development, but there will be openings for economic change in areas ranging from developing mineral resources to allowing payments by credit cards.

Some analysts speculate the end of sanctions might add $2 billion a year to the North's $20 billion economy in the short term, but they warn that given the capricious ways of its rulers any investment in the country would be highly risky.

MINERALS AND TECHNOLOGY

"I think the area that is really going to move, given what the world economy is right now, is the minerals," Baker said.

South Korea's state-funded Korea Resources Corporation estimates the North has mineral deposits worth more than $2 trillion, including 200 types of natural resources and 20 types of major industrial metals such as iron ore.

The North lacks technology and equipment to exploit its vast reserves. Analysts expect with sanctions removed it will be easier for foreign firms to strike and finance deals, which in turn will help rebuild parts of the creaky infrastructure.