North Korean Economy Watch

Unlike most other nations’ embassies, North Korean offices must not only self-finance their operations but they must also send money back home.  It looks like they were finding it hard to make a living in Canberra.  Though an enjoyable town, Canberra is so far from most of the economic action in Australia that they were probably unable to close any deals.  In the future, they should consider opening a consulate in Sydney–if they can afford the rent.

Joong Ang Daily
1/23/2008

North Korea can’t afford the bills anymore, so it will close its embassy here, Australia’s foreign ministry said yesterday.

North Korean diplomats informed Australian officials in November that the four-person embassy, located in a diplomatic quarter of Australia’s capital Canberra, would shut in February.

“The embassy advised that they plan to continue with non-resident diplomatic accreditation from Jakarta,” a foreign ministry spokesman told Reuters. The mission said in a letter it was closing due to “financial reasons.”

“The DPRK said it would consider reopening if its financial situation improves,” the spokesman said, referring to the North’s official name, the Democratic People’s Republic of Korea.

Australia is one of few Western countries to have diplomatic ties with the reclusive state. Pyongyang opened its embassy in May 2002.

In September 2006, Australia announced sanctions against 12 companies and one person connected with financing Pyongyang’s nuclear weapons program, including a visa ban on North Korean nationals and on North Korean shipping.

Today The Economist published a report on the political momentum of the North Korean human rights movement.  Although this web site does not keep up with the politics of the movement, the article points out how globalization is seemingly improving human rights in the DPRK…

A Black Hole
The Economist
1/30/2008

When you learn that Chinese firms are teaching notions of corporate social responsibility to factories in North Korea, there are two possible reactions besides incredulity. One is despair. Scandals from China involving tainted products, abused workers or environmental degradation are legion: what could its companies possibly have to teach their backward, isolated and viciously repressive neighbour?The other is to celebrate the glorious rising tide of globalisation, which washes up little bits of good news on even its most remote and neglected shores.
…
Human rights, then, no longer seem so central to the West [politically]. So it is moderately encouraging to hear that Chinese garment-makers, subcontracting to North Korea to escape mounting costs at home, insist that their partners stop imposing seven-day working weeks. Just as China’s Western partners 15 years ago trapped them in misdemeanours by finding that sewing needles had broken on supposed rest days, so the Chinese are catching the North Koreans with the same tactics.

This might seem like a radical thought, but imagine how much better companies from OECD countries would be doing this. According to US Census data, the US has only imported $1.7 m from the DPRK since 1992 (including the famine).  Since isolation from western markets has been the DPRK’s policy essentially since its founding,  why try to maintain it?  Lets start investing and trading.  Agree or disagree in the comments.  I’d like to know your thoughts.

Back story: It looks like Suzanne Clark’s efforts are finally paying off…

Yonhap
1/29/2008

North Korea’s national symphony orchestra will perform in Britain as part of its planned concert tour to Europe in early September, a U.S. radio station reported Friday.

The North’s 120-member State Symphony Orchestra will hold three concerts in London and Middlesbrough Sept. 2 to 14, Radio Free Asia said, quoting a British businessman who arranged the tour.

Joong Ang Daily
1/29/2008

While dragging its feet again on its pledge to denuclearize, North Korea is expanding its cultural outreach to the West.

The move is drawing a mixed response from North Korea watchers. Some hail it as a prelude to a long-awaited opening of the isolated nation, recalling China’s “ping-pong diplomacy” that served as a catalyst for a thaw in its relations with the United States in the 1970s.

Others, however, caution against expecting too much, citing the communist nation’s track record of using arts for propaganda.

Regardless, Pyongyang looks set to provide a rare chance for Europeans to see its elite orchestra perform.

The North’s State Symphony Orchestra is scheduled to hold performances in London and Middlesbrough in September in what would be its largest-ever shows abroad, according to Radio Free Asia. The concerts will be telecast live, added the U.S.-government funded station.

The orchestra is said to have been nurtured by the North’s all-powerful leader Kim Jong-il, reportedly a big fan of film, music and other arts.

In the North’s latest cultural diplomatic activity, five North Korean movies were screened over the weekend in San Diego, California during the first inter-Korean film festival organized by a university in the United States. North Korean authorities selected the films. Pyongyang’s No. 2 two diplomat in the North’s United Nations mission, Kim Myong-gil, attended the event after receiving U.S. government approval. Members of North Korea’s UN mission are required to stay within a small radius of New York and need Washington’s approval for trips outside the city.

The film festival came two weeks after a North Korean movie, titled “Schoolgirl’s Diary,” was screened in Paris. It marked the first-ever commercial distribution of a North Korean movie in the West.

One of the most awaited shows in coming weeks is a concert by the New York Philharmonic in Pyongyang. During the performance, the orchestra will perform the U.S. and North Korean national anthems as well as classical music. The historic concert, backed by the U.S. State Department, will be broadcast live via satellite on Feb. 26.

“This journey is a manifestation of the power of music to unite people,” said Zarin Mehta, the orchestra’s executive director, reiterating remarks he made last month.

Assistant Secretary of State Christopher Hill, Washington’s point man on Pyongyang, said earlier the performance bodes well for their bilateral relationship.

“We haven’t even had ping-pong diplomacy with these people,” he said. “It would signal that North Korea is beginning to come out of its shell, which everyone understands is a long-term process. It does represent a shift in how they view us.”

Hill expressed hope that the cultural exchange will help resolve the North Korean nuclear crisis.

Many experts here agree cultural diplomacy can be an effective way of dealing with the North. They view the North’s move as reflecting its cultural pride and determination to break its isolation. “It also appears to be aimed at diluting the North’s negative image as a repressive nation and silencing criticism from hard-line U.S. officials,” said Yang Moo-jin, a professor at the University of North Korean Studies in Seoul.

But skepticism lingers with the nuclear crisis still unresolved.

“Even if the orchestra plays music from heaven, it will have nothing to do with most North Koreans outside of the venue,” said Joo Sung-ha, who defected from North Korea in 2001 and now works as a journalist in Seoul. “We need to think about for whom such one-time shows should continue.”

Last night I attended a presentation by The Honorable David Coltart of Zimbabwe, Shadow Justice Minister and Member of Parliament for Bulawayo South.   Aside from the sad story he told of the disastrous toll the policies of Zanu-PF and Robert Mugabe are taking on the lives of Zimbabwe’s people, he mentioned the role that President Kim il Sung of North Korea played in facilitating Comrade Mugabe’s rise to power…

The full story can be found in the report  “Breaking the Silence.”

Starting on Page 45 of the report:

…in October of 1980, an agreement was signed between Prime Minister Mugabe and President Kim Il Sung, in which North Korea offered to train and arm a brigade for the newly independent Zimbabwe.

The First News of this agreement in the Zimbabwe media was almost a year later, in August 1981, when 106 Korean instructors arrived to begin training the brigade. Prime Minister Mugabe then announced that the Korean-trained brigade was to be known as the 5 Brigade.”

This squad was colloquially named ‘Gukurahundi’ which is Shona for “the rain that washes away the chaff before the spring rains,” and it was separate from the normal Zimbabwe National Army. 

The 5 Brigade soldiers made it clear themselves that they should be regarded as above the law.[…] answerable to nobody but Mugabe.

In addition to Korean-made equipment,

5 Brigade had completely different communication procedures: their codes and radios were incompatible with other units. Their uniform was also different, its most distinctive feature by the time they became operational in 1983 being their red berets. […]The use of AK-47s, recognized by their distinctive bayonets and curved magazines,is another distinguishing feature. In addition, the 5 Brigade traveled in a large fleet of vehicles which were Korean in origin, although this fleet did not last long, falling to pieces on the rough Zimbabwean terrain.

The 5 Brigade’s brutal activities are outlined in the report, but essentially they were used to eliminate rival political parties that could threaten Mugabe’s (and ZANU-PFs) control of the state.

UPDATE: from the Marmot’s Hole:

“What is historically known is that six months after independence in October 1980, Mugabe signed an agreement with the brutal communist dictatorship of North Korea, for assistance in training a new army brigade to deal with internal dissidents. 5 Brigade (here and video of the North Koreans and Zimbabwean soldiers), as it came to be known, wore different uniforms, with distinctive red berets; it used different equipment, transport and weaponry. Codes and radios were incompatible with other units. It is likely that the same North Korean instructors that became known to the press some time later, had also been entrusted with the training of the Maltese government’s own Special Mobile Unit.”

Yonhap
Shim Sun-ah
1/28/2008 

North Korea will conduct its first national census in 14 years this fall with help from a U.N. agency, the Unification Ministry said Monday.

“South Korea signed a memorandum of understanding with the United Nations Population Fund (UNFPA) on Dec. 11 to finance part of the cost of the national census in North Korea,” the ministry said in a statement.

The project will be launched in October. A pilot census already began last year, according to the statement.

The project will cost around US$5.6 million, of which South Korea will provide $4 million, the ministry said, adding the remaining funds will come from the UNFPA’s own fund and donations from other countries. No complete census has taken place in North Korea since 1994 when the UNFPA helped the communist state conduct a national census. Pyongyang announced after the survey that its population was 21.21 million people as of 1993.

According to an almanac released Sunday by the North’s official Korean Central News Agency, North Korea’s population increased gradually to 23.6 million in 2004 despite the chronic economic plight of the isolated communist state.

The World Factbook released by the U.S. Central Intelligence Agency last year put the North Korean population at 22.6 million in 2004.

“We decided to finance the census from the inter-Korean cooperation fund considering that the census will help us understand North Korea’s overall social situation and the lifestyle of the country’s people,” the statement said.

“The population data can also be used to establish comprehensive measures to deal with the North, including inter-Korean economic cooperation projects,” it added.

TU-204-300 touches down at a North Korean airport
(Hat tip to Mateusz)
12/28/2007

A TU-204-300 has touched down at a North Korean airport in what became Russia’s first successful deal to supply its most advanced long-range jet abroad. With its 500-8500 flying range, the plane is capable of swiftly transforming its fuselage on the ground. The plane has already been making shuttle non-stop flights inside and outside Russia. North Korean flag Carrier Air Koryo has ordered the TU-204-300.

TU-204-300 with PS-90A engines is a mid-range passenger a/c is intended to carry passengers, luggage and cargo on domestic and international trunk routes of 500 to 8500 km distance . The airliner was built on the basis of TU-204-100 a/c and represents the continuation of TU-204/214 a/c family. TU-204-300 a/c performed its maiden flight 18 August, 2003. The aircraft is produced in series at “:Aviastar-SP” Closed Stock Company in Ulianovsk. Opposite to TU-204-100 the TU-204-300 a/c has a shortened fuselage (by 6 m) and increased fuel reserve. Set of equipment was updated. Improved comfort level of the cabin helps the passengers to withstand long flights. Maximal payload is cut down to 18000 kg at increased flight range.

Click here to get specs on all the planes in Air Koryo’s fleet (h/t DPRK Studies)

The UNDP issued a response to the US Senate investigation into their operations in North Korea.  This is from their web site (January 23, 2008):

UNDP welcomed the recent investigation by the US Senate Permanent Subcommittee on Investigations (the “Subcommittee”) into its former operations in North Korea.  UNDP voluntarily cooperated with the inquiry, including by making its personnel and documents available for review by the investigators.  UNDP’s extensive cooperation is acknowledged in the report.

The Subcommittee initiated the inquiry in June 2007, in the wake of persistent allegations concerning UNDP’s operations in North Korea.  A 31 May External Audit had found that, because of constraints imposed by the North Korean authorities, UNDP and other UN agencies did not operate in North Korea according to the same standards and practices they used elsewhere worldwide.  The same audit found, however, contrary to allegations that UNDP spending totaled hundreds of millions of dollars, that UNDP ran a modest program of less than $3 million per year, and had in place a full range of monitoring mechanisms to verify its spending.  New allegations surfaced shortly afterward, including detailed charges that UNDP had underreported its funding levels, and engaged in illicit transactions with entities tied to the North Korean armaments program, and that a significant amount of UNDP funding had been diverted by the North Korean government.  The Subcommittee initiated its investigation shortly afterward.

Nearly seven month later, after extensive interviews with UNDP staff, as well as a Subcommittee field to visit UNDP headquarters to verify the financial control systems UNDP had in place in North Korea, UNDP emphasizes that the Subcommittee’s report contains nothing to substantiate persistent allegations that:

• UNDP transferred tens of millions of dollars to the North Korean government, as had been alleged;
• UNDP money was used to fund North Korean purchases of real estate, or were diverted to its nuclear or missile programs;
• UNDP dealt in significant amounts of cash, which could be diverted or embezzled in defiance of financial controls;
• UNDP ignored UN controls on prohibited vendors and dealt directly with entities barred by these processes.

The report does contain a series of findings and recommendations.  UNDP’s responses are outlined below.

On UNDP’s management and operational practices in North Korea:
Finding: UNDP operated in North Korea with inappropriate staffing, questionable use of foreign currency instead of local currency, and insufficient administrative and fiscal controls.  

UNDP Response:

– The report states that UNDP operations in North Korea are a case study of an international agency’s attempts to achieve development goals in a restrictive environment, and that By all accounts, operating development projects in North Korea presented management and administrative challenges of the most extreme nature.  By definition, UNDP operates in challenging environments, and has crafted, for the most part, sound rules and procedures to ensure that UNDP development funds benefit the people of a host nation.
– UNDP has said all along that North Korea was a difficult place in which to do business.  It operated there since 1981 at the explicit direction of its Executive Board, which includes the US, and which regularly approved its programs.  The Executive Board was aware of the operational constraints UNDP faced.  All foreign entities in North Korea – UN agencies, national diplomatic missions and international NGOs – face the same constraints. 
– UNDP is committed to addressing any and all management and operational deficiencies that have been identified in its former operations in North Korea, and to applying lessons learned to other countries in which it faces similarly challenging operational environments.

On access to internal audits

Finding: By preventing access to its audits … UNDP impeded reasonable oversight.
Recommendation: UNDP should provide UN member states with unfettered access to financial and management audit reports about UNDP activities, including providing timely copies of such reports and allowing UN member states to make audit information public.

UNDP Response:

– As noted by Senator Levin, a proposal that would grant routine access to UNDP Executive Board members to UNDP audit reports is currently before the UNDP Executive Board.

On deceptive financial transactions by the DPRK government:
Finding: In 2002, the DPRK government used its relationship with the United Nations to execute deceptive financial transactions by moving $2.72 million of its own funds from Pyongyang to DPRK diplomatic missions abroad through a bank account intended to be used solely for UNDP activities and by referencing UNDP in the wire transfer documents.

Recommendation: UNDP should take steps to ensure that its name and resources are not used as cover for non-UN activities.

UNDP Response:

– UNDP is not happy that its name may have been used inappropriately by the North Korean government in connection with deceptive financial transactions.  It has formally raised this matter with the North Korean government.
– UNDP is pleased to note, however, that there is no suggestion that UNDP either knew of or could have prevented the transactions.  The report states: The Subcommittee does not conclude that the deceptive financial transactions executed by the North Korean government would have been prevented had UNDP’s management been more vigilant.
– UNDP is also pleased to note that contrary to persistent allegations it has faced, the report finds that the $2.72 million in question was not UNDP’s money.
– UNDP records show that the total sum transferred from 2001 to 2005 to the North Korean entity that was misusing UNDP’s name was approximately $175,000.  This figure is far less than the $7 million UNDP was alleged to have transferred to the entity in during this period.

On UNDP payments to Zang Lok

Finding: UNDP transferred UN funds to a company that, according to a letter from the US State Department to UNDP, has ties to an entity involved in DPRK weapons activity.

Recommendation: Prior to making payments to a contractor, UNDP should take steps to ensure that the contractor is not associated with illicit activity.

UNDP Response:

– UNDP paid a Chinese company named Zang Lok $22,000 in 2002 on behalf of WIPO, and $30,000 in 2004, on behalf on UNESCO.  UNDP did so because although both of these UN agencies have run projects involving North Korea, neither of them has a presence in the country.  In both cases the goods in question (computer equipment) were paid for by WIPO and UNESCO and received in good order.
– The State Department first informed UNDP that Zang Lok had ties to a “designated entity” on 6 June 2007, and UNDP immediately agreed to cease doing business with Zang Lok.
– UNDP and other UN agencies routinely consult control lists maintained by the UN Security Council before making procurement decisions.  It is unclear whether Zang Lok, as a company with ties to a “designated” North Korean entity – but not itself a designated entity – was on any list that could have been consulted in 2002, 2004, or afterward.
– The report acknowledges that UNDP’s vetting procedures appear sound and that It does not appear that UNDP, or the UN agencies on whose behalf UNDP was acting, knew of – or had any way of knowing – whether Zang Lok was connected to an entity involved with DPRK weapons activity at the time the payments were made.
– UNDP agrees that it would benefit from increasing its information-sharing with the other UN agencies and is committed to doing so within the ongoing process of harmonizing the UN standards system-wide, in which it is a leading participant.

On alleged retaliation against a whistleblower:

Finding: By…not submitting to the jurisdiction of the UN Ethics Office … UNDP undermined its whistleblower protections. 

Recommendation: UNDP should ensure that whistleblowers do not face retaliation for reporting irregular or improper conduct.

UNDP Response:

– Contrary to criticism directed at UNDP over the past year, UNDP has had policies and procedures in place to protect employees from retaliation for some time.  Some of these predated the policies initiated by the Secretary-General in 2005.  Moreover, all personnel (staff and non staff), regardless of level or legal status, are encouraged to bring concerns and claims under these procedures, and all such claims are treated with appropriate seriousness. 
– More recently, and in accordance with the new policies issued by the Secretary General in late 2007, UNDP has appointed an Ethics Officer.  In addition to overseeing the key components of UNDP’s ethical standards and mechanisms, the Ethics Officer will work together with the Director of the Ethics Office of the Secretariat, the new UN Ethics Committee, and the Ethics Officers of other UN entities, to further harmonize the overall ethics regime of the wiser UN system. 
– From a staff perspective, there is now in place a “two step system”.  Staff from UNDP can now appeal to the Chair of the new UN Ethics Committee to have their individual case reviewed by the UN Ethics Office, if they believe that they have not been appropriately treated within UNDP.
– In the case referenced by the Subcommittee, there is no question that Mr. Artjon Shkurtaj raised operational concerns during his time at UNDP North Korea.  There is equally no question that it was his job to do so, that the concerns he raised were similar to those raised by his predecessors, and that UNDP managers responded as appropriate.
– A key point is fundamental to ethics regimes and whistleblower protection mechanisms almost everywhere, including at the UN and UNDP: the complainant must avail him or herself of the mechanisms and cooperate with any inquiry. Mr. Artjon Shkurtaj neither availed himself of existing UNDP mechanisms nor cooperated with a subsequent inquiry.
– Mr. Shkurtaj’s case has been taken up by the External Independent Investigative Review (EIIR), which is being led by former Hungarian Prime Minister Miklos Nemeth.  According to the terms of reference of the EIIR, if the UN Ethics Office is not fully satisfied on the issue of Mr. Shkurtaj, it will itself look into the matter.  UNDP will not offer further comment while the EIIR is ongoing.

The US Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs published a report detailing the failure of the United Nations Development Program (UNDP) to adequately monitor its projects in the DPRK. 

By way of background…In March 2007, the UNDP suspended its operations in North Korea because of the government’s refusal to agree to new measures designed to increase the transparency and accountability of the UNDP programs there. 

The subcommittee staff released the following findings:

1. UNDP operated in North Korea with inappropriate staffing, questionable use of foreign currency instead of local currency, and insufficient administrative and fiscal controls

• UNDP’s DPRK office was staffed in large part with North Korean nationals who were selected by the DPRK, contrary to UNDP policy; 
• UNDP paid the salaries of local staff directly to the North Korean government without any way of verifying that the salaries were properly disbursed and despite UNDP’s suspicion that the DPRK was, in the words of one UNDP official, “skimming” money from the payments; 
• UNDP paid salaries and other expenses in convertible currencies, such as US Dollars or Euros, rather than in the local currency, contrary to UN best practices; 
• UNDP was required to conduct its financial transactions using a DPRK state bank that accepted paperwork only from DPRK personnel, sometimes routed UNDP funds through an unrelated bank account, and, until recently, refused to provide UNDP with copies of cancelled checks;
• UNDP was allowed to conduct on-site project visits only with prior notice and in the company of North Korean officials, contrary to UNDP best practices; and
• The UNDP office in Pyongyang operated without secure communications, and the regime routinely monitored UN activity, going so far as to enter and search private residences of UN personnel.

2. By preventing access to its audits and not submitting to the jurisdiction of the UN Ethics Office, UNDP impeded reasonable oversight and undermined its whistleblower protections.

The UNDP commissioned four audits of its North Korean operations, in 1999, 2001, 2004, and 2007. Problems were identified in all four. The first three audits were nonpublic and, in accordance with UNDP policy, unavailable for review even by nations serving on the UNDP Executive Board. After repeated requests, UNDP made an exception to this policy and, in 2007, showed the audit reports to the US Mission to the United Nations, whose personnel were allowed to read but not copy them.

Beginning in 2005, Artjon Shkurtaj, then Operations Manager of the UNDP office in Pyongyang, raised concerns about management and operational deficiencies in UNDP operations. After raising these concerns, his employment contract was not renewed. He then filed a complaint with the UN Ethics Office claiming that UNDP had retaliated against him.  In August 2007, however, the Ethics Office determined that, although Mr. Shkurtaj had established “a prima facie case of retaliation,” it lacked jurisdiction to decide his claim and could protect only whistleblowers within the UN Secretariat.

3. In 2002, the DPRK government used its relationship with the United Nations to execute deceptive financial transactions by moving $2.72 million of its own funds from Pyongyang to DPRK diplomatic missions abroad through a bank account intended to be used solely for UNDP activities and by referencing UNDP in the wire transfer documents.

4. UNDP transferred UN funds to a company that, according to a letter from the US State Department to UNDP, has ties to an entity involved in DPRK weapons activity.

UNDP regularly made payments to contractors on behalf of other UN agencies operating in North Korea. During the course of its investigation, the Subcommittee learned that payments on behalf of other UN agencies – totaling approximately $50,000 – were made to an entity named Zang Lok Trading Co. in Macau. According to a letter dated June 7, 2007, to UNDP from the US Permanent Mission to the United Nations, Zang Lok “has ties to a North Korean entity that has been designated [by the US government] as the main North Korean financial agent for sales of conventional arms, ballistic missiles and goods related to the assembly and manufacture of such weapons.” UNDP maintains that it does not know, and has no way of knowing, whether Zang Lok is connected to North Korean weapons sales.

How much money are we talking about?
UNDP estimates that, from 1995 to 2005, it spent a total of about $33.5 million in North Korea. Of that figure, approximately $6 million was spent on UNDP office, staff, and operating expenses, including roughly $100,000 per year in payments to local staff and contractors, and $500,000 per year spent on rent, office supplies, transportation, employee compensation, and other expenses. An ongoing external audit is expected to refine these estimates. In addition, the UNDP office in North Korea made payments and provided administrative support on behalf of other UN Funds and Programs operating in North Korea including the United Nations Population Fund and United Nations Office for Project Services, among others. Total expenditures by all UN agencies in North Korea – excluding the World Food Program – during the same ten-year timeframe have been estimated at roughly $200 million.

Here is the full report: undpreport.pdf

Yonhap (Jan 7, 2008) reports that newly elected South Korean president Lee Myung-bak will revisit the agreement struck between former President Roh and Chairman Kim Jong il last fall.

(excerpt) Projects under review will be the construction of a shipyard complex and its infrastructure in [Haeju] North Korea, along with the establishment of a “peace zone” along the disputed [Northern Line Limit] border in the West Sea, the site of deadly naval clashes between the two Koreas in 1999 and 2002.

“Humanitarian projects, such as the reunion of family members living separately in the two Koreas, and rice and fertilizer aid can be continuously pushed for, but economic cooperation projects should be carried out in parallel with the pace of North Korea nuclear talks,” a key member of the team was quoted as saying at the briefing.

——

Projects in the North are not the only things potentially headed for the chopping block–so it seems is the South Korean Ministry of Unification itself, which could potentially be merged with the South Korean Foreign Ministry. 

The incoming president, however, did suggest a carrot to go with his sticks.  Yonhap reported on January 4 that the new administration plans to launch a USD$40 million fund to promote economic growth in North Korea. 

(excerpt from Yonhap) The planned fund is in line with Lee’s ambitious plan to help increase the impoverished North’s per capita income to $3,000 within a decade if it makes the bold decision to abandon its nuclear program and open its market, said the team’s spokesman Lee Dong-gwan. There are no accurate data on the reclusive nation’s economy but some estimates put its per capita income at around $1,300.