North Korean Economy Watch

UPDATE: 
North Korea acknowledges US aid in domestic media.  From the Choson Ilbo:

North Korea on Saturday said through its official Korean Central News Agency (KCNA), “The food aid of the U.S. government will help settle the food shortage in (North Korea) to a certain extent and contribute to promoting the understanding and confidence between the peoples of the two countries.” This announcement came 12 hours after the U.S. offer of 500,000 tons of food aid to the Stalinist country.

On Sunday, North Korea also reported on the U.S. offer of food aid through North Korea’s state-run Korean Central Broadcasting Station, a broadcaster designed for domestic audience, and Radio Pyongyang, a broadcaster designed for overseas audience.

Full story here:
Pyongyang Reacts Promptly to U.S. Food Aid Offer
Choson Ilbo
5/19/2008

ORIGINAL POST
The USAID press release is below.  USAID is supplying 500,000 metric tons of aid to North Korea.  This comes in at 12.5% of the approximately 4 million tons needed to support the population per year (according to Noland, Haggard, Weeks).

Supposedly USAID and the DPRK have reached an agreement on monitoring the distribution of aid – to make sure it gets to where it is needed most.  The specifics of this deal have not been made public as far as I am aware (if any readers know the procedures, please pass them along). 

USAID press release:
Resumption of U.S. Food Assistance to the North Korean People
May 16, 2008
Press Office: 202-712-4320
Public Information: 202-712-4810

WASHINGTON, D.C. – The United States and the Democratic People’s Republic of Korea (DPRK) have reached an understanding on the parameters of a program for the resumption of U.S. food assistance for the North Korean people. International organizations and experts have expressed concern about a severe food shortage in North Korea, and the DPRK has explained to the United States that it faces a major shortfall in food supplies. In response, the United States has pledged significant assistance. The two sides have agreed on terms for a substantial improvement in monitoring and access in order to allow for confirmation of receipt by the intended recipients.

The United States intends to provide the DPRK with 500,000 metric tons in food commodities over the course of a 12-month program beginning in June 2008, with the World Food Program (WFP) to distribute approximately 400,000 tons and U.S. NGOs approximately 100,000 tons. The United States and the DPRK have agreed on a framework to allow WFP and NGO staff broad geographic access to populations in need and the ability to effectively monitor the distribution of U.S. commodities. The food aid will come from the Bill Emerson Humanitarian Trust. The exact commodity mix and delivery schedules will be based on the outcome of a joint needs assessment to be conducted in coming weeks.

An experts’ meeting will be convened in Pyongyang in the near future to work out operational matters and commence detailed implementation of the program. Premised on a successful outcome of those discussions, the United States will deliver a first shipment in June, in light of the urgency of North Korea’s food shortfall. This program has developed through close coordination and extensive consultation with experts in the South Korean government.

According to the Choson Ilbo:  

While the World Food Program says the North is facing a food crisis, exact statistics appear to be tough to gauge. Returning from food aid talks in the U.S., a ranking Seoul diplomat told reporters, “The U.S. also seems to be experiencing difficulties figuring out the exact food condition in North Korea, as it has to rely on remarks by North Korean officials [but] the North appears to have become more flexible on monitoring issues in the last couple of months.”

In all honesty, North Korean officials probably have no idea how much food their country needs either. Why? 

1.  North Korea’s statistical apparatus broke down a long time ago.  Production records are still kept on-site in paper notebooks. There is no comunications or computing technology to measure actual production. Throw in a few fires, floods, etc. and you are running blind.  But even if such technology existed, collective farmers, as with most factory workers in socialist systems, routinely inflate their production numbers, and the regime’s ability to detect and punish this kind of behavior is very weak–and they know it.

2. There is no commodities market in the DPRK to tell officials how much food is being produced privately.  Additionally, the paucity of communications and transportation infrastructure, combined with severe barriers to entrepreneurship, prevents North Korea’s agricultural markets from becomming as integrated as they could be.  Higher price volatility and short term scarcity are the results.  Rumors can send prices through the roof because nothing can be confirmed.

3. There has been no audit of the DPRK’s population since before the last famine, so we don’t even know how many of them there are or where they live.

In all honesty, I think we (the international community) can do a better job of determining how much food they need than they can.  Here is a great place to start.

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-5-13-1

Small and mid-sized Chinese companies are now looking toward North Korea. The Chinese press reported on May 5 that the industrial union of Dungta, a small city of just over 500,000 located south of Sunyang in Liaoning Province, recently spent seven days looking into opportunities in the North on the invitation of the Choson Bongwha Company.

The purpose of this recent invitation appears to be that North Korea is looking to improve small and mid-sized industrial activity by allowing foreign entities to set up shop. The North was seeking investment for an oil paint factory, a textile factory, and a rolling mill. The Chairija factory in China’s Dungta City is planning to invest three million euros (aprox. 470 million won) to set up a paint manufacturing facility in the DPRK.

The reason Chinese businesses are looking toward North Korea is that even in China wages have been growing sharply, and as labor laws are amended it has become more difficult to hire employees, driving up production costs and lowering the competitiveness of exports. Cheap and easy labor in North Korea is turning the eyes of many Chinese companies.

The importance of this latest visit by the Chinese industrial representatives was reinforced by the invitation by the Choson Bongwha Company, which specializes in commission-based textile production. This appears to be related to the North Korean authorities’ plan of boosting the standard of living throughout the country by hosting Chinese heavy industries. Recently in the North, companies have joined in partnerships with Chinese businesses to manufacture lighting and cigarettes, showing that Chinese businesses are also interested in enhancing their presence in North Korea’s domestic market.

Just as South Korea’s small and medium-sized businesses have turned to China in order to stay competitive, now Chinese companies are eyeing North Korea’s cheap labor force in order to maintain their edge.

According to the Financial Times (h/t One Free Korea):

The US has agreed to give North Korea 500,000 tonnes of food aid under a new deal that would allow monitors unprecedented access to oversee distribution in the Stalinist state.

Washington will supply 400,000 tonnes via the United Nation’s World Food Programme, while US non-governmental organisations will distribute another 100,000 tonnes, according to people familiar with the agreement. One US official told the Financial Times that President George W. Bush would approve the deal “within days”.

In order to ensure the food reaches ordinary North Koreans, Pyongyang has agreed to extensive monitoring, including random inspections that several observers said were “unprecedented”. It would also allow “port to mouth” inspections to reduce concerns that food would be siphoned off for the elites that support Kim Jong-il, the North Korean leader.

Pyongyang will also allow more monitors into North Korea than under previous food programmes, and will allow them to visit a greater number of areas.

North Korea will receive an initial shipment of 50,000 tonnes in early June. Once Mr Bush formally approves the deal, US experts will meet counterparts from North Korea, the WFP and NGOs to decide what kind of food is needed.

…And contrary to its previous report on 5/11/08 that South Korea was preparing to donate a nearly USD$10 million aid package to the DPRK, despite never being formally asked for it, Yohnap today reports that Seoul is doing no such thing.  The trial balloon carrying the aid must have popped somewhere over the DMZ.

Read the full stories here:
US to send food to N Korea under new deal
Financial Times
Demetri Sevastopulo
5/13/2008

Seoul set to approve 10 bln won in aid for N. Korea: official
Yonhap 
5/11/2008

Gov’t denies rice aid to be sent to N. Korea via int’l body
Yonhap
Shim Sun-ah
5/13/2008

With the likelihood that food is coming into short supply in North Korea, the authorities and individuals alike have implemented strategies to minimize the adverse effects.

I am keeping a running list of official and civil responses here as they appear in the media.

1. The DPRK supposedly ended rations for mid-level cadres (party and state employees), though food can still be purchased in markets. Unless the government is hoarding its grain supplies, this probably has the effect of improving food distribution (transferring food stocks outside Pyongyang), though not to the satisfaction of those who were used to receiving it for “free.”

2. The DPRK asked China for food aid. (Requested 150,000: tons of corn. Received: 50,000 tons on their first ask)

3. Propaganda extolling people not to waste food has been distributed to workers.

4. The DPRK has started cracking down on liquor production/sale.

5. Lets grow potatoes!

6. Distributing food stocks to military families from military warehouses.  This will hopefully take some of the pressure off the price of grains in the markets.

7. Solicit food aid from the US.

8. Officials begin to demand more bribes!

9.  The KPA halts military exercises to assist in farming.

10.  Propaganda campaign to educate the population about alternative foods (Good Friends via OneFreeKorea)

11. China increases food export quota

Via Yonhap:

North Korea’s new envoy to the United Nations presented his credentials to U.N. Secretary-General Ban Ki-moon here Wednesday, along with envoys from several other nations, to officially begin his service, Ban’s office said.

Ambassador Sin Son-ho replaced Pak Gil-yon, who had been at his country’s U.N. mission since 2001. He served as deputy chief of the mission from 2000 to 2003.

According to an article in the Associated Press today (reprinted in the Washington Post):

The U.S. has recently stepped back from its demand for a detailed declaration addressing North Korea’s alleged secret uranium enrichment program and nuclear cooperation with Syria; North Korea has denied those allegations. Washington now says it wants North Korea to simply acknowledge the concerns and set up a system to verify that the country does not conduct such activities in the future.

How can any uranium enrichment verification plan be implemented in the DPRK?  One solution was proposed to me by Glyn Ford, a member of the European Parliament, when I met him in Beijing last March.  His idea was this: Any uranium enrichment program would require a colossal amount of electricity delivered at a consistent voltage.  So one way the west could monitor if such a program was taking place would be to keep tabs on the North Korean power grid for suspicious spikes in activity or to build voltage fluctuations into the power supply.

Read the full article here:
US official to travel to NKorea
Associated Press (Printed in the Washington Post)
Foster Klug
5/6/2008

Even as realtions sour between North and South Korea, the South plans to donate US$1.18 million worth of anti-malaria supplies to the North via the UN World Health Organization.

Seoul has made similar anti-malaria donations since 2001, reducing the DPRK’s malaria cases to about 7,500 last year from some 300,000 in 2001.

Read the full article here:
South Korea to provide anti-malaria supplies to North Korea
Associated Press
5/2/2008

North Korea has requested that the German Red Cross continue providing medical aid beyond ithe 2009 deadline.

The request was made when Rudolf Seiters, president of the German Red Cross, visited Pyongyang on April 22-26 and met with Kim Yong-nam, chairman of the Presidium of the Supreme People’s Assembly to discuss his group’s overrall programs to aid the communist state.

The German group has sent medical kit that includes pain-killers, antibiotics and nutritional injections, as well as medical equipment such as blood pressure cuffs and stethoscopes to some 2,000 local hospitals and clinics across North Korea since April last year. About 8.8 million North Korean residents benefited from the aid, Koch said.

The German government has provided 4 million euros (US$6.2 million) worth of aid to the North every year since 1997, the spokeswoman added.

Read the full article below:
German Red Cross asked to continue helping N.K.: report 
Yonhap
5/1/2008

The Daily NK reports that South Korean businesses have delayed moving into the zone, or canceled their plans outright:

78.5 percent of those firms which received lots at the Kaesong Industrial Complex in the second round of the first stage of distribution in June last year have not begun construction of their facilities. 62.4 percent of them have not even hired a firm for construction,” said the Korea Federation of Small and Medium Business (KFSB) in a report released on April 27. For the report, the KFSB selected 85 firms out of all those firms which received lots and conducted a survey on how these firms are preparing their move into the Complex.

Companies distributed with lots in June last year are required to begin construction of their facilities within two years after the initial distribution contract. It is true that these firms have enough time to build their facilities. However, a number of firms have expressed that they would not move into the Complex.

The report says, “13 out of a total of 167 firms have already told the KFSB that they would not move into the Complex, and five of them have canceled the contract.”

59 percent of the firms including those 13 said that they would relinquish their rights to move into the complex because they are unable to raise enough money. 64 percent of these firms said that the reduced government funding has contributed to their financial difficulties.

Read the full article here:
South Korean Firms Postpone Their Move into the Kaesong Industrial Complex
Daily NK
Choi Choel Hee
4/28/2008