(LEAD) S. Korea says N. Korea used Kaesong wages to develop weapons

South Korea's point man on inter-Korean affairs said Sunday he believes that North Korea has used wages paid to its workers at the joint inter-Korean factory complex to develop nuclear and other military weapons.

In a television appearance, Unification Minister Hong Yong-pyo said "70 percent" of the money that flowed into the Kaesong Industrial Complex has been used by the ruling Workers' Party to bankroll weapons development.

"Workers at Kaesong are paid in cash (U.S. dollars), but the money doesn't go directly to these workers. It goes to the North Korean government instead," Hong said.

"Any foreign currency earned in North Korea is transferred to the Workers' Party, where the money is used to develop nuclear weapons or missiles, or to purchase luxury goods."

Last week, South Korea shut down the industrial park in response to the North's recent nuclear test and long-range rocket launch. Opened in 2004, the complex had long been a big cash cow for North Korea.

North Korea, in turn, expelled all South Korean nationals on Thursday from the complex and froze factory assets by South Korean firms, further driving the last remaining symbol of inter-Korean reconciliation to the brink.

Earlier Sunday, the ministry released a statement with much the same details, saying it has received reports from "multiple channels" claiming the majority of the workers' wages had been funneled into the North's ruling party.

When asked if South Korea should have shut down the complex earlier, Hong responded by saying the positive impact of running the factory park outweighed the risk of financing the North's weapons programs until now.

"The international community recognized the significance of operating the Kaesong Industrial Park," Hong said. "So we continued to keep the place in operation despite multiple nuclear tests. We decided to shut it down this time because North Korea was only going to intensify its weapons development, and we needed to make a decisive move to alleviate our people's security concerns."

Hong said the decision to close down the factory zone was solely South Korea's, adding, "China and other neighbors showed some interest in the matter, but we reached the decision on our own."

The minister added he hasn't identified any problems in the area since the South Korean workers were pulled.

Hong said the government was prepared for the North's expulsion of South Korean workers and its freezing of South Korean assets.

"It goes against international norms for North Korea to arbitrarily freeze our assets," Hong added. "We'll do the best we can to recover them, but North Korea is unlikely to budge and there's only so much we can do."

Asked if the closure of the complex has hit South Korea harder than North Korea, the minister said the damage should be considered in relative terms.

"Given the discrepancy in the sizes of our economies, I think North Korea is clearly reeling from this," Hong added.

He also said the ball is now in the North Korean court.

"The shutdown was basically intended to teach North Korea a lesson, and it'll be now up to North Korea," Hong said. "When North Korea shows sincere willingness to assuage our and the international community's concerns, then we can discuss normalizing operations (at Kaesong)."

A total of 124 South Korean firms were operating factories at the complex, employing more than 54,000 North Korean workers to produce labor-intensive goods such as clothes and utensils.

The complex opened in 2004 as a result of the first inter-Korean summit in 2000. It has been a major revenue source for the cash-strapped North, while South Korea benefited from cheap but skilled North Korean labor.

Source: Yonhap news