Archive for March, 2003

Trial runs of a free market in North Korea

Tuesday, March 11th, 2003

New York Times
March 11, 2003
James Brooke

Even as it rattles its nuclear sabers, North Korea is toying with a version of market reforms to patch its ravaged economy. But eight months after changes like price incentives began, the economy retains an unmistakable Alice in Wonderland quality.

North Korea’s deep ambivalence about business could be seen on a recent Saturday in this mountain resort district, opening day of the Magnolia Blossom. Security police officers paced outside the freshly painted restaurant, hands clasped behind their backs, glaring at customers inside. In the dining room, waitresses bent over ever smaller shards of a broken water bottle. The maître d’, on loan from South Korea and looking lonesome in his black tie, was not authorized to tell North Korean workers to sweep up the glass.

Then the North Korean manager started to argue with an assistant over how much to charge for lunch — $9 or $100.

”I hear there are restaurants in Cheju that charge $100 for a meal,” the assistant volunteered, referring to a desirable southern vacation island.

An American diner, halfway through his bowl of spicy Pyongyang noodles, suggested calculating a price based on profits.

”Our purpose is not to make a profit,” Kim Chol, the 45-year-old manager, lectured patiently. ”It is for the everlasting honor of our beloved leader, Kim Jong Il, that we are interested in serving proper meals to South Korean tourists, even to foreign tourists.”

Asked the prices of ingredients for the meals, Mr. Kim said he did not know. He orders the food he needs. It comes.

While North Korea may be feared for its 11,000 artillery pieces pointed at South Korea, its 100 missiles pointed at Japan, and the nuclear weapons program that so angers Washington, this militarized nation remains an economic weakling with a gross domestic product that is 4 percent that of South Korea.

In this parklike border region not far from the 38th Parallel, where the Hyundai Asan Corporation of South Korea started sending tourist buses across the demilitarized zone in mid-February, two restaurants opened here this winter to cater to South Koreans paying with hard currency. But the primary incentives are not tips, which are banned in North Korea, but pleasing the little man with a high forehead whose visage appears on buttons worn by all restaurant employees — Kim Jong Il.

Last July, in a break with half a century of economic policy, Mr. Kim’s government increased wages as much as 20-to-30-fold. Soon after, food rationing was partly abandoned and prices were raised 20-to-40-fold on staples like rice, corn and pork.

The result, defectors and economists say, has been hyperinflation — at least in the small sector of the economy that runs on money.

”North Korea is short of food, clothes and consumer goods, but they cannot afford to import these materials from China and other countries,” Nam Sung Wook, a South Korean economist who is an expert on North Korea, said on a visit here.

With far too many North Korean won chasing far too few goods, the North Korean won now trades privately around 700 to the dollar. Last summer, in an effort to close the gap with the black market rate, the country devalued the won to a rate of 151 to the dollar from 2.16 to the dollar. As the won became increasingly worthless, the government ordered in the fall that all dollars be swapped for euros, a quixotic decree that was ignored in this resort region.

Last summer, climbing on a high-inflation treadmill reminiscent of some South American economies a decade ago, the government printed a new top-denomination bill, the 1,000-won note, nominally worth a little more than $6. Then in October, it added a 10,000-won note.

With the summer’s financial decrees, the government hoped to close the gap between prices here and much of the rest of the world. Under this plan, the reasoning went, the outside world would then step in with foreign aid and investment.

But North Korea quickly alienated almost all its aid donors. Hopes to win $1 billion a year in World War II reparations from Japan unraveled in September when officials balked at Japanese demands for the return of all Japanese kidnapped by North Korean agents. Relations with China reached a low point in October when Chinese authorities arrested the new head of a North Korean free trade zone, charging him later with ”economic crimes.”

Then came news of North Korea’s nuclear development. Nicholas Eberstadt, a Korea specialist at the American Enterprise Institute, said by telephone from Washington, ”The North Korean government tried to do a forced-march economic opening under the presumption they would get foreign aid and that no one would catch them on their nuclear program.”

Aid, which plays a crucial role in the economy, dried up, and the home-grown incentives stalled: the United Nations has forecast that harvests will not respond measurably this year to the new price incentives. With most potential farmland under production, any big lift for crops would have to come from more electricity for irrigation and more imported fertilizer.

When China made its first moves to free prices, in 1979, it acted cautiously and gradually, cushioned by a society that was 80 percent rural. In contrast, North Korean officials are imposing a food-price shock on a population that increasingly seeks the advantages of life in towns and cities.

”North Korea is living on the edge,” Kathi Zellweger said from Hong Kong, where she manages the North Korea aid program for the Roman Catholic charity Caritas. Fresh from a trip to North Korea in mid-February, she said, ”Kids who to me looked 9 to 10 years old were really 14 and 15.”

Along an urban coastal strip 50 miles north of here, visitors say it is easy to see why many outsiders dismiss North Korea as an economic disaster.

”You see mile after mile of derelict factories, you see smokestacks and very little smoke,” Gerald Bourke, a spokesman for the World Food Program, said from Beijing after a tour of North Korea’s eastern coast late in January. ”The factories are rusting, they are decaying. It goes on and on. There is nothing happening. It is quite eerie.”

Although North Korea is highly secretive about statistics, many economists in the South estimate that the North’s economy contracted by about a third in the 1990’s.

Ms. Zellweger, a frequent visitor to North Korea, said the economic changes have prompted cautious sprouts of private business.

”It was very visible that more people were outside — selling, bartering, running little bicycle repair shops, selling gas for cigarette lighters,” she said of eastern cities. ”People now have more money.”

But just as the only Internet cafe in North Korea is operated by a South Korean entrepreneur, the signs of economic life in North Korea come largely from investments by South Koreans.

At the Hyundai resort here, visited by about 120,000 people last year, ground is to be broken this spring on two golf courses, a ski lift and the renovation of two hotels. And in a country where it is easy to score firsts, Hyundai plans to build North Korea’s first bungee jump.

”One golf course will be by the mountains, the other by the sea,” said Yook Jae Hee, the resort’s general manager. ”We can use North Korean workers. They are very cheap.”

Expecting a flood of tourists using a new civilian road across the demilitarized zone, Kim Chong Seong has brought 50 car campers here. Without permission to roam the countryside, South Korean tourists are to use them as fixed mobile homes.

”North Koreans need to be taught competition, but they are not ready for capitalism,” said Mr. Kim, whose father’s company, Hyo Won Moolsan, pioneered South Korea’s trade with North Korea. ”North Koreans have no idea of price or design.”

(Typical of the North’s capricious view of contracts, it suspended Hyundai’s bus tours for the month of March to do ”road work.” Analysts say it may be a way of putting pressure on Hyundai to increase payments.)

Hyundai, which has yet to make money on its four-year-old tourism operation here, has contracts for six other big projects in North Korea, including building dams, an airport, power plants, a communications network and an industrial park.

On Feb. 16, its group chairman, Chung Mong Hun, admitted at a news conference that he had secretly sent $500 million to North Korea. Critics say the payments helped the company win the North Korean construction contracts.

After two decades of speculation by some that North Korea would follow the liberalizing path of China, many South Koreans are skeptical that the Communist government will ever produce attractive investment conditions.

”We are interested in one day opening restaurants in Pyongyang,” Kwon Won Sik, president of the Lotte Hotels and Resorts chain, said during a pause in a mountain hike here. Referring to North Korea’s levy of $100 a tourist, paid by Hyundai, he added, ”North Korea is really taking advantage financially.”

Despite incentives by the Seoul government for companies to invest and trade with North Korea, interest from outside has trailed off. Investors cite erratic supplies of electricity, the cavalier attitudes toward contracts, a small domestic market and bureaucratic paralysis.

The number of new projects approved by the South Korean government fell to 3 last year, from 13 in 1998. Of 52 Southern companies allowed to invest in the North, half have dropped out of the program.

South Korea’s new president, Roh Moo Hyun, has promised to extend to the North a generous economic investment program of ”peace and prosperity.” Trans-Korean gas lines and railroads are planned, projects that could provide revenue to the impoverished North.

Chung Dong Young, an envoy of Mr. Roh, said in January at the World Economic Forum in Switzerland: ”If North Korea gives up its nuclear programs and addresses other security concerns, it will be able to receive rewards both economic and diplomatic, that will surpass its own expectations. We are considering a bold North Korea reconstruction plan to move toward the Korean Peninsula Economic Community. ”


Infiltrators of North Korea: Tiny Radios

Monday, March 3rd, 2003

From the New York Times
James Brooke
March 3, 2003 

As the Pentagon studies moving tons of military hardware within striking range of North Korea, some say the weapon most feared by the Stalinist government there may be a disposable radio the size of a cigarette pack.

“Little throwaway radios, you listen, you throw away — the smaller the better, the more disposable, the better,” said Pastor Douglas E. Shin, a Korean-American human rights activist who advocates smuggling thousands of tiny radios capable of receiving foreign broadcasts into the North.

The radio smuggling is part of a growing public and private effort, including foreign radio broadcasts, to crack an information monopoly in the North that has helped keep the Kim family in power for nearly 60 years. So tight is the information blackout that defectors report that they believed that their country — one of the world’s poorest — was wealthier than South Korea and that the United States donated rice as a form of tribute to the powerful Communist state.

In January, in a bid to emulate the experience of East Europeans in the cold war, Radio Free Asia and Voice of America doubled their hours of Korean-language broadcasting into North Korea. In February, Radio Free Asia joined Voice of America in broadcasting into North Korea on medium wave, a bandwidth accessible with cheap AM radios.

But the first challenge, skeptics note, is that few people in the North have the radios — or the courage — to listen to foreign broadcasts, something that advocates of the tiny disposable radio say they are determined to change.

Under threat of severe penalties, the vast majority of North Korea’s 22 million people are not allowed any contact with the outside world — letters, telephone calls, travel, radio or television programs.

All citizens are required to register their radios with the local police. On registration, foreign-made radios are tuned to the state radio frequency, soldered into place, and sealed. The police then make unannounced inspections of households with foreign-made radios to verify that they have not been tampered with.

“A lot of people in the White House believe the Iron Curtain came down because U.S. government radio supplied the information that created the Velvet Revolution,” said an American diplomat here, referring to Czechoslovakia’s revolt against Communism. “But in the case of North Korea, is it the sound of one hand clapping? Is it getting in there?”

Advocates of smuggling radios into the North, mostly human rights and Christian church groups, say their effort is aimed at ensuring that someone is indeed listening. Even if only a tiny elite tune in, they say, the effect can be powerful.

“The populace will suffer a kind of psychological collapse when they learn what has been done to them and what the real world is really like,” predicted Radek Sikorski, who grew up listening to Voice of America and Radio Free Europe in communist Poland and now works at the American Enterprise Institute.

“Control of information,” he said, “is absolutely crucial to the survival of this regime because the system is based on lies.”

In a recent manifesto , Mr. Sikorski joined 16 American policy makers in demanding that the Bush administration tie talks with North Korea over its nuclear weapons program to an opening on human rights, including freer information.

Citing the impact of the Helsinki Agreement of 1975 in undermining the Soviet Union and its East European allies, the group called for “significantly expanding the current, scandalously inadequate Korean-language Radio Free Asia broadcasts.”

Already, in a small office rented on the seventh floor of a Seoul newspaper building, Radio Free Asia broadcasters try to bring to North Koreans four hours of news a day.

“North Korean people are not told the truth, so somehow we have to be surrogates, to tell them what is going on,” said Ahn Jae Hoon, who was born in Pyongyang, North Korea, and became director of the Korean branch of Radio Free Asia in 1997, after 26 years at The Washington Post.

The reports are clearly aimed at undermining the leadership of Kim Jong Il. Some broadcasts report on food and power shortages, others on the image of North Korea as isolated and weak abroad. Still other reports discuss military dissatisfaction and coup attempts in the 1990’s, and the fact that Mr. Kim insists that all soldiers be disarmed before he visits a military unit.

The radio also gives practical information for defectors — how to contact missionary groups in northern China, how to dress and behave to escape arrest and deportation to North Korea.

In contrast, under Seoul’s “sunshine policy” of reconciliation, South Korea’s state-owned Korean Broadcasting Service increasingly airs programs intended not to provoke the North and to promote peaceful coexistence on the peninsula.

On Saturday at a national park near Kosung, North Korea, two park guides spoke dismissively of foreign broadcasts. “Why would we want to listen to radio from the South? No one is stopping us from listening, but we don’t want to anyway,” said Kim Dong Chul, 31. “The music is not our style and the news is not for us. It’s for the people in Seoul.” Another guide, a 26-year-old man who declined to be identified, said, “I don’t have enough time in a day to listen to our radio, and then to listen to radio meant for other people.”

The guides are largely chosen for their political loyalties, because they come in contact with large numbers of South Korean tourists.

Backers of foreign broadcasts, however, say more and more North Koreans are finding ways to tune in.

As trade with China increases and radio prices fall, some North Koreans now buy two radios, but register only one with the police, defectors say. In a country wracked by power shortages, government jamming is spotty. Also, some North Koreans dare to tinker with state-supplied radios, defectors add.

Still, for now, foreign broadcasting is largely limited to North Korea’s elite.

In 1999, Mr. Ahn said, a survey commissioned by Radio Free Asia found that one of 12 “elite” defectors polled had listened to Radio Free Asia. A similar survey in 2001 found that the proportion had risen to 6 of 12.