Seoul: North Korea Spent 70% of Money for Workers on Weapons, Luxury Goods

February 14, 2016 Updated: February 14, 2016

SEOUL, South KoreaNorth Korea channeled about 70 percent of the money it received for workers at the now-shuttered Kaesong industrial park into its weapons programs and to buy luxury goods for the impoverished nation’s tiny elite, South Korea said Sunday.

The jointly run park, just outside the North Korean city of Kaesong and about 50 kilometers (35 miles) from Seoul, employed about 54,000 North Koreans who worked for over 120 South Korean companies, most of them small and medium-size manufacturers. Seoul closed the park last week in retaliation for North Korea’s recent rocket launch.

In a statement issued Sunday, South Korea’s Unification Ministry said that about 70 percent of the 616 billion won ($560 million) paid to the North since the park was established in 2004 was used to develop nuclear weapons and missiles, and for the luxury goods.

However, it did not detail how it arrived at that percentage.

North Korea was able to divert the money because the workers in Kaesong were not paid directly. Instead, U.S. dollars were paid to the North Korean government, which siphoned off most of the money and paid only what it wanted to the employees in North Korean currency and store vouchers, the statement said.

Pyongyang responded to Seoul’s closure by announcing a military takeover of the complex and seizing everything that the companies’ South Korean managers were forced to leave behind.

The rare cross-border project, which began during an era of relatively good relations between the Koreas, combined cheap North Korean labor with the capital and technology of wealthy South Korea.

But Seoul is desperate to pressure Pyongyang after its nuclear test earlier this year, followed weeks later by a Feb. 7 rocket launch that was condemned by much of the world as a test of banned missile technology. While the Kaesong closure will hurt North Korea, it is not critical to that nation’s economy. North Korea gets the vast majority of its earnings from trade with China.

The last time the industrial park closed was in 2013, when North Korea withdrew its workers amid escalating tensions in the wake of North Korea’s third nuclear test. The park reopened after about five months.