SEOUL (Reuters) - North Korea said on Thursday it was freezing tourism and taking control of some buildings constructed by the South at a mountain resort in the North which once served as a symbol of cooperation between the rival states.
The move comes as tensions are high on the peninsula after a South Korean navy ship exploded in late March near a disputed sea border with the North, and Pyongyang has been dragging its heels about returning to nuclear disarmament talks.
The South’s defense minister said the sinking may have been caused by a North Korean torpedo attack.
That worried investors because it raised the possibility of fighting between the states, technically still at war since their 1950-53 conflict ended with a ceasefire and not a peace treaty.
“Enormous are economic losses suffered by us due to the long suspension of the tour, and the confiscation of all real estate and facilities of the South side in the tourist zone would not be enough to compensate for them,” the North’s official KCNA news agency quoted one of its land development officials as saying.
The Mount Kumgang resort in destitute North Korea earned Pyongyang tens of millions a year in hard cash. Tours were suspended in July 2008 after a North Korean soldier shot dead a South Korean tourist who wandered onto a restricted beach.
The resort was built by an affiliate of the South’s Hyundai Group, which invested hundreds of millions of dollars for construction and development at the resort, visited by more than one million South Koreans.
The North said it was ending the deal with the Hyundai firm and threatened to seek a new business partner for tourism at Kumgang.
The South’s Unification Ministry said in a statement late last month, when the North threatened to seize assets at Kumgang, that such moves would violate the contract it reached and serve as a reminder to potential foreign investors that the reclusive state is not a reliable business partner.
“This goes against all international practices,” it said.
The action against Kumgang could also hurt North Korean leader Kim Jong-il, expected to go to China soon on a trip seeking foreign investment from his state’s biggest benefactor to prop up the North’s broken economy.
Kim was expected to use the trip to signal his intention to return to stalled international nuclear disarmament-for-aid talks hosted by Beijing, analysts said.
North Korea’s estimated $17 billion a year economy was dealt a heavy blow by U.N. sanctions imposed after a nuclear test in May 2009 and by a botched currency move at the end of the year.
That sparked inflation and rare civil unrest, and raised questions about Kim’s grip on power.
The North has also been angered by the loss of aid from the South, once equal to more than 5 percent of its GDP.
President Lee Myung-bak cut off the unconditional handouts after he took office more than two years ago, and linked Seoul’s largess to moves the North makes to reduce the security threat it poses to the region.
The two Koreas position more than 1 million troops near their border and there are about 28,000 U.S. troops in the South to support its armed forces.
The only remaining joint project is a factory park in the North Korean border city of Kaesong where South Korean companies use cheap North Korean labor and land to make goods.
Editing by Jerry Norton