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Hyundai Losing Money on the Mount Kumgang Resort
in North Korea
By Indira A.R. Lakshmanan, The Boston Globe
Knight Ridder/Tribune Business News 

Mar. 9, 2003 - KOSUNG, North Korea--In the carnival atmosphere of a floating hotel for foreign visitors, it is easy to forget that this is North Korea. 

Lights blaze from cheap chandeliers, liquor flows freely, and a duty-free boutique sells designer perfume. A conga line of South Korean VIPs, led by the chairman of the Hyundai business conglomerate, dances through the lobby as a Filipino band belts out "Hotel California." 

But outside, a tall fence encloses this South Korean-run hotel and resort, guarded by North Korean soldiers who insure that no locals can get in and no visitors can get out. Half a dozen military trucks with multiple-rocket launchers are poised on a hillside overlooking the resort. Inside the compound are a luxury spa, overflowing buffets, and a Western-style convenience store. Outside are some of the poorest, most isolated people on Earth. 

The Mount Kumgang resort is the centerpiece of South Korean efforts to engage and invest in the North as a strategy to reduce hostilities along the world's most militarized border and end decades of forced separation of families. But more than four years since the heralded opening of this scenic hiking area, even supporters of Seoul's "Sunshine Policy" to encourage business and cultural exchanges are questioning the huge cost and low return -- politically and economically -- of trying to draw the North out of isolation. 

The 550,000 visitors who have come to Mount Kumgang by cruise ship since November 1998 were supposed to be the thin edge of the "Sunshine" wedge. But many North Korea specialists suspect that hard currency from Hyundai and other investors has lined the pockets of North Korean leader Kim Jong Il, perpetuating his repressive and militaristic rule. Meanwhile, Hyundai Asan, the tourism arm of the conglomerate, is losing money on Kumgang; it needs 1 million people to visit this year to make a profit here. 

To attract more visitors, Hyundai started bus trips across the demilitarized zone last month amid much fanfare, as a cheaper, novel alternative to the cruises. Then a week ago, North Korea suspended the historic land crossings, a move interpreted by some as a slap in the face to Hyundai by an ungrateful regime. Hyundai executive Yook Jae Hee denied rumors that the North was trying to extract more money from Hyundai, saying that the North needed to shut the road temporarily for railroad work and that overland trips would resume soon. 

Despite substantial investment and encouraging words from the South, the North has engaged in increasingly provocative moves in the past two weeks -- from testing a short-range antiship missile to restarting a nuclear reactor to sending fighter jets to briefly intercept a US reconnaissance plane in international airspace. 

"I don't mind giving money to the North as long as we can get something in return -- restructuring the economy or helping feed people so they don't starve to death," said Jang Song Hyon, a former CEO of Johnson & Johnson in South Korea, who was among 500 VIPs invited to make the first overland crossing to the resort. "But so far, we are only sustaining Kim Jong Il and helping him fund his nuclear or conventional weapons programs," Jang asserted, echoing the view of many on the trip. 

Hyundai is the leading investor in the North, paying $942 million in installments for exclusive rights to develop seven projects around the country, in addition to a $500 million secret payment that some South Korean lawmakers believe greased the wheels for a historic summit in 2000 between the leaders of North and South Korea. Hyundai's chairman admitted the under-the-table, possibly illegal payment last month after its revelation sparked a national scandal. Hyundai also has spent $140 million on facilities and roads at Kumgang, and plans to build golf courses and an aerial tramway. 

The idea behind the Kumgang project, Hyundai executives say, was to pry open a closed economy and build bridges to North Korean people. But with locals forbidden from working at the resort -- in addition to the Filipino band, employees are South Koreans and ethnic Koreans from China -- Hyundai's money appears not to be trickling down. 

But proponents of engagement, such as South Korean economist Lee Sang Man, argue that "even without Hyundai's money, [North Korea] can make nuclear systems by sacrificing the welfare of the people. Money from Hyundai helps decrease the sacrifice of the North Korean people," said Lee, a professor at Chung-Ang University who was on his third trip to Kumgang. 

In the hotel on a recent Saturday night, a "60 Minutes" expose on torture, repression, hunger, and other horrors perpetrated by North Korea's Stalinist dictatorship aired on a South Korean channel that is jammed everywhere else in a country cut off from outside news. Villagers sit in darkness, short of food and fuel, forbidden from meeting visitors, told not to trust their capitalist neighbors and that the United States is planning to attack the North. Visitors are warned not to talk politics, make contact with villagers, or point at the ubiquitous monuments to Kim Jong Il and his late father, Kim Il Sung. A South Korean housewife who told a park guide that life was better in the South was separated from her small son and detained for a week in 2000. Another tourist was fined $1,000 for throwing a plastic drink bottle out the window of a tour bus to a small child. 

A South Korean tour guide calls the separate path for North Koreans on the other side of the barbed-wire fence heartbreaking. 

"We can see each other but we can't touch. I want to talk to them, but can't," said the woman, who spoke on condition that her name not be used. Most North Koreans walking or bicycling on the other side kept their heads down and eyes averted from the buses. 

Southerners eager for contact with Northerners can avail "park rangers," communist party loyalists -- most of them attractive young women -- trained to parrot the government line, and more recently, to encourage common cause with South Koreans against the United States. 

"We are building bridges today by talking together so you can see how ordinary North Koreans are, and I can see you as an ordinary person. That's how we build trust," a female ranger was overheard telling Jung Sang Ryul, a South Korean professor. 

Asked what she thought of the South Koreans whom she had met, another ranger and party member, Im Kyong Sook, 37, said, "We are the same people, we share the same blood," though she was unhappy to see South Korean women coloring their hair and wearing jeans "like they don't have pride in their own culture." 

At the end of a recent three-day visit, a repeat journey for many of the South Korean businesspeople and opinion makers, there was widespread frustration. "Where is the result?" of cooperation with the North, asked Kim Young Yoon, a senior research fellow at the Korea Institute for National Unification. "We can't even talk to people. 

"The South Korean government believed it could give more and more to the North, and eventually North Korea would change," he said. "In reality, nothing has changed. Cooperation should mean that we give assistance and they give assurances for peace with no nuclear weapons. . . . So the 'Sunshine Policy' has failed in this way. There's no lesson here for North Korea." 

Not everyone was so pessimistic. 

"We don't need to try to change the government. If we can change society, little by little, other things will change, like they have in China," said John Kim, CEO of a Los Angeles-based business consultancy. Kim predicted that once Hyundai's planned industrial park opens in Kaesong, a North Korean city 90 minutes' drive from Seoul, "everything will open. People will be doing business, learning from our system, and they will want to live differently." 

But asked whether he would advise clients to invest in the North, he demurred, "In my opinion, it's not ready yet." 

-----To see more of The Boston Globe, or to subscribe to the newspaper, go to http://www.boston.com/globe 

(c) 2003, The Boston Globe. Distributed by Knight Ridder/Tribune Business News. HYUNF, HYMLY, HYMTF, JNJ, 


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