North Korean Economy Watch

UPDATE (h/t Mike):
According to this UNDP board meeting in September 2008 (p.13):

84. The President of the Executive Board chaired an informal consultation on the Democratic People’s Republic of Korea. He invited statements by the Associate Administrator and by the Assistant Administrator and Director, Regional Bureau for Asia and the Pacific, UNDP.

85. The Regional Director presented a proposed ‘road map’ for the possible resumption of UNDP activities in the Democratic People’s Republic of Korea. He detailed a proposed five-step process to be completed by early 2009, including: first, dialogue with Member States on the best way forward; second, technical discussions with the Democratic People’s Republic of Korea on human resources, finance and programmatic issues, which would build on preliminary discussions on the recommendations emerging from the independent investigative review (the Nemeth report), as well as the report of the external Board of Auditors and relevant Board decisions; third, the dispatch of a technical team to Pyongyang, following Board endorsement of the road map, to reach agreement on the modalities and content of the UNDP programme; fourth, following the successful completion of detailed discussions, submission to the Board for approval of a package of measures and a country programme to facilitate resumption of UNDP activities; and fifth, subject to approval by the Board, mobilization and recruitment of staff and establishment of physical facilities to initiate programme activities. 

86. Delegations expressed support for the resumption of UNDP activities as proposed. Some suggested that three extensive reviews had failed to confirm the initial allegations of wrongdoing, and one delegation asserted that the cessation of activities without the approval of the Executive Board had been inappropriate. While acknowledging that the reviews had revealed grounds for improvement in accountability and oversight throughout the organization, several delegations urged the Board to weigh the human development needs of the local population against the severity of those shortcomings. Most recognized the proposed road map as a viable means of moving from discussion to action, while others expressed support for further consultations on implementation of the ‘road map’.

87. Delegations encouraged UNDP to heed the findings and recommendations that had emerged from the investigations. Many urged the Board to bring the matter to a prompt resolution.

88. One delegation put forth a list of procedural questions regarding the overall management of the process of suspending, discussing and possibly resuming activities in the Democratic People’s Republic of Korea.

89. The President recommended that UNDP proceed with the agreed ‘road map’. The Board approved the inclusion of the Democratic People’s Republic of Korea under the country programmes agenda item in the tentative work plan for the first regular session 2009. 

I am not sure about the specifics in the above mentioned “road map.”  Here are a couple of strategy documents from the recent past: September 2006, Summer 2008.

ORIGINAL POST:
According to Reuters:

The U.N. Development Program’s executive board “authorizes the resumption of program activities” in the reclusive and impoverished communist state, said a board document dated Thursday and obtained by Reuters.

The decision came after an external review last year cleared the agency of major financial wrongdoing, although it found fault with some practices.

The report said programs that UNDP would resume included rural energy development, wind power promotion, seed production and reduction of post-harvest losses in North Korea, which has suffered from flooding and famine in recent years.

The executive board also authorized the head of UNDP to approve other projects on a case-by-case basis. UNDP officials said it would take some months for the agency to resume operations in North Korea and gave no exact date.

So why did the UNDP leave the DPRK in the first place?  That is a long story…but here are links to three previous posts on the topic:

1. Here is a link to a previous post on the US Senate investigation of the UNDP’s activities in the DPRK.

2. Here is a link to the UNDP’s response to the US Senate report.

3. Here is a link to a post on the UN’s Nemeth Report which exonerated the UNDP.

How did US concerns influence the management strategy of the UNDP’s DPRK portfolio?

The UNDP report approved by the board this week said recruitment of local staff in North Korea would in future take place “on a competitive basis” and not depend on appointments by Pyongyang. Such staff would be paid directly and not through the government.

The report made clear, however, that the North Korean government would continue to have a role in finding local recruits, although UNDP would make the final decision. Agency officials said the proportion of international staff would be higher than before.

The report said under an agreement with Pyongyang, UNDP payments to the government and to local staff and vendors would be made in a convertible version of the national currency.

UNDP would bank with the state-run Korea Foreign Trade Bank, but this would have to meet the agency’s global standards for the services it provided.

When the agency’s board considered a possible return to North Korea at a previous meeting last year, diplomats said U.S. and some other representatives had expressed continuing concerns about UNDP management failures.

While the new report appeared aimed at allaying those concerns, the board’s approval, which officials said was unanimous, came just after the inauguration of the Obama administration, widely expected to have warmer ties with the world body. UNDP officials said that was coincidental.

If a reader out there has a copy of the minutes or a board report from UNDP Executive Board meeting please forward it/them to me. 

Read the more here:
Summary of UNDP activity in the DPRK from the UNDP web page

Censured U.N. agency to return to North Korea: officials
Reuters
Patrick Worsnip
1/23/2009

On September 20, 2002, the DPRK’s Supreme People’s Assembly announced the creation of the Sinuiju Special Administrative Region (SAR) (KCNA announcement here).

The project was to be headed by a Chinese-born, naturalized Dutch citizen, Yang Bin…who was arrested by Chinese authorities shortly after the Sinuiju SAR was announced.  Western analysts interpreted this move as a signal that China was not supportive of either the project or the selection of Mr. Bin as its chief executive.  Needless to say the future of the project lay in doubt.

However, according to a Yonhap report (here), as of March 2007 the North Koreans still seemed interested in launching some kind of SAR/SEZ in Sinuiju, though the location had been moved from the city proper to two islands in the Yalu River, Bidan and Wihwa.

In August 2007, IFES and the Choson Ilbo reported that preparations were already underway in Sinuiju to convert the city center into a SAR/SEZ.  However, after this initial media hit, most of the news coming out of Sinuiju was related to Jang Song Taek’s 2008 anti-corruption campaign which brought most of the trading companies along the Chinese border back under the control of the Ministry of Finance.

This week, Japan’s Yomuri reports from Shenyang, China, that the Sinuiju SAR is still on and will be located on Wihwa Island:

“The zone will only cover Wi Hwa Island, which will be much easier to control, and only Chinese will be allowed to freely visit,” one of the sources said. “The plan solely aims at expanding trade with China. North Korea isn’t planning any measures that would involve a dramatic opening up.”

According to Chinese statistics, the total value of trade between China and North Korea from January to October last year was 2.12 billion dollars, up 31.7 percent from a year earlier.

Meanwhile, a diplomatic source said, “The move to beef up border trade with China is also aimed at putting pressure on South Korea.”

(FYI: Use of the phrase “beef up” is a pretty good sign that the diplomatic source was an American.)

I know the story of “The Boy Who Cried Wolf.”  I will remain skeptical about the new SEZ until I see evidence of construction myself.

You can read the full Yomuri article here:
N. Korea plans free trade zone on island
Daily Yomuri
Toru Makinoda
1/23/2009

UPDATE:  A reader points out in the comments that the DPRK is in fact looking to sell its remaining UNUSED fuel rods…so I made a fairly substantial mistake here.  My confusion on the subject seems to have come from my reading of the Joong Ang Ilbo‘s coverage, but I take full responsibility for not paying close enough attention to the other stories.

Here is the specific quote: “The North asked us to focus on discussing how to handle the spent fuel rods as much as possible” (Joong Ang Ilbo)

The revised facts:

1. The DPRK has 14,800 fresh fuel rods—equivalent to just over 100 tons of uranium (RIA Novosti)
2. The materials are reportedly worth over US$10 million (Yonhap). 

ORIGINAL POST:
Hwang Joon-gook, a South Korean diplomat in charge of the denuclearization talks with Pyongyang, led a team of South Korean officials and civilian nuclear experts on a fact-finding mission to the DPRK  to decide whether to buy Pyongyang’s spent fuel rods.

The facts:
1. The DPRK has 14,800 spent fuel rods (Joong Ang Ilbo)
2. This is equivalent to just over 100 tons of uranium (RIA Novosti)
3. The materials are reportedly worth over US$10 million (Yonhap). 
4. The rods are apparently up to 15 years old (Yonhap).
5. The US alleges that the DPRK is enriching uranium as well.  Richardson has more information here.

Just last week, Selig Harrson reported that the DPRK told him “it has already weaponized the 30.8 kilograms (67.8 pounds) of plutonium listed in its formal declaration and that the weapons cannot be inspected.” This amount of plutonium could fuel four or five warheads.

According to NTI:

“Even if the D.P.R.K.-U.S. diplomatic relations become normalized, our status as a nuclear-armed state will never change as long as the U.S. nuclear threat to us remains, even to the slightest degree,” said the [DPRK’s] Foreign Ministry, which issued a similar message several days earlier.

For its own reasons, Russia does not consider the DPRK a nuclear power despite the fact that they have detonated a nuclear device—a fact that would raise eyebrows across the DPRK if reported by the local media. In fact, it was the Russians who supplied the DPRK with the Yongbyon reactors in the first place!

In support of Russia’s position, however, Yonhap offers the following:

North Korea detonated its first atomic device in 2006. The relatively small underground test had less than a kiloton in yield, below what is considered a successful nuclear test.

The people of Jeju Island have shipped tangerines to the DPRK for about 10 years.  Now they are offering a pig farm:

According to Yonhap:

South Korea’s Jeju Island will send equipment to build a pig farm in Pyongyang on Friday to raise the island’s local specialty, black pigs, officials said.

Black pigs, or “heuk-doe-ji” in Korean, are native to the semi-tropical island. They are covered in black hair, and the meat is popular for being chewy and rich in nutrients.

Jeju will send farm equipment worth 220 million won (US$159,190), such as pens, feeders, heat lamps and ventilators, later on Friday aboard a ship also carrying tangerines and carrots as part of the island’s annual aid to the North. When the farm is completed, possibly by May, the island will ship 100 black pigs that can farrow.

“We expect this will help provide nutrition for children and the elderly in the North and pass down our breeding expertise. Jeju Island is a clean area free from animal infectious diseases,” Kang Won-myoung, a provincial official handling the pig project, said over the telephone.

The Jeju provincial government set up the “South-North Black Pig Breeding Cooperation Project” with North Korea when a group of Jeju citizens and officials visited Pyongyang in late 2007. The project was suspended for about a year amid frozen inter-Korean relations until North Korea formally requested to start the farming last September, the island officials said.

The “Jeju Black Pig Farm” will be built inside Pyongyang Pig Farm, North Korea’s largest such facility, established in 1972.

A Norwegian company recently tried to invest in a pig farm in the DPRK.  Unfortunately it did not work out.  Read their story here starting on page 86.  

The DPRK is working to increase meat production as part of its 2012 “Kangsong Taeguk” campaign. 

Read the full story here:
S. Korea’s Jeju Island to build ‘black pig’ farm in Pyongyang
Yonhap
1/16/2009

Although the P.R. of China and the DPRK are supposed to be as close together as “lips and teeth,” we have seen a couple of interesting stories emerging from Taiwan in the last few days.

Case 1: On Jan 8, the Straits Times reported that former Taiwanese president Chen Shui-bian embezzled money intended for the DPRK.

Case 2: Last Friday, the AFP reported that the US Treasury Depratment was moving on a Taiwanese couple who were allegedly facilitating shipping to the DPRK:

The US Treasury moved Friday to freeze the assets of a Taiwanese couple and their companies, linking them to North Korean weapons proliferation.

Alex HT Tsai and his wife Lu-chi Su were accused of providing support to the Korea Mining Development Trading Corporation (KOMID), identified by Washington as a proliferator four years ago, the Treasury said in a statement.

Tsai was last year indicted by Taiwanese authorities for forging shipping invoices and illegally shipping restricted materials to nuclear-armed North Korea, it said.

“He has been involved in shipping items to North Korea that could be used to support North Korea’s advanced weapons program,” the statement said.

The companies controlled by the couple Global Interface Co and its subsidiary Trans Merits Co. were sanctioned by the Treasury action.

“Proliferators depend on access to the international financial and commercial systems to support their dangerous trade,” said Stuart Levey, Treasury under secretary for terrorism and financial intelligence.

“Our action today exposes a North Korean procurement channel, and we urge governments and companies worldwide to cut this channel off entirely,” he said.

Rad the full story here:
US freezes assets of Taiwanese couple and their companies
AFP
1/16/2009

According to RIA Novosti:

Russia is to supply a total of 200,000 metric tons of fuel to North Korea as part of a denuclearization deal. Moscow hopes that in exchange for heating oil deliveries Pyongyang will complete the phasing out of its Yongbyon nuclear complex.

The full article can be found here:
Russia to complete fuel supplies to N.Korea in Jan.
RIA Novosti
1/16/2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-1-15-1
2009-01-15   

The exchange rate for the North Korean won shot up approximately 13-15 percent at the end of last year, and has maintained this high rate into January, according to an article in the on-line newsletter, “Open News for North Korea,” on January 12.

According to the inaugural edition of the newsletter, the exchange rate last year was around 3,200 won per USD, or 460 won per Yuan, with only slight fluctuations, but shot up to 3,630 won per USD and 530 won per Yuan in December. In the first weeks of the new year, it has fallen only slightly, to 3,540 won per USD, and 530 won per Yuan.

According to traders who import and export between North Korea and China, “The sudden rise in the exchange rate appears to be related to trade regulations on goods imported from the North,” and they stressed, “After North Korea protested to China about inferior Chinese goods leading to accidents around the country, China decided to set an example, and unilaterally imposed [trade] restrictions.”

Because business with China makes up almost 50 percent of North Korea’s trade, if DPRK-PRC trade, and in particular, North Korea’s exports to China, are restricted, this would cause a large shock to the foreign currency market,” and, “China’s regulatory measures were eased as January come around,” but, “this year, North Korea is strengthening crackdowns on domestic markets, making it difficult to expect the exchange rate to return” to last year’s lower numbers. According to the article, “There is a foreign currency crisis in North Korea, as well, the scale of which is so great it can’t even be compared to what is happening in the South.”

The black market price for U.S. dollars has shot up from a low of 200 won, in July 2002, to 3,200 won in July of last year, and has continued to rise, peaking at 3.500 won currently. This is a sixteen-fold increase in just over six years. The newsletter put this in perspective by explaining, “North Korea has experienced a foreign currency crisis like that seen in South Korea in 1998 every year since 2002.”

North Korea’s haphazard currency distribution and chronic trade deficit has led to a reduction in the country’s foreign currency reserves, while the failure of the authorities’ currency stabilization policies combined with the growing demand for U.S. dollars by North Korean residents seeking imported goods have led to the sharp growth in the exchange rate.

On May 12, 2008, The DPRK formally asked the UN World Food Program for emergency food assistance.  In June 2008, the UN WFP/FAO launched the “Rapid Food Security Assessment”.  They confirmed…

…a significant deterioration in food security in most parts of the country.3 Close to three quarters of respondents have reduced their food intake, over half are reportedly eating only two meals per day (down from three) and dietary diversity is extremely poor among two thirds of the surveyed population. Most families have daily consumption consisting of only of maize, vegetables and wild foods, a diet lacking protein, fats and micronutrients.

and

FAO forecasts that the October/November 2008 harvest will be 70-75 percent of an average year’s output due to inadequate fertilizer supplies, meaning the current food shortages will extend into the next agricultural year. The risk that the country will again suffer summer flooding remains, which could lead to further crop destruction and/or require general food distributions of emergency food aid. In such an event, WFP will have contingency stocks available in the country to rapidly respond. (UN Operations Report)

The UN launched a coordinated response lasting from September 2008-November 2009 which targets over 6 million people with 600,000 metric tons of food assistance.

But according to the Daily NK (Jan 13, 2009):

According to North Korean authorities, the total agricultural yield including rice, corn, potatoes and others reached its highest point since the food shortages of the 1990s this year, at 4.7 million tons.

According to the Joongang Ilbo, a South Korean newspaper, a Chinese official involved in the agricultural business who had just gotten back from North Korea quoted a North Korean official as saying that they “had presumed the failure of last year’s harvest due to low temperatures in the Spring and Fall, but in fact recorded the highest level in recent years, 4.7 million tons.”

Regarding this, a researcher from the Korea Rural Economic Institute, Kwon Tae Jin said in a telephone conversation with the Daily NK that, “When I visited Pyongyang in December of last year, Ri Il Sok, Director of the Foreign Cooperation Team in the North Korean Ministry of Agriculture said to me that grain output last year was 4.67 million tons, up by 17 percent over a year ago.” (Daily NK)

Andrei Lankov, writing in tomorrow’s Asia Times (Jan 16), confirms the Daily NK story:

These worries seemed well-founded and the journalists who penned them were often among the most knowledgeable on North Korean issues. Furthermore, most of these stories were based on reports produced by reputable international organizations. By early September, North Korean watchers agreed almost unanimously that a great disaster was set to strike North Korea this coming winter.

Now it has become clear, however, that these were false alarms. The predicted famine has not materialized and does not appear likely to do so in the near future. North Korea has had its best harvest in years, and until next summer no North Korean is likely to starve to death – although some may remain severely malnourished.

This is good news. However, the contrast between the reality and recent predictions is remarkably stark. In recent years, we have come to believe that there are at least a few things about secretive North Korea which are known for sure. Yet the recent turnaround of events has again shed light on the severe limits of outside information about the Hermit Kingdom.

Lankov offers a couple of scenarios that could explain how this happened:

For example, why did reputable international organizations make such a serious mistake in estimating the North’s food shortage? It cannot be ruled out that international observers were deliberately misled by their North Korean minders. Perhaps foreign observers were shown the worst fields because the North wanted more food aid then would otherwise be available?

It also seems that some basic assumptions about North Korean agriculture are wrong. Unless the 2008 harvest was the result of incredible luck, it seems to indicate that fertilizer is far less important than previously believed. It is possible that North Korean farmers have devised strategies to deal with fertilizer shortages.

The false alarms of a disastrous famine in North Korea are a sober reminder that when dealing with the world’s most secretive society, predictions should be treated with the greatest caution.

To learn more, read the following documents/stories:
Emergency Operation Democratic People’s Republic of Korea
Title: 10757.0 – Emergency Assistance to Population Groups Affected by Floods and Rising Food and Fuel Prices
UN World Food Program

2008 Agricultural Yield of North Korea
Daily NK
Kim So Yeol
1/13/2009

North Korea reaps a rich harvest
Asia Times
Andrei Lankov
1/16/2009

North Korean Economy Watch topic archives:
Food, Agriculture, Foreign Aid Statistics

According to Yonhap:

A group of South Korean information technology experts and businessmen will visit North Korea next month on a rare trip to the communist country amid frozen cross-border exchanges, organizers said Thursday.

The 80-member group is scheduled to tour North Korea’s major IT centers and hold a joint software exhibition during its Feb. 7-11 visit, said the non-governmental South-North Cooperation for IT Exchange. They also plan to donate 5,000 IT books and journals to the North.

“IT books we have delivered so far were mostly Korean language books, and the North Koreans requested original texts. So we collected some foreign language texts this time,” said Kim Jin-hyung, a member of the team and professor from the Korea Advanced Institute of Science and Technology (KAIST).

Through annual visits since 2006, the IT organization has delivered about 30,000 technical books and latest journals. Yoo Wan-ryung, chief of Seoul-based Unikotech Korea which has promoted investment in North Korea, participates in this visit, organizers said.

Read the full article here:
S. Korean IT experts to visit N. Korea
Yonhap
1/15/2008

From the Methodist Church of Great Britain:

This month, The Fund for World Mission will grant £5,000 to help the Church in North Korea run a food production company to help people there.

Steve Pearce, Partnership Coordinator for Asia and the Pacific, said: “Times are particularly hard for all the people of North Korea at the present time. The North Korean population is cut off and isolated from the rest of the world and dependent on the regime for their needs. Food is scarce for many – there are problems in the supply of humanitarian aid.

“Christianity is treated as ‘a bad element’ in this socialist country. Christians have been beaten, arrested, tortured, or killed because of their religious beliefs but local sources estimates the number of underground Christians to be at least 200,000, maybe many more, and many of them are imprisoned for their faith.

The British Methodist Church and the Ecumenical Forum for Peace, Reunification and Development on the Korean Peninsula have been developing common projects with Church representatives from North and South Korea, North America and Europe.

Read the full article here:
Methodist Church lends support to Christians in North Korea
Methodist Church of Great Britian
1/12/2009