North Korean Economy Watch

Korea Economic Institute
Oh-Seung Yeul

February 2005

Download in PDF: Oh.pdf

Trade, reform, inter-Korean cooperation, China, IT, aid.

Check it out.

KIEP has published the North Korea Development Report 2003/04 (follow the link to download all several hundred pages!)

Summary: As a result of North Korea’s isolation from the outside world, international
communities know little about the status of the North Korean economy and its
management mechanisms. Although a few recent changes in North Korea’s economic system have attracted international interests, much confusion remains as to the characteristics of North Korea’s recent policy changes and its future direction
due to the lack of information. Therefore, in order to increase the understanding of readers in South Korea and abroad, KIEP is releasing The North Korea Development Report in both Korean and English. The motivation behind this report stemmed from the need for a comprehensive and systematic investigation into North Korea’s socio-economic conditions, while presenting the current status of its industrial sectors and inter-Korean economic cooperation. The publishing of this second volume is important because it not only supplements the findings of the first edition, but also updates the recent changes in the North Korean economy. The topics in this report include macroeconomics and finance, industry and infrastructure, foreign economic relations and inter-Korean economic cooperation, social welfare and science & technology.

This report also covers the ‘July 1 Economic Reform’ launched two years ago and
subsequent changes in the economic management system. The North Korea
Development Report helps to improve the understanding of the contemporary North
Korean economy.
Table of Contents  
 
Part I Macroeconomic Status and Finance
Chapter 1 Current Status of the North Korean Economy and Its Prospects
Chapter 2 National Financial Revenue and Expenditure
Chapter 3 Banking and Price Management

Part II Industrial Management and Problems
Chapter 4 The Industrial Sector
Chapter 5 The Agricultural Sector
Chapter 6 Social Overhead Capital
Chapter 7 Commerce and Distribution Sector
Chapter 8 The Defense Industry

Part III International Economic Activities
Chapter 9 Foreign Economic Relations
Chapter 10 Special Economic Zones
Chapter 11 Inter-Korean Economic Relations

Part IV Social Security and Technology Development
Chapter 12 Social Security and Social Services
Chapter 13 Science and Technology Sector

Part V The Recent Economic Policy Changes
Chapter 14 The Contents and Background for the Recent Policy Changes
Chapter 15 The Features and Problems of the Recent Economic Policy Changes
Chapter 16 Prospects and Future Tasks of the July 1 Economic Reform  

BBC
Lucy Jones
4/13/2004

“Got any nuclear weapons for sale?” is the response Briton Roger Barrett usually gets when he tells people at Beijing cocktail parties that he invests in North Korea.
The country’s admission to a nuclear weapons programme and its listing on George W Bush’s “axis of evil” means most people are staying well away.

But Mr Barrett, 49, a former troop commander in the British army who has 10 years experience of doing business in North Korea, recently opened a branch of his consultancy firm, Korea Business Consultants, in Pyongyang.

A self-confessed “business adventurer”, he says there is growing interest in the country after Chairman Kim Jong-il introduced economic reforms in 2002.

It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market.

Robert Barrett, Korea Business Consultants 
He is also the enthusiastic publisher of what must be North Korea’s only business publication – the DPRK Business News Bulletin – which features some of the 250 companies he advises.

“It’s like China in the eighties… The market reforms are very evident. It’s an exciting time to join the market,” he says.

Mr Barrett is not alone.

Even in the middle of a nuclear crisis there are foreign investors in the country, and their numbers are increasing.

They say North Korea is a mineral rich country that needs everything and insist they have to get there first.

They also believe the 2002 economic reform is for real and that the country is gradually moving towards becoming a market economy.

Poverty

The little data there is on the country’s economy is hardly encouraging, though.

There has been a devastating famine and the UN says malnutrition is still widespread.

There are chronic heating and water shortages, and most North Koreans are paid less than £5 a month.

The country also has an appalling human rights record.

A BBC documentary on the country’s gulags this year contained allegations that chemical experiments are being carried out on political prisoners.

Meanwhile, the US says it is “highly likely” that North Korea is involved in state-sponsored trafficking of heroin.

In the political arena, the second round of six-nation talks aimed at resolving the nuclear crisis ended in Beijing in February without agreement, which means US and Japanese sanctions will remain in place.
‘Communism’ tourism

But the foreign entrepreneurs in North Korea are not put off.

Some are helped by UN employees who have worked in Pyongyang (among the few people to have had contact with the regime there) and many have a track record in China.

Pack a torch, conduct business meetings on the street to avoid big brother listening in and have plenty of “Asian patience” for the endless red-tape, they advise.

An Austrian company is reportedly buying pianos from the North Koreans, a French television station uses North Korean artists to produce cartoons, while a Singapore-based firm is developing forestry and tourism.

The Singaporeans intend to offer “adventure” stays on their North Korean forestry plantations.

Meanwhile, Western tourist agencies are gearing up to offer the last chance to see communism in action, and Fila and Heineken have reportedly entered into sponsorship deals with the North Korean regime.

North Korean labour

A German, Jan Holtermann owner of the computer firm KCC Europe, is putting North Korea online.

He hopes that by being there first he will be able to eventually tap into North Korean computer talent.

The country’s small number of internet users currently dial-up to Chinese providers, a costly process at about £1 a minute.

Mr Holtermann’s customers, who he hopes will number 2,000 by the end of the year, will have unlimited access for £400 a month.

As only a few North Koreans are permitted to have telephones, and as the internet service is costly, Mr Holtermann expects his customers to be government ministries, news agencies and aid organisations.

He has invested £530,000 in the venture, intending to get first pick when North Korean software programmers come onto the market.

“They are very talented,” he says.

“It’s this capacity we want to sell in Europe.”

The parcel delivery company DHL has operated in Pyongyang since 1997, when it was invited there by the government, and now has North Korean light manufacturing, textile and beverage companies on its books.

It sees itself as contributing to the country’s “slow but increasingly visible” economic reform programme.

British consultants

Former bank employee Mr Barrett is convinced North Korea is opening up much quicker than people think.

There are opportunities in banking, minerals, agriculture and telecommunications, he insists.

“There is the odd story of something going wrong,” he says.

“But when you walk around you notice construction going on.

“The people are feeling a change.”

High level contacts

But how to do business with one of the most isolationist regimes on earth?

Contacts are essential, say businessmen.

Though even knowing a North Korean minister is not enough, says Gerald Khor of Singapore-based forestry company Maxgro Holdings.

“You have to go above the ministers to the cabinet. You don’t have to know a member but you need to know people who can influence them,” he says.

“It is very important to get the favour of the dear leader (Kim Jong-il). Because when he says something, it gets done.”

Through a former UN employee, Maxgro got Kim Jong-il’s attention and has invested $2m in forestry, agreeing the state gets 30% of the profits.

“Kim Jong-il is an environmentalist,” Mr Khor says.

“We are confident we’ll get a return.

“We have dwindling supplies and this is high quality wood.”

To locate the forests elsewhere would cost much more, he adds.

Forced to change

Economic reforms introduced by the government in 2002 are seen as the first move away from central planning since the country adopted communism in 1945.

The government has been forced to change in order to survive, especially now it can no longer barter with Eastern Europe and the former Soviet Union, experts say.

“There is no real option not to carry out these reforms,” says UK-based Keith Bennett, who has taken trade missions to Pyongyang.

“But people don’t know where they will lead.

Chinese leaders have impressed on Kim Jong-il that there can be economic reform without fundamental political change.”

Way up on North Korea’s border with Russia and China is the Tumen economic zone, which was established in 1991 with UN help to lure investors.

The project has only had limited success and may indicate the type of problems those investing elsewhere in North Korea may face.

The North Korean section of the zone, Rajin-Songbong, hosts foreign-run hotels, telecommunications and restaurants, but that is about all.

“The North Koreans have sometimes been very co-operative and sometimes not, maybe because of policy change,” says Tsogtsaikhan Gombo, from the UN’s development agency.

“They were also disappointed when they didn’t see the investment.”

Vibrant Chinese economic zones nearby have put up fierce competition.

But even opening the door just slightly to let in capitalism has greatly improved the lives of the 150,000 people living in the zone, says Mr Gombo.

And many foreigners insist that small investments elsewhere in the country may have similar results.

The Economist
3/11/2004

So far as a visitor can tell in this secretive land, North Korea’s economic reforms are starting to bite. But real progress will require better relations with the outside

COMMUNIST North Korea has started to experiment with economic reform, and opened its door a crack to the outside world. Though its culture of secrecy and suspicion stubbornly persists, it was deemed acceptable for your correspondent to visit Pyongyang’s Tongil market last week. Here, stalls are bursting with plump vegetables and groaning with stacks of fresh meat. You can even buy imported pineapples and bananas from enthusiastic private traders.

But how about a photograph? Most foreigners think of North Korea as a famished nation, and the authorities are evidently keen these days to tell the world about the great strides their economy has made since reforms were introduced in July 2002. Logic might seem to suggest that a snap showing the palpable result of the reforms would be acceptable too. But it is not. The officials were friendly but firm: no pictures of fat carrots.

The July 2002 reforms were ground-breaking for North Korea: the first real step away from central planning since the dawn of communism there in 1945. The government announced that subsidies to state-owned enterprises were to be withdrawn, workers would be paid according to how much they produced, farmers’ markets, hitherto tolerated, would become legal and state enterprises would be allowed to sell manufactured products in markets. Most of these enterprises, unless they produced “strategic items”, were to get real autonomy from state control.

Almost two years on, how to assess the success or failure of these reforms? That climate of secrecy makes it deeply frustrating. Even the simplest of statistics is unavailable. Li Gi Song, a senior economist at Pyongyang’s Academy of Sciences, says he does not know the rate of inflation. Or maybe he is not telling. After all, he says, “We can’t publish all the figures because we don’t want to appear bare before the United States. If we are bare then they will attack us, like Afghanistan or Iraq.” So what follows can be little more than a series of impressions.

The indications are that the reforms are having a big impact. For a start, North Korea has recently acquired its first advertisement (pictured above)—for foreign cars, assembled locally by a South Korean majority-owned company. Or, to be more basic, take the price of rice, North Korea’s staple. Before the reforms, the state bought rice from state farms and co-operatives at 82 chon per kilo (100 chon make one won, worth less than a cent at the official exchange rate). It then resold it to the public through the country’s rationing system at eight chon. Now, explains Mr Li, the state buys at 42 won and resells at 46 won.

North Korea’s rationing system is called the Public Distribution System (PDS). Every month people are entitled to buy a certain amount of rice or other available staples at the protected price. Thus most North Koreans get 300g (9oz) of rice a day, at 46 won a kilo. According to the UN’s World Food Programme (WFP), that is not nearly enough. Anything extra has to be bought in the market.

In theory, even in the market the price of staples is limited. Last week, the maximum permitted rice price was marked on a board at the entrance to Tongil as 240 won per kilo. In fact, it was selling for 250. WFP officials say that in January it was selling for 145 won, which points to significant inflation, for rice at least. This is not necessarily a bad thing, since it means that the price is coming into line with the market.

The won’s international value is also adjusting. Since December 2002, the euro has been North Korea’s official currency for all foreign transactions. In North Korean banks, one euro buys 171 won. In fact, this rate is purely nominal. A semi-official rate now exists and the price of imports in shops is calculated using this.

Last October, according to foreign diplomats, a euro bought 1,030 won at the semi-official rate. Last week it was 1,400. A black market also exists, in which the euro is reported to be fetching 1,600 won—which implies that the won is approaching its market level. It also means, however, that imported goods have seen a big price-hike. For domestically-produced goods, like rice, prices may well go on rising for a good while longer.

What about earnings? Before the 2002 reforms, most salaries lay in the range of 150-200 won per month. Rent and utilities, though, were virtually free, as were (and are) education and health care. Food, via the PDS, was virtually given away. Now, pay is supposed to be linked to output, though becoming more productive is not easy for desk-bound civil servants or workers in factories that have no power, raw materials or markets.

Rents and utilities have gone up, though not by crippling amounts. A two-bedroom flat in Pyongyang including electricity, water and heat costs just 150 won a month—that is, about a tenth of a euro.

Earnings have gone up much more: a waitress in a Pyongyang restaurant earns about 2,200 won a month. A mid-ranking government official earns 2,700. A worker at a state farm earns in the region of 1,700, a kindergarten teacher the same, and a pensioner gets between 700 and 1,500. A seamstress in a successful factory with export contracts can earn as much as 5,000 won a month. Since that seamstress’s pay equates to barely three euros a month, wages still have a long way to adjust.

The prices of food and other necessities, to say nothing of luxuries, has gone up much more than rent has. According to the WFP, some 70% of the households it has interviewed are dependent on their 300 gram PDS ration, and the WFP itself is targeting 6.5m vulnerable people out of a total population of some 23m. Not all suffer equally: civil servants in Pyongyang get double food rations from the PDS.

There are some encouraging stories. In Pukchang, a small industrial town 70km (40 miles) north-east of Pyongyang, Concern, an Irish aid group, has been replacing ancient, leaking and broken-down water pipes and pumps, and modernising the purification system. This has pushed the amount of clean water available per person per day from 80 to 300 litres. Kim Chae Sun is a manager at the filtration plant, which is now more efficient. Before July 2002 she earned 80 won a month. Afterwards she earned 3,000 won. Now she earns 3,500.

As Mrs Kim speaks, three giant chimneys belch smoke from the power station that dominates the town. All workers have been told they can earn more if they work harder, but certain groups have been told they will get even more money than everyone else. In energy-starved North Korea these include miners and power workers. Mrs Kim says her husband, who works in the power plant, earns an average of 12,000 won a month. Her rent has gone up from eight to 102 won a month, and in a year, she thinks, she will be able to buy a television or a fridge.

A lot of people, in fact, are buying televisions. The women who sell the sets from crowded Tongil market-stalls get them from trading companies which they pay after making a sale. The company price for an average set is 72,000 won, the profit just 1,000 won. After they have paid for their pitch, the traders can expect an income of 10,000-12,000 won a month.

Mystery sales
Which makes for a puzzle. Who can afford a good month’s salary for a locally made jacket in Tongil, costing 4,500 won? How come so many people are buying televisions, which cost more than two years of a civil-servant’s pay? How come the number of cars on the streets of the capital has shot up in the past year? Pyongyang still has vastly less traffic than any other capital city on earth, but there are far more cars around than a year ago. Restaurants, of which there are many, serve good food—but a meal costs the equivalent of at least a white-collar worker’s monthly salary. Many of these restaurants are packed.

Foreign money is part of it. Diplomats and aid workers say many new enterprises seem to have opened over the last year. Nominally they are state-owned, but sometimes they have a foreign partner, often an ethnic Korean from Japan. The majority are in the import-export business. Some have invested in restaurants and hotels and some in light industry. Thanks to the 2002 reforms, these firms have a degree of autonomy they could not have dreamed of before. An unknown number of people also receive money from family abroad, but there are still no North Korean-owned private companies.

Farmers are among the other winners: they can sell any surpluses on the open market. But two out of three North Koreans live in towns and cities, and only 18% of the country is suitable for agriculture. The losers include civil servants, especially those outside Pyongyang who do not get double food rations and have no way to increase their productivity.

Factory workers have it the hardest. A large proportion of industry is obsolete. Though Pyongyang has electricity most of the day, much of the rest of the country does not. Despite wild talk of a high-tech revolution, the country is not connected to the internet, though some high-ups do have access to e-mail service. In the east of the country lies a vast rustbelt of collapsing manufacturing plants.

Huge but unknown numbers of workers have been moved into farming, even though every scrap of available land is already being cultivated. The extra workers are needed because there is virtually no power for threshing and harvesting and no diesel for farm vehicles. This requires more work to be done by hand. Ox-carts are a common sight.

The innocent suffer
Markets are everywhere. But this does not mean that there is enough food everywhere. In Pyongyang, where there are better-off people to pay for it, there is an ever-increasing supply. Outside the capital, shortages are widespread.

No one knows how many died during the famine years of 1995-99; estimates range from 200,000 to 3m. In Pukchang, officials say that 5% of children are still weak and malnourished. In Hoichang, east of Pyongyang, schools and institutions tell the WFP that about 10% of children are malnourished. Masood Hyder, the senior UN official in North Korea, says that vulnerable households now spend up to 80% of their income on food.

And yet some things are improving. Two surveys carried out in 1998 and 2002 by the North Korean government together with the WFP and Unicef showed a dramatic improvement in children’s health between those years. The proportion of children who fail to reach their proper height because of malnutrition fell from 62% to 39%, and the figures are thought to be still better now. However, Unicef says that though children may no longer die of hunger, they are still dying from diarrhoea and respiratory diseases—which are often a side-effect of malnutrition.

To a westerner’s eye, a class of 11-year-olds in Hoichang is a shocking sight. At first, your correspondent thought they were seven; the worst-affected look to be only five. Ri Gwan Sun, their teacher, says that apart from being stunted some of them still suffer from the long-term effects of malnutrition. They struggle to keep up in sports and are prone to flu and pneumonia. They are also slower learners.

Pierrette Vu Thi of Unicef says that North Korea’s poor international image makes it hard for her agency, the WFP and others to raise all the money they need. The country is in a chronic state of emergency, she says, and to get it back on its feet it would need a reconstruction effort on the scale of Afghanistan and Iraq.

Such bleak talk is echoed by Eigil Sorensen of the World Health Organisation. He says that health services are extremely limited outside the capital. Medicines and equipment are in short supply, large numbers of hospitals no longer have running water or heating and the country has no capacity to handle a major health crisis.

None of this is likely to change very fast. With no end yet to the nuclear stand-off between North Korea and the United States, American and Japanese sanctions will remain in place. And nukes are only part of it. Last week the American State Department said it was likely that North Korea produced and sold heroin and other narcotics abroad as a matter of state policy. North Koreans who have fled claim that up to 200,000 compatriots are in labour camps. North Korea denies it all.

Reform, such as it is, has plainly made life easier for many. But rescuing the North would take large amounts of foreign money, as well as measures more far-reaching than have yet been attempted. At present, there is no way for the government to get what it needs from international financial institutions like the World Bank. Such aid as comes will be strictly humanitarian, and investment in so opaque a country will never be more than tentative. Domestic reform on its own cannot fix an economy wrecked by decades of mismanagement and the collapse of communism almost everywhere else.

From the Office of the National Counterintelligence Executive:

North Korea: Channeling Foreign Information Technology, Information to Regime Goals Pyongyang is working with Koreans abroad and other foreign partners in information technology (IT) ventures, sending software developers overseas for exposure to international trends, granting scientists access to foreign data, and developing new sources of overseas information in a bid to develop the economy. Cellular telephones and Web pages are accessible to some North Koreans, while foreigners in Pyongyang have access to foreign television news and an Internet café. While such steps are opening windows on the world, however, Democratic People’s Republic of Korea (DPRK) oficials are largely limiting such exposure to areas required for economic development. Moreover, they are applying IT tools to develop new means of indoctrinating the public in North Korea and reaching audiences overseas.

Working With Foreign Partners in IT Ventures
North Korea is promoting cooperative ventures with foreign partners to develop IT, which DPRK media have repeatedly described as a priority area in science and technology. An editorial in the 10 November 2003 issue of the party newspaper Nodong Sinmun, for example, named IT as the first of three technical fields, along with nanotechnology and bioengineering, to which “primary efforts should be directed.”

North Korean media suggest that officials have grasped the potential of leveraging IT for national development. A recent article in the government’s newspaper asserted that (1) “IT trade surpasses the automobile and crude oil industries” and (2) “IT goods are more favorable in developing countries than they are in the developed nations” (Minju Choson, 7 March).

ROK analysts, such as those who compiled a survey of Pyongyang’s IT industry (Puhkan-ui IT Hyonhwang-mit Nambuk Kyoryu Hyomnyok Pangan, 1 January), have suggested that DPRK policies for promoting a domestic IT industry reflect the nation’s lack of capital, dearth of natural resources, and relative abundance of technical talent.  Hoonnet.com CEO Kim Pom-hun, whose extensive experience in North Korea includes residence in Pyongyang from December 2001 to October 2002, has assessed North Korean IT manpower as resembling “an open mine with the world’s best reserves of high-quality ore” ( Wolgan Choson, 1 January).

Pyongyang is partnering with Koreans in South Korea, Japan, and China, as well as Chinese, in ventures to develop both software and hardware, including:

• The Morning-Panda Joint Venture Company in Pyongyang, a partnership between North Korea’s Electronic Products Development Company and China’s Panda Electronic Group, which began making computers in late 2002.
• The Pyongyang Informatics Center (PIC) and South Korea’s Pohang University of Science and Technology (PUST), which are cooperating to develop virtual reality technology. In addition:
• The ROK’s Hanabiz.com and PIC launched the Hana Program Center in Dandong, China, in August 2001 (http://hanabiz.com/history.html) for joint software development and training of DPRK programmers.
•  IMRI—ROK manufacturer of computer peripherals—and CGS—a Tokyo-based software company affiliated with the pro-Pyongyang General Association of Korean Residents in Japan (GAKRJ, a.k.a. Chosen Soren)—joined hands in July 2000 to form UNIKOTECH (Unification of Korea Technologies) to develop and market software. Both partners maintain links to North Korean IT enterprises.
• The ROK’s Samsung Electronics and the DPRK’s Korea Computer Center (KCC) have been developing software together at a Samsung research center in Beijing since March 2000 (Chonja Sinmun, 15 October).

Venturing Overseas To acquire information on foreign IT trends and to promote their domestic industry, North Koreans have begun venturing overseas in recent years.

• State Software Industry General Bureau Director Han U-ch’ol led a DPRK delegation in late September 2003 to the China International Software and Information Service Fair in Dalian. The North Koreans joined specialists from China and South Korea in describing conditions in their respective IT industries and calling for mutual cooperation. Participants from China and the two Koreas expanded on the theme of cooperation at the IT Exchange Symposium, sponsored by the Dalian Information Industry Association, Pyongyang’s State Software Industry General Bureau, and Seoul’s Korea Advanced Institute of Science and Technology (KAIST). Dalian Alios Technical Consulting, a company run by Chinese Korean Yi Sung-nam, hosted the exchange (www.kotra.or.kr, 15 October, http://hanabiz.com, 9 October).
• Pyongyang opened, in April 2002 in Beijing, its first foreign exhibition of DPRK software products developed by Kim Il-song University, Korea Computer Center (KCC), PIC, and other centers of software development (DPRK Korea Infobank, 16 May 2002).
• KCC Deputy Chief Technician Kim Ki-ch’ol led a delegation of DPRK computer technicians to the World PC Expo 2001, held in September 2001 outside Tokyo. KCC has worked with Digiko Soft—a company run by a Korean resident of Japan—to develop commercial software. Through Digiko Soft, the expo was the first show in Japan “of computer software developed in [North] Korea” (Choson Sinbo, 22 October, 1 October 2001).
• KCC computer programmers Chong Song-hwa and Sim Song-ho won first place in August 2003 in a world championship software competition of go—an Asian game of strategy—held in Japan. KCC teams have visited Japan and China on at least eight occasions since 1997 to compete in program contests for go, taking first prize three times.

Gaining Access to Foreign Data North Korea has been acquiring foreign technical information from a variety of sources in recent years, benefiting from developments in technology, warming ties between the Koreas, and longstanding sympathies of many Korean residents in Japan.

• Authorities have held the annual Pyongyang International Scientific and Technological Book Exhibition since 2001, bringing foreign vendors and organizations related to S&T publications to North Korea (KCNA, 18 August).
• The Trade and Economy Institute, advertised as North Korea’s “sole consulting service provider” on international trade, has been exchanging information with “many countries via Internet” since September 2002 (Foreign Trade of the Democratic People’s Republic of Korea, 1 April).
• According to PUST President Pak Ch’an-mo, who has extensive DPRK contacts in academic and scientific circles, North Korea has been purchasing technical books from amazon.com and from South Korea (Kwahak-kwa Kisul, 1 April).
• Pro-Pyongyang Korean residents of Japan have long sent technical literature to North Korea.
• ROK organizations, including PUST and IT publisher youngjin.com, have been donating technical publications on IT in recent years to DPRK counterparts as a means of earning good will and contributing to the eventual unification of Korea (Chonja Sinmun, 11 August).

Cell Phones, Web Pages, and NHK
Within North Korea, the advance of IT technology has been suggested by a number of recent developments:

• Approximately 3,000 residents of Pyongyang and Nason have reportedly purchased cell phone service since November 2002 (The People’s Korea, 1 March).
• Installation of a nationwide optical-fiber cable network in 2000, launch of the Kwangmyong 2000 Intranet the same year, and establishment of computer networks have made available domestic access to extensive technical databases maintained by the Central Scientific and Technological Information Agency, the Grand People’s Study House, and other repositories of technical information.
• Via North Korea’s Silibank Web site (www.silibank.com), established in Shenyang, China, in September 2001, registered foreign users can exchange e-mails with DPRK members.
• In August 2002, Kim Pom-hun, CEO of the ROK IT company Hoonnet.com, opened an Internet café in Pyongyang, the only place in North Korea for the public to access the Internet. Most customers of the service, which uses an optical cable linking Pyongyang and Shanghai via Sinuiju, are foreign diplomatic officials or international agency staffers; steep fees reportedly keep most Koreans from going on line (Wolgan Choson, 1 January).
• Foreign guests in Pyongyang hotels have had access to foreign news broadcasts of Britain’s BBC and Japan’s NHK since May 2003, according to a Japanese television report (TBS Television, 2 September).

Limiting Information to Technical Areas, Harnessing IT for Domestic Indoctrination and Foreign Propaganda Development of the nation, rather than empowerment of the individual, appears to be driving DPRK efforts to develop domestic IT infrastructure and industry. Officials, scientists, and traders can now access and exchange information pertinent to their duties within the domestic Kwangmyong Intranet. Those with a “need to know” can even surf the worldwide Web for the latest foreign data. While Kim Chong-il reportedly watches CNN and NHK satellite broadcasts (Kin Seinichi no Ryorinin, 30 June) and supposedly surfs the Internet, the public has no such freedom to learn of the outside world without the filter of official propaganda.

Indeed, Pyongyang is using IT to indoctrinate the public and put its propaganda before foreign audiences. In addition to studying the party line through regular group reading of Nodong Sinmun in hard copy, a practice for indoctrinating members of work units throughout North Korea, the installation of computer networks now brings the newspaper to some workplaces on line, as the photograph below shows:

Moreover, Pyongyang has put its propaganda on the Internet.

• KCNA offers Pyongyang’s line in English, Korean, and Spanish at a Web site in Japan at www.kcna.co.jp.
• News and views of the General Association of Korean Residents in Japan and its affiliated organizations appear on the group’s site at www.chongryon.com.
• DPRK media, including newspapers Minju Choson and Nodong Sinmun, have appeared on sites originating in China, such as www.dprkorea.com and www.uriminzokkiri.com.

from a great story in the Economist:

benefits of reform:

• The electricity supply has slightly improved in Pyongyang, as well as on the east coast in Hamhung and Chongjin. Apartment-block lights are now on for much longer.
• Second-hand bicycles, from Japan and China, are numerous, particularly in cities on the poor, industrial east coast.
• Farmers are allowed their own small gardens, and farmers’ markets are now referred to simply as “markets”, because, as well as food, they sell consumer goods. Significantly, these markets have been given official approval. In June, the government appealed for help from other countries in running them. As Marcus Noland of the Institute for International Economics in Washington, DC, explains, one immediate effect of the reforms is that there are now products available for hard currency, such as video players and movies like “The Lion King” dubbed in Korean, which were previously unobtainable. The government is also encouraging foreign investment in industries such as mining, energy, agriculture and information technology
• The leadership recently gave its approval for a South Korean company that assembles cars in North Korea to launch a marketing campaign.
• Mobile-phone services have been started in the country’s main cities and along its motorways.
• North Korea’s tourism authority claims that 2,000 Motorola and Nokia mobile handphones were sold in Pyongyang between November 2002 and August 2003. This in a country where barely a million land lines exist, out of a total population of 23m.
• The Hermit Kingdom recently announced plans to develop broadband internet capabilities to improve the business environment. The plan is to link the domestic intranet, called Kwangmyong, to the internet. The North’s national domain designation, “.kp”, is still not in use, but the government has reportedly been testing e-mail addresses incorporating it. There is even an internet café in Pyongyang, though at $10 per hour it is affordable only to the few tourists, diplomats and journalists who visit the city. Currently, only Mr Kim and a few privileged others can use the optical communications lines supplied to North Korea by China’s China Telecom. Contrast this to the state of affairs in the south, which has the world’s greatest penetration of high-speed broadband connections and where more than 65% of households now have internet access.

These observations say little about how the economy as a whole is doing. The sad truth seems to be that the leadership in the North undertook its partial reforms out of necessity, not because it had understood or embraced the market. Rather, for the past 15 months, according to a Korea expert, Kongdan Oh, at the Institute for Defence Analyses in Virginia, the country has been “creatively muddling through”. While the average North Korean has more economic freedom, the economy is near collapse.

Nicholas Eberstadt of the American Enterprise Institute, in Washington, DC, estimates that, if anything, economic decline has accelerated, not reversed. Last year’s price and wage increases saw prices rise 10 to 20-fold and wages rise by 20 times or more, the idea being to bring them more into line with market rates. But the increases have not been matched by measures to boost output, so inflation has spiralled out of control. The price of staple foods, for instance, has risen by as much as 400%, and the country continues to rely on foreign handouts to feed its people.

In a recent paper, Mr Noland argues that those with access to foreign exchange, such as senior party officials, do not feel the effects of inflation as severely as salaried workers who have no access to foreign exchange. So for urban residents with access to hard currency, in some respects things are much better. But for the bulk of the population, things are quite grim. As much as 80% of an average family’s income now goes towards food.

Just how committed is the regime of Kim Jong Il to its programme of market reform? Probably not very. It shows no sign of embracing reforms that could potentially undermine the state’s control. It continues to emphasise “military-first” policies, reserving the best of everything for the army it depends on. And even if greater economic reform were undertaken, it is far from certain that it would be successful any time soon.

The economy continues to suffer from a lack of energy, transport infrastructure and basic foodstuffs. Many factories—all of which under the reforms now have to pay their own way—have been shut down, leaving people without jobs and therefore no money to buy food. And since the North admitted last year to its illicit nuclear programme, aid flows have diminished and oil deliveries by the Korean Peninsula Energy Development Organisation have been suspended.

Foreign investors still stay away and the few companies that have been bold enough to invest in the North, such as Hyundai Asan, have lost millions of dollars. So, though much has changed in North Korea over the past 15 months, the probability is that more will stay the same

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.

Here is the main page

The Nautilus Institute has created the DPRK Briefing Book to enrich debate and rectify the deficiencies in public knowledge. Our goal is that the DPRK Briefing Book becomes your reference of choice on the security dilemmas posed by North Korea and its relations with the United States. The DPRK Briefing Book is part of the Nautilus Institute’s “US-DPRK Next Steps: Avoiding Nuclear Proliferation and Nuclear War in Korea” project.

The completed DPRK Briefing Book will cover approximately two-dozen “Policy Areas,” each containing issue briefs, critical analyses from diverse perspectives, and key reference materials, some of which are available as PDFs. (To view the PDFs, you will need to download and install the free Adobe Acrobat Reader). We will post additional Policy Areas over the coming months. If you would like to be notified as they are completed, please sign up for NAPSnet, if you haven’t already.

The Nautilus Institute seeks a diversity of views and opinions on controversial topics in order to identify common ground. Views expressed in the Briefing Book are those of the authors and do not necessarily reflect the official policy or position of the Nautilus Institute. The information contained in these pages may be downloaded, reproduced and redistributed as long as it has not been altered and is properly attributed. Permission to use Nautilus Institute materials for publications may be attained by contacting us.

Here are sections of interest:

About DPRK, Agriculture, China, Economy, Energy, Transition

BBC
9/13/2002

There have been emotional scenes in North Korea as hundreds of relatives from South Korea were reunited with 100 long-lost relatives from the North.

Many of the participants, mostly aged in their 60s and 70s, were speechless as they embraced their brothers, sisters, parents and children for the first time in more than 50 years.

The group of 455 South Koreans arrived by ship for the three-day reunion, which is taking place at the picturesque Kumgang Mountain (Diamond Mountain) resort on the northern side of the border.

This is the fifth reunion to take place since the meetings were agreed upon at an historic inter-Korean summit in 2000.

Millions of Koreans were separated after the 1950-1953 Korean War. About eight million South Koreans have relatives living in the North.

Time running out

The two counties remain technically at war, and it is impossible for civilians to telephone or send a letter to relatives on the other side of their heavily-fortified border

The oldest participant in this latest wave of reunions is a 94-year-old man who is set to see his son for the first time in more than 50 years.

Many Koreans wept as they were introduced to relatives that they could barely recognise after so many years.

South Korean sisters Lee Jin-ock and Lee Jin-geum broke down when they saw their father, Lee Kyoo-yom, aged 82.

The sisters have held an annual memorial service for him for the past 30 years, having given him up for dead after he went out shopping and never returned on the outbreak of war in 1950.

Kim Kun-rye, a 67-year-old South Korean grandmother, was blind but could still recognise the voice of her 74-year-old brother after five decades.

“It’s him! I can’t see him, but he still has the same voice,” the blind sister said, hugging her brother and weeping.

Selection lottery

The reunions are an emotional issue for many Koreans as the divided family members are beginning to die of old age or illness.

Red Cross officials in Seoul said three family-reunion applicants had to abandon this trip because of health problems.

South Korea held a lottery among 120,000 candidates to select its family members. It is not known how the North selected its participants.

The reunions are strictly controlled and participants are not allowed to visit their home towns.

Last week Red Cross officials from both sides agreed to set up a permanent reunion centre at the mountain resort.

Another group of 100 South Koreans will leave for Mount Kumgang on Monday to meet relatives.

The latest flurry of reunions is part of a recent thawing of relations between the two countries as the impoverished North reaches out internationally for much needed aid.

From NKChoson.com:

An Internet cafe, called ‘PC room,’ has recently opened in the North Korean capital city of Pyongyang for the first time, according to the Internet homepage Monday of a South Korean businessman doing business there.

Jangsaeng General Trading Co., a joint venture between the North’s Pan-Pacific Economic Development Association of Korean Nationals and software company Hoonnet of South Korea, opened the 66-square-meter PC room in its building, Hoonnet President Kim Beom-hoon said.

From the Asia Times:
The same businessman that set up the internet cafe also set up an online gambling site based in Pyongyang.  Since 2002 Kim Beom hoon (or Kim Pon Hun), set up (www.jupae.com) hosted in Pyongyang.