North Korean Economy Watch

Several foreign organizations are broadcasting radio content into North Korea: Free North Korea Radio, Open Radio for North Korea, Radio Free Chosun, Voice of America and  Radio Free Asia.   

According to Yonhap, the EU government and Reporters Without Borders (RSF) are throwing financial support behind FNKR, ORNK, and RFC:

The European Union (EU) and an international group of journalists forged a deal on Tuesday to provide 400 million won (US$290,000) to help anti-Pyongyang radio broadcasting stations run mostly by defectors from North Korea.

The EU and the Reporters sans Frontiers (RSF) signed the deal with three stations — Free North Korea Radio, Open Radio for Korea and Radio Free Chosun — in Seoul to fund their programs for the next three years.

The stations have been producing and sending shortwave anti-communism and human rights radio broadcasts across the border. In the past, North Korea has asked South Korea to suspend the stations, calling them an obstacle to unification.

In a related Associated Press story, the South Korean government is allowing Voice of America access to South Korean transmission equipment for the first time since the 1970s:

That makes the signal much clearer than VOA’s long-running shortwave broadcasts from far-flung stations in the Philippines, Thailand and the South Pacific island of Saipan. Moreover, it’s an AM signal, so listening in doesn’t require a shortwave radio.

“Radio can play a big role in changing people,” said Kim Dae-sung, who fled the North in 2000 and is now a reporter at Free North Korea Radio, a shortwave radio broadcaster in Seoul. “Even if it’s simply news, it’s something that North Koreans have never heard of.”

Still, the move could be seen as yet more provocative policymaking by a government already at loggerheads with the North over Lee’s tough policy on Pyongyang, and comes at a time of heightened regional tensions over North Korea’s plans to launch a rocket early next month. Nuclear envoys from South Korea and Japan flew to Washington for talks Friday with top U.S. diplomats about North Korea.

Since Jan. 1, VOA has been using the antenna facilities of the Far East Broadcasting Company-Korea, a Christian evangelical radio station, for half of its three-hour nighttime broadcast into the North. The antenna is only 40 miles (65 kilometers) from the border.

South Korea prohibited VOA from broadcasting from its soil for carrying a 1973 report on the kidnapping of Kim Dae-jung, then a leading South Korean dissident. The authoritarian Seoul government at the time is widely believed to have been behind the abduction.

North Korea condemns such broadcasts as “U.S. psychological warfare” and often jams the signals. So far, it has not interfered with VOA’s new AM broadcast, said radio expert Park. Doing so requires more equipment than blocking shortwave signals, and the fact that North Korea isn’t doing so may indicate the North is struggling economically, he said.

Read the full stories here:
EU, reporters promise 400 million won to promote radio broadcasts into North
Yonhap
3/24/2009 

VOA wins powerful base for broadcasts into NKorea
Associated Press (via Herald Tribune)
3/28/2009

Over the last few years, the European Union has pursued an engagement policy with North Korea.   MEP Glyn Ford makes regular trips to Pyongyang to facilitate diplomatic progress; the German Freidrich Naumann Foundation runs economic education courses; European donors founded the Pyongyang Business School; and a small group of European ex-pat businessmen formed a de facto chamber of commerce, the European Business Association in Pyongyang.  Although European companies have experienced mixed success in the DPRK they continue to look for new opportunities. 

This morning, however, Felix Abt, a Swiss director of the PyongSu Pharmaceutical Joint Venture Co. in Pyongyang informs me that his life insurance policy (purchased from a European company) has been cancelled. 

“A European life insurance company cancelled my life insurance because I am a dangerous person living in a dangerous country. Credit card organisations cancel credit cards for such persons in such countries, health insurance companies come up with other reservations and limitations and the latest organisation that has just expelled me is LinkedIn with a very curious explanation.”

I am unsure how the cancellation of life insurance policies could impact other Europen investments in the DPRK, but the marginal effect cannot be positive.  Mr. Abt has been a resident of Pyongyang for years where he manufactures Western-quality pharmaceuticals.  Needless to say, the DPRK is very much in need of his services, so it is a shame that after all this time he is now considered a liability by his insurer.

Mr. Abt also forwarded his rejection from the business networking site LinkedIn, which is posted below:
 

Apparently LinkedIn‘s legal department considers logging into the server as “receiving goods of US origin” (the software I presume), and so it prohibits account holders, or even logging in, from Cuba, Iran, North Korea, Sudan and Syria—even if they are Swiss.

Writing for the Brookings Institution’s Center for Northeast Asian Policy Studies, Yeongseop Rhee, Nonresident Fellow in Foreign Policy, takes on the topic of eventual currency union between North and South Korea, assuming that the two Koreas will eventually be unified and that the unification will follow a rapid process rather than a gradual one.

Under these conditions, Rhee discusses the complications of determining a proper conversion rate for the DPRK won, rejecting the official and black market rates, ultimately determining that an undervlued DPRK won conversion rate is preferable to a situation in which the DPRK won is converted at a rate above its true exchange value (a la German reunification). Quoting from the article:

The decision on a conversion rate will depend upon which policy objective is the most important. Considering their relative impacts and past experiences, I suggest that price/macroeconomic stability and competitiveness of North Korean industries should have the high priority: undervaluation of North Korean currency is therefore more desirable.[3] The experiences of other socialist countries show that inflation was one of the most difficult problems at the beginning of economic reforms. Even though the details of each country’s reform path depend upon the state of the economy, price/macroeconomic stabilization has to be the initial priority. Once price/macroeconomic stability is guaranteed, foreign capital – which North Korea eagerly needs for its successful transformation and development – can be attracted.

The undervaluation of North Korean currency is also desirable in terms of labor migration. According to studies on German unification,[4] the most important reason for migration from East to West was not the high incomes in West Germany, but the lack of job opportunities in East Germany. This implies that the overvaluation of North Korean currency to improve the standard of living of the North Korean people would cause more migration because of suffering competitiveness of North Korean firms and job opportunity, and would further place a higher burden on the government budget.

The author then goes on to address the timing of monetary unification (rapid vs. delayed conversion), prefering to emulate the German model of early conversion. Quoting from the article:

First, most proponents of a late currency union argue that currency unification needs to be delayed for a few years until North Korean economy is stabilized and improves to a certain level. However, a temporary delay of a few years will not guarantee the improvement of the North Korean economy to a certain level but is more likely to lead to its deterioration. Even though the North Korean economy may improve, it actually must grow much faster than South Korean economy for a long time to reach a certain compatible level. For example, even assuming North Korean economic growth of 10 percent per year – which would be extremely difficult – it will still take nearly one generation for North Korean per capita income to reach one half of the South Korean level. This suggests that it is impossible to improve the North Korean economy to a certain level compatible with South Korea’s within a few years. Thus, in terms of feasibility, an early union is better.

Second, a gradual strategy for economic reform and opening, such as China has chosen, would not be applicable to North Korea. In comparison with China, North Korea is over-industrialized like Eastern European countries. In this type of economy where the state sector is dominant, there is little reserve of labor outside the state sector that can provide the engine for growth for a new non-state sector, and gradualism cannot work in that context. A sharp downturn in industrial production upon the outset of market reforms is inevitable, and a significant loss of employment in the industrial sector should be expected and accepted as a structural adjustment in North Korea. Thus, the unified fiscal and monetary policy framework to promote structural reforms should be prepared as soon as possible through an early currency union.

Third, according to the theory of optimum currency area, if there exists an adjustment mechanism such as flexible prices and wages or other measures to absorb asymmetric shocks, it is more likely for two countries to form an optimum currency area. When the two Koreas are unified, large fiscal transfers from South Korea to North Korea can play that role of adjustment mechanism because asymmetric shocks to North Korea can be compensated by these fiscal transfers. The two Germanys could form an optimum currency area after the unification because of the centralization of the fiscal system. Thus, as long as fiscal transfers are guaranteed, which will be a sure fact in the case of Korean unification, the loss of the exchange rate policy instrument would not matter much in terms of absorbing asymmetric shocks, and an early monetary union is preferable.

Read the full article on the Brookings web page here.

(more…)

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-3-17-1
2009-03-17

North Korea, facing chronic food deficiencies, is again looking at fertilizer shortages as the spring farming season approaches. North Korean authorities and farmers are particularly troubled by the fact that, just as last year, the likelihood of receiving chemical fertilizer aid from the South is practically non-existent.

A February 26th (North) Korean Central News Agency (KCNA) article titled “Korea’s Effort to Overcome the Food Problem” reported strenuous efforts were underway to “independently” overcome the lack fertilizer in order to ease food shortages throughout the nation. According to the KCNA, “While giving on-the-spot guidance at the Heungnam Fertilizer Complex, Comrade Kim Jong Il explained that in order to ease the food problems, much fertilizer needs to be sent to farming villages.” In addition, it was explained that organic fertilizer production needs to be stepped up in order to compensate for the lack of chemical fertilizer. The report added, “The People’s Army as well as enterprises, institutions, villages, and civic organizations across the country are sending farming utensils and compost to agricultural villages.”

According to Tae-Jin Kwon, leading researcher at the Korea Rural Economic Institute, North Korea drastically increased chemical fertilizer imports from China in order to prepare for the possibility of a continued hold on South Korean fertilizer aid, purchasing approximately 40 times more fertilizer at the end of last year and this January than it imported during the same period a year earlier. According to Chinese customs statistics, North Korea imported 25,608 tons of fertilizer between November 2008 and the end of January 2009. During the same period a year prior, North Korea imported a mere 635 tons. Kwon stated that the reason for this sharp increase in chemical fertilizer imports was a measure to stockpile necessary amounts of resources in preparation for the eventuality that South Korean fertilizer aid would not be forthcoming.

During this same period, North Korea imported 12,694 tons of Chinese grains, a notable drop from the 108,109 tons imported one year ago. Kwon argued that this was a reflection of North Korea’s advance import and stockpiling of grain in light of last year’s Chinese measures restricting the export of grain, and the fact that this spring, fertilizer is a more pressing need.

“If South Korean fertilizer aid to the North is not forthcoming this year, it will have a severe impact on the North’s grain production. This is already reflected in grain prices within North Korean markets, and could serve to drive them up even further.”

Over the last 10 years, more than 65 percent of the fertilizer used in North Korea has been provided by the South, with Seoul providing between 300 and 350 thousand tons each year. This is enough to boost North Korean grain production by 600 thousand tons annually. Kwon pointed out, “North Korea owes its increasing grain production since 2000 to South Korean fertilizer aid.”

He went on to add, “Even if the missile situation were resolved and an atmosphere conducive to dialog could be created within 6-Party Talks, the South Korean government would not be able to open dialog with North Korea until after April,” and, “If dialog were reestablished and aid transport were arranged, in order for fertilizer to be effective it would have to be sent to North Korea by May, at the latest.”

Below are excerpts from the Financial Times:

Pyongyang has told Washington that United Nations World Food Programme [WFP] staff will be barred from distributing food aid after March. The Stalinist regime has also told US non-governmental organisations to leave this month, and rescinded permission for other humanitarian groups to visit, the Financial Times has learned.

In an agreement last year, the US agreed to provide North Korea with 500,000 tonnes of food. The WFP was responsible for distributing 400,000 tonnes, with a consortium of NGOs led by MercyCorps in charge of the remainder.

…

In recent months, however, after North Korea refused to allow sufficient numbers of Korean speakers to join the WFP team, Washington halted food supplies.

Pyongyang has responded by barring food aid workers from operating in the country. So far, the US has supplied 100,000 tonnes to the WFP, and another 70,000 tonnes to the NGOs, which has not been completely distributed.

A US State Department official said that while the US was satisfied with the number of Korean speakers who were allowed to join the NGOs, it was unhappy that the same situation was not true for the WFP, which is responsible for distributing 80 per cent of the food. In addition to MercyCorps, the other NGOs are World Vision, Global Resource Services, Christian Friends of Korea and Samaritan’s Purse.

The official said the US was also responding to North Korea blocking aid workers from conducting a nutritional survey, which was included in the agreement.

“US aid workers have enjoyed tremendous co-operation in the countryside from North Koreans and we hope the DPRK government in Pyongyang will allow them to continue to feed the hungry,” said a Senate aide involved in North Korean issues. “Food aid should be separated from politics.”

Even before the North Korean threat, WFP had been forced to scale back operations because of the break in US funding. The WFP has only received 4.5 per cent of its $504m budget for North Korean operations. A WFP spokesperson said 4.5m of the 6.2m North Koreans targeted under the programme were not receiving assistance as of December.

“WFP hopes that the US will review the humanitarian situation and that food shipments will resume soon,” the spokesperson added.

North Korea recently informed the US that Eugene Bell, World Care and Kirk Humanitarian – three other US NGOs operating in North Korea – would not be allowed to make visits that were already approved. Pyongyang told the US that the planned visits were being cancelled because of “recent developments”.

Nancy Lindborg, president of MercyCorps, said North Korea sometimes temporarily blocked NGOs from visiting. However, she added that she was “hopeful and confident” that the visits would resume. She said her consortium had a “good working relationship” with its North Korean partners.

Read the full article here:
N Korea-US distrust halts food aid
Financial Times
Demetri Sevastopulo
3/17/2009

Below: State Department Briefing, Mercy Corps Press Release
US State Dept press briefing
Robert Wood, Acting Department Spokesman
March 17, 2009

QUESTION: Do you have anything to say or to confirm about North Korea cutting off or saying it does not want U.S. food aid —
MR. WOOD: Yeah.
QUESTION: — and kicking out U.S. NGOs over an accelerated timeline?
MR. WOOD: Yeah, yeah. North Korea has informed the United States that it does not wish to receive additional U.S. food assistance at this time. And we will work with U.S. NGOs and their North Korean counterparts to ensure that food that’s already been delivered – excuse me, food that’s already in North Korea is distributed to the intended recipients. And one of the things I also want to mention is that we have aimed to implement the U.S.-DPRK food aid program according to the terms agreed to by the United States and the North Korean Government in May 2008.
And I will give you just a breakdown in terms of the amount of food aid that we have provided. The U.S. has delivered 169,000 metric tons of U.S. food to North Korea in 2008 and 2009. The last shipment of U.S. food aid, which was nearly 5,000 metric tons of vegetable oil and soy blend, arrived in North Korea in late January and is being distributed by U.S. NGOs.
QUESTION: (Inaudible) of that?
MR. WOOD: Of which one, the 5,000 metric tons? Yeah, I am sorry. I don’t have any – any value here. We can try and get that to you in the Press Office.
QUESTION: Could you say when you were notified of this and how you were notified?
MR. WOOD: I don’t know, but it was obviously communicated to us by the North Koreans. I don’t know how that was done, whether it was done through the New York channel or some —
QUESTION: (Inaudible)?
MR. WOOD: Yeah, I just – I don’t know.
QUESTION: Last week maybe?
QUESTION: Just a clarification?
MR. WOOD: Yeah.
QUESTION: You said it’s being distributed by U.S. NGOs or UN NGOs?
MR. WOOD: U.S.
QUESTION: U.S.
QUESTION: Of the (inaudible) metric tons, what is it of? Is it grain? Is it – what is it?
MR. WOOD: Well, I’ll have to get the specifics on it, but I refer to our last shipment of U.S. food, which was, you know —
QUESTION: Oil and soy blend.
MR. WOOD: That’s right. I don’t have that breakdown. We can certainly try and get that for you, Sue.
QUESTION: Okay. .
QUESTION: (Inaudible), are you disappointed in this?
MR. WOOD: Of course. Absolutely. I mean, this was a program intended to try to help get food to needy North Koreans, and we’re obviously disappointed in that. This, you know, does not help us implement this agreement that we reached with the North back in 2008, so —
QUESTION: Well, not only does it not help you implement it, it kind of – I mean, are they abrogating the agreement?
MR. WOOD: Well, I don’t have the actual text of the agreement, so I can’t say with absolute specificity that they’re in violation of it. But we have an agreement to try to deliver, you know, this food assistance, and now the North is saying they do not want to receive any more assistance. So you know, we’re concerned about it.
But the food that is there right now in North Korea, we’re going to work with U.S. NGOs, with their North Korean counterparts, to make sure that this assistance gets to the people who —
QUESTION: Can you be a little bit more explicit about why you’re concerned about it, why you’re disappointed?
MR. WOOD: Well, I mean, clearly this is food assistance that the North Korean people need. That’s why we’re concerned. You know, this humanitarian assistance that we provide to the North has nothing to do with the Six-Party Talks. This is about our true humanitarian concern for these people. And as you know, the food situation in North Korea is not a good one, and so we’re very concerned about it.
QUESTION: Did they give you any explanation why they won’t – they didn’t want any more?
MR. WOOD: They have just said that they do not want to receive any additional food assistance at this time. That’s about as far as they went.
QUESTION: But no reason was provided at all? Just a one-sentence note you got?
MR. WOOD: I mean, it’s – I don’t know if it was one sentence that was given to us, but you know, that was the bottom line. And that’s the most important part of this.
QUESTION: And when did they inform you?
MR. WOOD: It was, I think, over the last couple of days, I believe.
QUESTION: Robert, do you know what the accelerated timeline for the withdrawal of the NGOs will be?
MR. WOOD: I don’t know.
QUESTION: It was supposed to be the end of May.
MR. WOOD: Yeah, I don’t know. Again, probably the best folks to address that are the North Koreans.

Press Release by relief organizations:
FOR IMMEDIATE RELEASE

March 19, 2008                                                                     

STATEMENT OF NGO PARTNERS ON CESSATION OF FOOD AID PROGRAM IN THE DEMOCRATIC PEOPLE’S REPUBLIC OF KOREA (DPRK)

Contacts:  Joy Portella, +1.206.437.7885, jportella@sea.mercycorps.org

March 19, 2009—The following is a statement issued by the NGO Partners that have been distributing food aid in the DPRK through a program supported by the U.S. Agency fro International Development (USAID). The NGO Partnership is led by Mercy Corps, co-led by World Vision, and includes Christian Friends of Korea, Global Resource Services and Samaritan’s Purse:

This week, North Korean authorities have asked us to close the USAID-supported food assistance program that we have been operating since June 2008. Our joint team, dedicated to this program, will leave the DPRK by the end of March.
 
We are saddened by this decision, but are very proud of what the program has accomplished.  Working closely with our North Korean partner, we have ensured that food reached almost one million vulnerable children, pregnant and nursing mothers and the elderly.
 
Each of our organizations has worked in the DPRK for more than a decade. We remain committed to assistance in that country, and our individual, on-going programs focused on health, water, sanitation and agriculture will continue as before.
 
The NGO Food Assistance program is part of a larger 500,000 metric ton initiative supported by USAID in which the World Food Program was to distribute 400,000 metric tons of food and the NGO Partners were to distribute 100,000 metric tons.  In the ten months of this program, 169,000 metric tons of food has been delivered to the DPRK, of which the U.S. NGOs have brought in 71,000 metric tons of food.  This food from NGOs has benefitted more than 900,000 people in the two north west provinces of Chagang and North Pyongan.
 
This has been a model program with unparalleled monitoring cooperation to ensure that food gets to those most in need. Our in-country staff of 16 people has worked closely with our North Korean partners.
 
The NGO food assistance program was scheduled to run until the end of May 2009. Until the end of the month, we will work with our North Korean partners to ensure a proper close-out.
 
We remain committed to helping the people of the DPRK to overcome hunger and improve their lives. The food program resulted from the tremendous humanitarian need in the DPRK. We will continue to work—as individual agencies and in cooperative partnerships—to address these needs. We hope the success of this program will serve as a model for the future.

First item…In the right-hand menu there is a page where I archive Congressional Research Service (CRS) reports on North Korea.  I added couple of recent publications today:

North Korea: Terrorism List Removal?
February 2, 2009

US Assistance to North Korea
December 24, 2008

Second item…Koryo Tours, the longest running tour company to operate in the DPRK, has revamped their web page.  Check out this year’s tour dates and locations—some of which are newly opened.  Mass games will (likely) be held again this year.

Third item…Fellow adventure traveler Paul Lucaks (who blogs at Knife Tricks) published a book review of Charles Jenkins’s The Reluctant Communist.  Check it out here.

By Michael Rank

China has exported 5.014 tonnes of beef, worth $77,174, to North Korea via the northern port of Dalian (Chinese source here) and has also agreed to ship 60,000 tonnes of flour (Chinese source here), according to brief reports on Chinese websites.

The export of beef, in 485 containers via the border city of Dongdan in February, was the first of its kind from Dalian, the report said, adding that Dalian is China’s second biggest beef-exporting port after Hong Kong.

The flour will be supplied under an international aid agreement in the period June-August and is being supplied by Jinyuan Flour, a company based in Zhengzhou, capital of the northern province of Henan, and is guaranteed to be of export quality and free of additives, while the beef was supplied by Dalian company Jiansong Xuelong Foods Co Ltd. The report gave no value for the flour.

Another report (Chinese source here) said Chinese-North Korean trade grew by 41.3% last year to $2.793 billion. Chinese exports grew 30.2% to $2.032 billion while North Korean exports to China were up 30.2% at $760.07 million, the report said, quoting Chinese customs statistics.

As regular Google Earth users are aware, the DPRK has experienced significant deforestation in recent decades from both private and state actors. The former have cleared land for fuel/heat and private food production. The latter have felled forests to export lumber. However, without private property rights over the lumber and corollary price signals, we have witnessed yet another “tragedy of the commons”–the over extraction of a common-pool resource. 

As can be seen in the image above, official reforestation campaigns have been launched several times.  According to Good Friends, the most recent was announced last September, shortly before the DPRK appointed a new forestry minister, Kim Kwang-yong.  According to the Yonhap article below, however, South Koreans and Europeans have been supporting reforestation projects in the DPRK for nearly ten years:

North Korean workers and students rolled up their sleeves Monday for Tree-planting Day, state-run media said, amid continuing aid from South Korea despite damaged political relations.

North Korea has a high deforestation rate, as residents have cut down trees for fuel. Deforestation is closely linked to the country’s chronic food shortages, as barren mountain slopes leave rice farms prone to severe flooding by summer monsoons, according to aid workers in Seoul.

The North Korean government has banned cutting trees and sought to make its country greener with aid from South Korea and some European governments.

“Covered with trees are mountains and fields of the country from the foot of Mount Paektu, the sacred mountain of the revolution, to the military demarcation line and from the eastern coast to the western coast,” the Korean Central News Agency said in an English-language report titled “Greening and Gardening Campaign Gets Brisk.”

“The tree-planting campaign is being briskly undertaken everywhere in the country … changing the appearance of the country beyond recognition day by day,” it said.

South Korean government and civic groups have been operating sapling fields in the North Korean cities of Kaesong and Pyongyang, as well as near the North’s scenic resort Mount Kumgang, providing seedlings, equipment and technology since 1999. The project has cost South Korea some 9 billion won (US$5.7 million), according to the Ministry of Unification.

Aid workers said the inter-Korean forestry project has continued even though Pyongyang cut off all government-level dialogue in response to Seoul’s hardline policy toward it that began last year.

Ahn Sun-kyong, an aid worker from Green One Korea, an umbrella group of over a dozen non-governmental organizations in Seoul, said it plans to build a seed preservation facility and an apple farm in Pyongyang as new projects this year.

“There may be certain limitations, but this non-governmental exchange project will continue,” Ahn said.

Hwang Jae-sung from the Korean Sharing Movement, which operates the Kaepung sapling field in Kaesong as a member of Green One Korea, said most trees are prematurely cut by residents, who also rake up fallen leaves for fuel.

“Deforestation is directly linked to the food problem,” Hwang, who last visited Kaesong in November, said. “We believe tree planting in North Korea is not only useful for preventing floods, but also can be another means of resolving the food shortages in the North.”

The aid groups say 16-18 percent of North Korean forests, or 1.5-1.6 million hectares out of the North’s 8.9 million hectares of forests, are believed to be deforested. About 80 percent of North Korea is covered by mountains.

Although the support offered by these groups is necessary to restore ecological health and productive power of the DPRK’s agricultural lands, an unfortunate consequence will likely be growing restrictions on private food production which will necessarily require the North Korean people to once again rely on the state for food distribution.

Read previous posts on forestry and environmental protection here.

Read the Yonhap story here:
N. Koreans work to make country green on Tree-planting Day: report
Yonhap
Kim Hyun
3/2/2009

According to this report in the London Times:

International passenger flights have been diverted after the government of North Korea threatened military action against South Korean airliners in the latest escalation of verbal hostilities between the two enemies.

Both of South Korea’s airlines, Korean Air and Asiana, have diverted flights from the east after a statement on North Korea’s official media which implied a threat of attack against civilian aviation. It came in a statement denouncing a joint military exercise between South Korea and the US, which Pyongyang accuses of representing preparations for an invasion of the North.

Under an international agreement, North Korea receives €685 (£610) for each jumbo jet which passes through its airspace, but flights were diverted after yesterday’s warning, adding as much as an hour to flight times and costing airlines an extra four million won (£1,800) per flight.

Read the full article here:
Passenger flights diverted after North Korea threats
Times of London
Richard Lloyd Parry
3/6/2009

Institute for Far Eastern Studies (IFES)
(NK Brief No. 09-3-3-1)
3/3/2009

INTER-KOREAN RELATIONS
As February began, North Korea continued to publicly warn that the two Koreas were on a path toward war, stating on February 1 that downward spiraling relations between the two Koreas were brought on by ROK President Lee Myung-bak The (North) Korean Central News Agency (KCNA) printed that Lee’s policies toward the North were “the very source of military conflicts and war between the North and the South,” and warned that tensions on the peninsula “may lead to an uncontrollable and unavoidable military conflict and war.”

Poll results released by the Korea Economic Research Institute on February 2 indicated that 68.4 percent of South Koreans support President Lee Myung-bak’s aid-for-denuclearization policy toward the North, and a separate poll by Gallup Korea showed on February 23 that 62 percent of South Koreans blame North Korea for strained inter-Korean relations.

A South Korean official stated on February 4 that 3,000 tones of steel plates that were to be sent to North Korea as part of the energy aid-for-denuclearization deal reached in 2007 would be delayed due to the North’s recent saber-rattling. According to the official, “It is hard to predict when we will send the steel plates. For now, we are not even seriously considering the timing…North Korea should first change its attitude.”

The South Korean government has shot down a project by an ROK journalist organization that would allow the exchange of news with North Korea. It was reported on February 4 that a Unification Ministry Spokesman Kim Ho-nyoun stated, “There are concerns that the exchange of news articles may undermine national security, public order and the interests of the general public.”

On February 16, it was reported the ROK Defense Minister Lee Sang-hee has mandated field commanding officers in all branches of the South Korean military to immediately respond to any North Korean provocation without first seeking permission from superiors. This has further heightened concerns over the possibility of a naval confrontation in the Yellow Sea around the disputed Northern Limit Line.

On February 19, North Korean media warned, “Now that the political and military confrontation between the North and the South has gone into extremes, a physical clash may break out at any moment,” and, “North-South relations have reached such a pass that there is no way to improve them or bring them under control.”

INTER-KOREAN TOURISM
Hyundai Asan, the South Korean company running the Kumgang Mountain tourist resort and the Kaesong City tours in North Korea is on the brink of bankruptcy. A Hyundai representative stated on February 4, “We are reaching a critical situation…unless the tours resume by April, it will be difficult for us to stay afloat.” Hyundai Asan brought in 255.5 trillion Won, or approximately 170.3 million USD, through tour sales in 2007, but in 2008, the company sold only 228.8 billion Won, or 152.5 million USD-worth of tours in 2008. The company employed 1,084 workers when tours were in operation, but has cut back to 479 employees. Of those, approximately 20 percent are receiving only 70 percent of their wages while they work from home. The tours have been on hold since a South Korean tourist was shot and killed at the Kumgang resort last summer.

ROK lawmaker Song Hun-suk stated on February 22, “Since the suspension of the [tourism] program, dozens of South Korean businesses and approximately 1,000 travel agents that offered organized trips to the North have gone to the brink of bankruptcy,” and he reported that approximately 30,000 North and South Koreans were on the verge of unemployment due to the travel ban, with 80 percent of shops and restaurants in South Korea’s Gosung, Gangwon Province, which is near the border, have been forced to close due to the absence of tourists passing through.

INTER-KOREAN TRADE
On February 3, the Korea International Trade Association (KITA) launched a new website, “Inter-Korean Economic Cooperation Information Center”, at http://interkoreatrade.kita.net. The website is designed to provide information and education on North Korean investment and inter-Korean cooperation

On February 8, South Korea’s Unification Ministry released statistics for 2008 regarding the Kaesong Industrial Complex. According to the ministry, production in the complex was up 36 percent over the previous year, reaching a value of 251.42 million USD. The total value of goods produced in the complex since it began operations in 2005 comes to 524.84 million USD.

The Economic Times ran an article on February 15 titled, “Ever heard of Gaesung? Gear up for its products,” in which it reports that the India-South Korea Comprehensive Economic Partnership Agreement (CEPA) soon to be signed will mean that India recognizes goods produced in the Kaesong Industrial Complex as South Korean goods.

ROK UNIFICATION MINISTER
On February 12, Korea University Professor of Political Science Hyun In-taek was sworn in as the new South Korean minister of unification. At his inauguration, Hyun stated that he is willing to meet with North Korean counterparts “at any time, at any place” in order to repair inter-Korean relations. Hyun has been criticized as being a hardliner, and an architect of the Lee Myung-bak administration’s “Vision 3000: Denuclearization and Openness” policy. Hyun was a key advisor during Lee’s presidential campaign, at which time Lee introduced the Vision policy, and was also a member of Lee’s presidential transition team, which at one point had advocated the shuttering of the Ministry of Unification.

U.S.-DPRK RELATIONS
A group of high-ranking former U.S. officials now advising the Obama administration on the DPRK visited North Korea during the first week of February. The group included Stephen Bosworth, Jonathan Pollack, Morton Avramowitz, and Leon Sigal. The delegation reported that North Korea does not appear to be rushed, and that they had taken a “wait and see” attitude in Pyongyang. Bosworth stated that “[North Korean officials] understand the Obama administration will need some time to sort itself through the policy review and the expressed patience, there is no sense of alarm or urgency.” He also noted that the officials were willing to move forward with denuclearization talks.

Leon Sigal stated on February 1, just prior to his visit to the North, “the Obama administration should promptly send a high-level emissary, perhaps former President Bill Clinton or former Secretary of State Henry Kissinger, to Pyongyang.” Sigal also wrote in an online opinion piece that Obama should “hold a summit meeting with Kim Jong-il in return for North Korea disposing some of its plutonium.”

On February 2, the U.S. State Department announced that it would impose sanctions on three North Korean companies for missile export violations. In accordance with the Arms Export Control Act, the Export Administration Act of 1979, the International Emergency Economic Powers Act, the National Emergencies Act, Executive Order 12851 of June 11, 1993, Executive Order 12938 of November 14, 1994, the Korea Mining and Development Corporation, the Mokong Trading Corporation, and Sino-Ki are subject to Nonproliferation Measures and Category II missile sanctions.

U.S. Secretary of State Hillary Clinton stated on February 13 that the Obama administration would be willing to normalize bilateral relations with North Korea if the North is genuinely prepared to completely and verifiably eliminate its nuclear weapons program. She stated that the U.S. would have a “great openness” to North Korea, and added, “It’s not only on the diplomatic front,” but that Washington had a “willingness to help the people of North Korea, not just in narrow ways with food and fuel but with energy assistance.” Two days later, North Korea’s head of state Kim Yong Nam reaffirmed that North Korea would “develop relations with countries that are friendly toward us.”

On February 17, Clinton reiterated the U.S. offer of a peace treaty officially ending the Korean War, normalization of relations, and aid, but stated, “The decision as to whether North Korea will cooperate in the six-party talks, end provocative language and actions, is up to them,” and , “If North Korea abides by the obligations it has already entered into and verifiably and completely eliminates its nuclear program, then there will be a reciprocal response,” indicating that North Korea will have to make the next move.

During a trip to South Korea, Clinton stated that North Korea was “badly miscalculating” if it thinks it can “drive a wedge” between Washington an Seoul, and that “North Korea is not going to get a different relationship with the United States while insulting and refusing dialogue with the Republic of Korea.”

U.S. SPECIAL ENVOY TO NORTH KOREA
Following his return from a trip to North Korea at the beginning of the month, former U.S. Ambassador to South Korea Steven Bosworth was named by Secretary of State Clinton as the Obama administration’s special representative for North Korea. He will remain dean of the Fletcher School of Law and Diplomacy at Tufts University, but will now be responsible for coordinating U.S. policy regarding the DPRK. Special Envoy Sung Kim is responsible for ‘day-to-day’ negotiations with Pyongyang.

UK-DPRK RELATIONS
A British parliamentary delegation arrived in North Korea on February 3, coinciding with a visit to London by a DPRK Workers’ Party of Korea delegation. EU Parliament member Glyn Ford stated that he hoped to reopen dialog that was broken off in 2005 on human rights, and denuclearization, hinting that restarting dialog could lead to the transfer of renewable energy technology to the North.

PRC-DPRK TRADE
It was reported on February 24 that trade between China and North Korea reached 2.78 billion USD in 2008, a 41.2 percent increase over the previous year. DPRK imports were up 46 percent, at over 2.03 billion USD, while its exports to China grew 29.7 percent, to 750 million USD. Mineral resources made up 54.7 percent of North Korea’s exports to China, and machinery and electronics made up the majority of imports.

DPRK NUCLEAR PROGRAM

(NKeconWatch: Although this is simply a reprint of the IFES report, I have been notified by NTI that this report is inaccurate. According to NTI Communications Director Cathy Gwin:

“I am writing to respond to your post that referred to erroneous reports that the Nuclear Threat Initiative (NTI) is preparing to open an office in Seoul ” in order to help prepare DPRK nuclear scientists for peaceful civilian employment.

The Nuclear Threat Initiative (NTI) has worked in the past to develop ideas on how governments could apply cooperative threat reduction (CTR or “Nunn-Lugar”) approaches as part of a solution to the North Korean nuclear challenge.  However, we have no current program to carry out those activities ourselves, nor do we have a program to retrain North Korean scientists.  In addition, we have no current plans to open an office in South Korea, and we do not have branch offices in Ukraine or Kazakhstan.  We have a main office in Washington, DC and a presence in Moscow.

January 31 was the deadline for North Korea to shut down and seal the Yongbyon nuclear reactor as part of 6-Party negotiations, but it failed to meet the deadline. Christopher Hill stated on February 3 that the U.S. would “hold on for a few more days,” but that “we’re not happy that the DPRK essentially has missed this very important deadline.”

On February 2, it was reported that the Nuclear Threat Initiative (NTI) would open a new office in Seoul in order to help prepare DPRK nuclear scientists for peaceful civilian employment. The NTI is in the process of building a program to retrain the North’s experts, and “is also considering ways to support not only nuclear scientists at Yongbyon, but also farmers near Yongbyon who provide them with rice,” according to Roy Kim, a professor at Drexel University.

The U.S. government criticized Pakistan’s decision on February 6 to release Abdul Qadeer Khan from house arrest. Khan as been under house arrest for the past 5 years, after admitting to selling nuclear weapons technology to North Korea, as well as Iran and Libya. In 2004, A.Q. Khan took full responsibility for selling the nuclear secrets, stating that the military and government were unaware of his actions. He recanted this confession last year, stating that he had been a scapegoat.

DPRK MISSILE LAUNCH PREPARATIONS
Several countries have reported intelligence pointing to a launch by North Korea of a Taepodong-2 long-range missile. The U.S. State Department warned on February 3 that “a ballistic missile launch by North Korea would be unhelpful and, frankly, provocative,” while the ROK Foreign Ministry noted that a missile launce would “constitute a clear breach of the UN resolution” adopted in 2006. Chinese Foreign Ministry Spokeswoman Jiang Yu stated, “We hope all the parties can recognize that maintaining stability is in the common interest of the people of the Korean Peninsula.” Preparations appear to be underway at its Musudan-ri base, near the DPRK-PRC border. A Taepodong-2 is thought to have a range of 6,700 kilometers (4,150 miles).

Amid reports that it was preparing the missile launch, North Korea’s Rodong Sinmun printed, “The DPRK’s policy of advancing to space for peaceful purposes is a justifiable aim that fits the global trend of the times. There is no power in the world that can stop it,” and, “ As long as developing and using space are aimed at peaceful purposes and such efforts contribute to enhancing human beings’ happiness, no one in the world can find fault with them.” North Korea continues to deny preparations for a long-range missile launch, and insists that it is preparing to launch a satellite

According to a researcher at the South Korean Agency for Defense Development, if North Korea were to launch a satellite, “given the size of the rocket, the satellite will likely be a low-orbit device,” and low-orbit devices usually need to be fired toward either the North or South Pole in order to successfully reach orbit. This would mean North Korea would need to use Chinese, Russian, Japanese or South Korean airspace.

JAPANESE FIRM, DPRK MISSILES
On February 26, Japanese police raided Toko Boeki, a Tokyo trading company with ties to the DPRK residents’ association in Japan. The company is suspected of trying to export magnetic measuring instruments that could be used to manufacture missiles to North Korea via a third country.

DPRK MOBILE COMMUNICATIONS
It was reported on February 5 that North Korea’s new 3G cellular network, built by the Egyptian company Orascom Telecom, has been very popular. Orascom Telecom Chairman Naguib Sawiris stated, that in the first two weeks of service, “so far we have about 6,000 applications. The important point is that they are normal citizens, not the privileged or military generals or party higher-ups. For the first time, they have been able to go to a shop and get a mobile phone.”

DPRK SPORTS
North Korea’s soccer squad defeated South Arabia 1-0 as it moved closer to the World Cup finals. The North now has seven points in Group 2, after four games, and is in second place, with only South Korea having more points. North Korea has not been in the World Cup finals since 1966.

KIM JONG IL BIRTHDAY CELEBRATIONS
Kim Jong Il’s 67th birthday was marked on both sides of the DMZ. In the North, ceremonies were held throughout the country on February 16, and special rations were provided to the people of the country, with extra noodles, rice and other grains given out to mark the day.

In South Korea, the Abductees’ Family Union marked the day by flying 100,000 leaflets with North Korean currency and criticisms of the North’s leader. South Korean authorities announced plans to investigate, as it is illegal for South Koreans to possess North Korean bank notes without permission.

DPRK SUCCESSION
More rumors were heard in February concerning who might succeed Kim Jong Il as leader of the North Korean regime. Kim’s youngest son, Kim Jong-un has reportedly registered as a candidate for the March 8 parliamentary elections, which would launch his political career. In addition, an editorial marking Kim Jong Il’s 67th birthday stressed the “inheritance of bloodline of Mount Paektu,” further stoking rumors that one of Kim’s sons may be next in line.

DPRK CENSUS
Results of a preliminary census by the United Nations Population Fund were released in February. According to the data, there were 24.05 million North Koreans as of October last year, with 11.72 million males and 12.33 million females. South Pyongan Province was the most populous, with 4.05 residents. 3.26 million people reside in the North’s capital, Pyongyang. This census, conducted by the United Nations Population Fund, was the first in 15 years to be conducted in North Korea.