Tours to the North Are in Trouble...But Will They Get a Lifeline?

On a nearby hillside, North Korean soldiers stand sentry, their weapons at the ready as South Korean cruise ships slip into their moorings at Hyundai Asan's Changjon port. Stone-faced immigration officers stamp the passports of several hundred tourists. Affable guides try and divert attention from the barbed wire and guard posts flanking the route as we are whisked away by bus to Mt. Kumgang, famous for its giant inscriptions from late "Great Leader" Kim Il Sung. So begins the North Korean leg of Hyundai Group's so-called Dream Tour.

Chung Ju Young, Hyundai's North Korean-born founder, wrangled for a decade to get these four-day cruises going. He figured his compatriots would come in droves, thereby realizing his lifelong dream of closer ties between the two archenemies. A deal was struck in 1998, and the billionaire tycoon, who died in March, got his chance to begin building tourism in the North.

Now the dream has turned into a nightmare. Since November, 1998, only a trickle of tourists have shelled out $550 to make the journey from Donghae or Pusan in the South. Hyundai's North Korea arm, Asan Corp., says it has lost $200 million and can't make its monthly $12 million payment to Pyongyang. Interest in the cruises has waned so much that in April, Hyundai cancelled 12 of 40 cruises, and even more cancellations are planned in May. But while Hyundai's tourism foray looks like an ill-conceived venture, few believe it's doomed. Hyundai says the North is eager to see the project flourish because it wants more foreign investment. South Korea, equally enthusiastic, views the tours as an endorsement of President Kim Dae Jung's "Sunshine Policy" of engaging the North economically and culturally, and a crucial step toward reunification.

Since last November, Hyundai brass have made trips to the North pleading with its official negotiating arm, the Asia-Pacific Peace Committee, to cut it some financial slack. The chaebol is facing its worst financial crisis in decades and says it can only afford to pay half its original monthly license fee for the next three years. By 2005, it believes it can begin repaying the balance. "The North basically accepted the new payment schedule and said it would not interfere with the project," says a Hyundai official in Seoul.

HIKING TRAILS. Hyundai planners clearly overestimated the level of interest among South Koreans. A mere 396,000 have taken the trip, whereas Hyundai figured that more than a million visitors would have made the journey by now. It's hoping that a more realistic goal of 250,000 tourists a year can keep the cruises afloat.

Meanwhile, Asan, having failed to lure crowds with its spa and hiking trails, is betting a casino and duty-free operations will do the trick. It says the North has given its O.K., but Seoul's Unification Ministry, which must approve any such projects, appears loath to grant Asan a license. Only recently did it permit legal gambling for South Koreans, and then only at one casino a four-hour drive east of Seoul. The government already rejected an earlier Hyundai bid, ending rumors that for South Korea's most influential business group, a gaming license was a sure thing.

Could foreign investment save the day for Hyundai? Asan is looking for someone to fork over $72 million to renovate a North Korean-built hotel and to build a luxury resort, amusement park, and golf course. It says it's negotiating with Japanese and European investors. In late April, Hyundai Asan President Kim Yoo Kyu also bore down on both governments, saying their support was vital to the project's survival.

Should Hyundai call it quits, it would cast a cloud over Kim's Sunshine Policy, which helped him win last year's Nobel Peace Prize. "If Hyundai pulls out, it would unnerve a lot of ordinary South Koreans," says a foreign business expert who makes regular trips to Pyongyang. Seoul could not afford to let that happen a year from presidential elections. Future projects, including the Hyundai-led $5 billion Kaesong industrial complex, also hinge on the success of the tourism scheme, since Hyundai views it as a litmus test of the North's willingness to open up for business. So all sides will likely do what they must to keep the cruise boats sailing--and roulette wheels could soon be spinning in the world's most reclusive communist nation.

By Jennifer Veale in Seoul

Edited by Harry Maurer

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