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. Last Updated: 07/27/2016

Debt Deal With Seoul Reached

SEOUL -- South Korea has signed a deal to reschedule $2.24 billion of loans to Russia, a gesture that could help Seoul win stronger pressure from one of North Korea's closest allies for an end to Pyongyang's nuclear program.

The agreement provides Russia with significant relief on debt service payments because South Korea is to write off most of the interest arrears, the Finance Ministry said Friday.

That in turn should help Seoul in its efforts to persuade Russia to push North Korea harder to give up its nuclear weapons program.

Russia, under President Vladimir Putin, arguably has warmer ties with the North than does China, which hosted six-country talks last month on defusing the nuclear crisis.

"The deal could be of great help in winning diplomatic support from Russia when another round of nuclear talks takes place," said Oh Seung-koo, chief researcher at Samsung Economic Research Institute.

Analysts said the debt deal, ahead of a visit by South Korean President Roh Moo-hyun to Russia, was a significant diplomatic gesture -- essential if South Korea wants Russia to use its leverage in the North.

Some South Korean officials say they have been concerned ties with Moscow have languished since Roh took office in February with a firm priority to patch up relations with Washington.

The debt deal will also foster better economic cooperation between a major exporter and an expanding consumer market.

"The size of trade with Russia is not big but it's a very important and profitable market for South Korea," Oh said.

"Russia supplies crucial raw materials such as crude and gas," he added.

The $2.24 billion included $1.47 billion in principal the South extended to Russia in 1991 as an economic cooperation loan. After the write-off, Russia will have to repay $1.58 billion over the next 23 years at an interest rate of half a percentage point over London Interbank Offered Rates, the ministry said.

The loan has expanded trade with Russia to $3 billion a year. South Korean electronics goods are popular in Russia.