SEOUL A joint currency, which the two Koreas have agreed to create, will offer both Seoul and Pyongyang greater political control over emerging economic ties, according to a U.S.-based consulting company.

?he currency, which officials described as more of a unit for the calculation of settlements than a physical currency, will offer both Seoul and Pyongyang greater political control over emerging economic ties, commented the Stratro consulting firm.
In its latest analysis, it said, ?hile protecting Pyongyang from potential mixed loyalties among its people, it returns the control of international political and economic contact with North Korea to Seoul.

South and North Korea agreed on the establishment of a single currency for inter-Korean exchanges during economic talks on Nov. l0.

?he new invisible currency allow inter-Korean trade and investment without the use of dollars. This will allow Seoul increased political control over inter-Korean economic cooperation, and offers Pyongyang a way to counter the potentially destabilizing effects of increased contact with South Korea, it said.

Following a round of economic talks with representativves of the North Korea, South chief delegate to the talks, Lee Keun-kyong, explained the new currency will be exclusively for transactions betwee the two Koreas.

Lee told reporters that the currency wasn? a physical entity, but more of a unit for the calculation of settlements.

Strarfor added, ?he decision offers both Seoul and Pyongyang greater political control over the emerging economic ties across the 38th Parallel. Inter-Korean economic cooperation is as much, if not more, a political issue than an economic issue at this time. Investments in the North thus far have offered few true economic benefits to South Korean companies, it said.

The analysis added, ? key example is Hyundai? flagship Mt. Kumgang tourism project, which incurred nearly $245 million in losses in its first l3 months of operation.

It added that Hyundai? losses in North Korea are undermining investor confidence in the already embattled chaebol.

?espite the obvious economic losses, anecdotal evidence strongly suggest that Seoul take extra care in dealing with Hyundai, in return for its groundbreaking investments in North Korea. While the South Korean government is wielding a stronger hand with other firms, Hyundai manages to dodge the most intrusive government reforms, according to Stratfor.

?witching to a virtual inter-Korean currency will allow Hyundai and the South Korean government to obscure the true level of losses in inter-Korean operations. Thus, Seoul, which has declared investment in the North a private business matter, can direct, protect and reward businesses entering the North, while keeping a lower profile itself, it said.

The report continued, ?or North Korea, South Korean investment and trade presents a different problem: It threatens to undermine unity within the ruling regime. The flow of investment into North Korea largely has been segregated geographically and socially. Free trade zones are established in remote locations, and Hyundai? Mt. Kumgang project remains fenced off from the rest of the country.

?orth Korea has watched the Soviet Uniion? attempted transition from a centralized to a market economy fail spectacularly. Even the more closely-controlled transitions in China and Vietnam to so-called socialist market economies have led to splits in their central governments and competition between the regional elites and the central governments, it said.

As Pyongyang seeks to increase capital and technology flow from the South and elsewhere, however, it risks shifting the basis for political prestige. The biggest concern for North Korean leader Kim Jong-il and his advisors is remaining the power brokers and central power in Pyongyang. The North Korean govenment seeks to eliminate the possibility that the elite will grow more powerful by building their relationships with South Korea business, it said.

By creating a virtual currency, good only for inter-Korea dealings and thus unconvertible on the international market, the North Korea goverment retains control over the internal value of the currency and control over the elite? ability to buy power, it analyzed.

?yongyang minimizes the chances of facing internal rifts betwee factions of the elite, which are competing for contacts with South Korea businesses. At the same time, it will potentially increase the pace and scale of investments from the South, because such investments do not require U.S. dollars as a medium of exchange, it said.

?outh Korea? government gains more control over investments heading North, while remaining able to obscure its hand by reporting such trade and investment in terms of the ethereal inter-Korean currency. At the same time, South Korean businesses can adjust their accounting to look more solid for outside investment if inter-Korean trade and investments do not require U.S. dollars, or even South Korean won, it added.

?ltimately, Seoul regains control over other nations political and economic contact with the North through the inter-Korean currency scheme. Foreign businesses interested in investing in the North, but wary of th risks and massive capital outlays, could reduce their risk by investing in South Korean companies which invest in the North. This would not only reduce risk to the foreign businesses, but increase the strength of the South Korean businesses, thus improving the South Korea economy, it reported.

South Korean companies will have a competitive advantage in investing in the North. Seoul will likely give not only its political but also its economic support. The obscurity of this political influence and the opacity of the new currency dealings will give Seoul and South Korean businesses the ability to manipulate the apparent benefits of international investments in the North, allowing Seoul to once again retake the initiative in international relations with Pyongyang," it said.