North Korean Economy Watch

Yonhap
3/28/2007

South Korea on Wednesday shipped medical aid to North Korea to help stem the spread of foot-and-mouth disease in the communist country, the Unification Ministry said.

The shipment includes six types of medicine and five types of medical equipment worth about 280 million won (US$280,000), the ministry said in a statement.

Last Thursday, South Korea endorsed its package of emergency aid worth 3.3 billion won for the North, which has culled hundreds of cows and thousands of pigs infected by the disease since July.

South Korea plans to make additional shipments after the two sides hold a working-level meeting of quarantine officials in the North Korean border city of Kaesong on Friday.

The World Organization for Animal Health confirmed the outbreak, and South Korea has proposed to support the North’s quarantine measures. 

Daily NK
Yang Jung A
3/28/2007

The World Food Programme (WFP) revealed that North Korea had for the first time admitted that they were lacking a million ton of food.

Recently, Tony Banbury, WFP Asia Director spent 3 days on location with officials from the North Korean Agriculture Ministry and Foreign Ministry where the food situation was discussed.

On the 26th, Banbury told Reuters, “This is a very significant development that they themselves are confirming they have a gap of 1mn tones.”

Director Banbury informed that the WFP and other sources had provided for North Korea’s food variance which equated to about 20% of the nations needs, however that these sources had already been wasted.

Disputably, these figures made by Mr. Banbury do not correspond to the figures on North Korea’s crop yields. Some even criticize that it was inappropriate of the WFP to directly quote comments made by North Korean officials.

According to a source by the DailyNK, the cost of rice has remained at 800~900 won(US$0.25~0.29). Especially with the forthcoming cyclic hardships of spring harvest, these figures suggest that market costs are actually stabilizing.

Since the breakdown of the distribution system, many North Koreans have resorted to purchasing rice at the markets. In North Korea, the cost of rice is a good representation of market conditions, and considering that rice prices are showing constancy is evidence that there have not been drastic setbacks as a result of the rice distributions.

In comparison to last year where flooding made the food crisis chronic in various districts throughout North Korea, the situation hasn’t really deteriorated. Rather, the continuous inflow of food and hence trade from China has helped maintain market prices, North Korea-China tradesmen say.

Earlier this year, the Rural Development Administration in South Korea estimated North Korea’s food production to be 4.3mn tons. Evidence from a defector who once worked at North Korea’s food distribution ministry and past analysis on crop production suggests that North Korea would not have incurred a food crisis in the case it had produced more than 4mn tons of output.

Simply put, 4.3mn tons of production is at the least enough to maintain the lives of North Korean citizens. Undoubtedly, in a society like North Korea, this figure could initiate a food crisis and starvation in the lower class. However, inflating the shortage of food may only cause exhaustion of essential aid.

In addition, some argue that international organizations are actually provoking this vicious cycle in North Korea by decreasing the real amount of food produce.

Recently, North Korean analyst Marcus Noland published a report, ‘Famine in North Korea’ where he argued that about 50% of international food aid was being consumed by the military and, or the elite class.

In the report, he said, “The North Korean government consistently sought to frustrate transparent, effective humanitarian relief” and that, “Diversion is almost certainly occurring on a large scale, enough food to feed between 3 to 10 percent or more of the North Korean populace. Some of this aid is almost surely consumed by politically connected groups, including the military.”

EU Business
3/27/2007
 
The European Union adopted sanctions against North Korea Tuesday, putting it in line with a UN Security Council resolution passed after the Stalinist state announced a nuclear test.

The sanctions include a ban on the sale or export of all materials that could be used in North Korea’s nuclear and ballistic missile programmes, or in the manufacture of weapons of mass destruction.

The EU also froze the assets abroad of some North Korean officials and banned exports to the country of luxury goods like caviar, truffles, high-quality wines and perfumes, and pure bred horses.

The bloc backed in November UN resolution 1718 but the application of sanctions required a formal EU decision, which was held up by a row between Britain and Spain over how Gibraltar would implement the measures.

The resolution was passed after Pyongyang announced on October 9 that it had carried out its first nuclear weapons test, triggering world-wide outrage.

Reuters
Paul Eckert
3/23/2007

The diplomatic deal that promises to bring North Korea aid in exchange for scrapping its nuclear weapon programs might allow the government to resist meaningful economic changes, an expert on the secretive communist country’s economy said on Friday.

Marcus Noland of the Peterson Institute, a Washington economic think tank, said research for his new book on North Korea’s deadly 1990s famine showed Pyongyang was “at best, ambivalent” about changing policies that led to that disaster.

“The great hope is that reassurances in terms of external security will give the North Korean regime the political room to engage in greater political and economic liberalization at home,” the economist told Reuters in an interview.

But the diplomacy playing out in Beijing could have the opposite effect, said Noland, co-author of “Famine in North Korea: Markets, Aid and Reform” with Stephen Haggard of the University of California, San Diego.

“It could well be that a nuclear deal that resulted in greater amounts of aid would actually allow the North Korean government to intensify activities that are essentially reestablishing economic and political control over the population,” he said.

Negotiators from North and South Korea, China, the United States, Japan and Russia were in Beijing this week, seeking to begin implementing a Feb. 13 deal that would give the North aid and security assurances in return for shutting down a nuclear reactor and preparing other disarmament steps.

Noland’s 368-page study of the famine that killed an estimated 1 million North Koreans in the late 1990s shows how the rigid central planners of Pyongyang were forced to allow markets to feed people and to give farmers some limited freedoms, but then pulled back when the disaster eased.

“When things look better … the North Korean government tries to pull back on this process of marketization and reform,” Noland said.

“One of the saddest things is that as food aid began arriving in North Korea, the regime systematically cut the amount of food it bought on commercial terms,” he said.

The author of three books on North Korea decries what he says are “truly reckless” food policies since the end of the famine. Pyongyang has banned trading in grain on markets that people rely upon for food, confiscated grain in rural areas and reneged on policy promises to farmers, he said.

“In a variety of ways, it seems to want to put the genie back in the bottle,” he said.

Reuters
Lindsay Beck
3/26/2007

North Korea has admitted for the first time to food shortages of a million tonnes, the World Food Programme said on Monday, adding that in the absence of better donor support, millions are vulnerable to hunger.

In the past that food gap — which represents about 20 percent of North Korea’s needs — was met by a combination of bilateral aid, WFP support, loans and commercial interests, but those sources are all drying up, the WFP said.

“This is a very significant development that they themselves are confirming they have a gap of 1 million tonnes,” WFP Asia director Tony Banbury told Reuters.

The figure, which is in line with U.N. estimates, was given in a meeting with the vice-minister of agriculture, Banbury said in an interview from North Korea, where he met officials at the Agriculture Ministry and Foreign Ministry and spent three days in the field.

“There is a real food security problem in the country that is now not being met either by domestic production or external sources.”

North Korea suffered a famine in the mid-1990s that killed as many as 2.5 million people, and has since suffered chronic food shortages.

The WFP began working there in the aftermath of the famine and grew into its biggest humanitarian agency, but was forced to radically scale back its programme last year after the government said it no longer wanted handouts.

Under its new programme, the U.N. agency aims to reach about 1.9 million people, but Banbury said a lack of donor support meant it was only reaching 700,000 of a total population of about 23 million.

North Korea, which tested its first nuclear device last year and is at the centre of diplomatic efforts to dismantle its atomic programme, has made incremental improvements in the nutritional status of children, but that could be reversed.

“There is a real risk that we’re going to see backtracking on the improvements, and people who are just on the edge and vulnerable could find themselves in a very difficult situation from a food and nutritional standpoint,” Banbury said.

Despite the close government watch maintained throughout the visit, Banbury said that for the first time WFP officials were granted a spontaneous request to see government warehouses that store WFP-donated food.

“On the one hand, it was very innocuous — it was just a warehouse with sacks of food in it. On the other hand, it was symbolically, quite important and welcome,” he said.

There were also moments of frankness from officials in the country known for its reclusiveness during Banbury’s visits to a paediatric hospital, a boarding school and orphanages in the west of the country.

“In every institution we visited there were malnourished children, according to the officials there themselves, not just our observations,” Banbury said.

Some of the children were severely malnourished, he said.

“It was my impression that the person on the street — the woman riding the bicycle, the kid walking along the side of the street — was thin and hungry and needed more food than they were getting.”

Joong Ang Daily
Lee Sang-il
3/26/2007

North Korean bank allegedly gave counterfeit U.S. $100 notes to a foreigner working for the United Nations Development Program when he cashed a check at a bank in Pyongyang in 1995, a diplomatic source in Washington told the JoongAng Ilbo.

A spokesman for the UN agency confirmed the suspicion, adding that the bills will be handed over to the U.S. Treasury Department for verification.

In 1995, the UNDP’s Pyongyang office issued a check to an Egyptian consultant for his services on a North Korea project.

The consultant claimed that he cashed the check at the Foreign Trade Bank in Pyongyang and that the bank gave him 35 $100 bills.

After returning home, the consultant attempted to exchange the bills for Egyptian currency, but the bills were rejected as fakes, the source said.

The Egyptian sent the bills back to the UNDP office in Pyongyang, and the UN officials confronted the Foreign Trade Bank and asked for real money, the source said. The request was turned down, and the UN agency has been holding the bogus bills for 12 years.

The revelation of the incident highlights charges by the American government that North Korea has been passing so-called “supernotes” ― fake $100 bills ― for many years. Washington’s claim that Banco Delta Asia in Macao was a conduit for the release of the notes was one reason for the freezing of $25 million in North Korean funds in September 2005.

That money is now due to be released as a precondition for progress in the six-party talks. The U.S. has cut the suspect bank’s access to the American financial system.

In an e-mail interview with the JoongAng Ilbo, David Morrison, spokesman for the United Nations Development Program, said the agency is in the process of giving the notes to the Treasury Department. Mr. Morrison said he was not aware of any other incidents.

Mr. Morrison added that the Egyptian consultant has not provided further evidence that the bills were passed by the Pyongyang bank. He also said that UNDP had used Banco Delta Asia to send money to the North to finance projects from January 2000 to December 2002. He said they chose the bank for its convenient financial services.

Asked if North Korea asked the agency to use Banco Delta Asia, Mr. Morrison said it was an independent decision. He said the UN body stopped transactions with the Macao bank when the settlement currency was changed from dollars to euros.

UNDP opened its office in Pyongyang in 1980 and has carried out public hygiene, agricultural, energy and environmental projects.

Daily NK
Kwon Jeong Hyun
3/21/2007

A North Korean restaurant “Pyongyang-kwan” in China is facing a similar predicament as another restaurant in the same area “Pyongyang Moran-kwan,” where a female employee “Lee” was repatriated back to North Korea last October having been arrested for fleeing the restaurant. As a result, North Korean authorities made the restaurant accountable and repatriated all the employees back to North Korea, which inevitably led to the restaurant closing its doors.

In 2000 also, some female employees fled a restaurant “Pyongyang” in Yanji. As a result, the business was terminated and has yet to restart operations again.

The majority of North Korean restaurants located in China are run by entrepreneurs who have signed a contract with North Korean authorities. While the Chinese are responsible for business and property lease for the restaurant, North Koreans bestow the female workers and extract 40% of the net income.

As more and more waitresses break away from restaurants, North Korean authorities are continuing to withdraw the remaining restaurant employees, as is their custom. Consequently, if all North Korean employees are removed, the restaurant has little choice but to shut down.

North Korean workers sent overseas must undergo a meticulous selection period. North Korean authorities select graduates as their ideal candidates and even if a minor detail is undesirable, the candidate is discarded. Furthermore, North Korean authorities dispatch independent National Security Agents to regulate the overseas workers. Normally, 2~3 security agents are residing at the restaurant also.

Yonhap
3/20/2007

South Korea will spend about $250,000 to foot the bill for the training of North Korea’s visiting under-17 football squad, the Unification Ministry said Tuesday.

In a show of thawing ties between the two Koreas after a recent North Korean denuclearization deal, the squad arrived earlier Tuesday on the southern island of Jeju for a month of training. The North Koreans are preparing for the FIFA U-17 World Cup, which South Korea will host this summer.

“We decided to tap into the inter-Korean cooperation fund to pay for their accommodations and others,” a ministry official said on customary condition of anonymity.

It is the first visit by a North Korean sports team to the South since a squad took part in an East Asian regional football competition in August 2005.

The 23 players and nine coaches arrived from a training session in the Chinese city of Kunming, and the squad is scheduled to play friendly matches against university and high school teams before meeting the South Korean under-17 team on March 30. 

South and North Korea agreed to resume joint projects, including South Korea’s rice and fertilizer aid, at their first ministerial meeting in seven months.

They are to hold family reunions via video link at the North’s Mount Geumgang resort on March 27-29. Face-to-face reunions for families separated by the sealed border since the end of the 1950-53 Korean War will be held on May 9-14.

Inter-Korean relations have warmed considerably since the 2000 summit of their leaders, but tension persists since the rival states are still technically in a state of war, as no peace treaty was signed at the end of the Korean War.

South Korea suspended its food and fertilizer aid to North Korea after it conducted missile tests in July. A possible resumption of the aid was blocked due to the North’s nuclear bomb test in October.

The latest six-party talks — involving the two Koreas, the United States, China, Japan and Russia — opened in Beijing on Monday as the U.S. agreed to release $25 million in North Korean frozen funds at a Macau-based bank, a stumbling block to North Korea’s first steps toward nuclear dismantlement.

Korea Times
3/19/2007

Japan’s National Police Agency (NPA) has reported that it suspects there are at least three secret factories producing illicit stimulant drugs in North Korea, the Yomiuri Shimbun reported Saturday.

The Japanese daily said that Hiroto Yoshimura, deputy commissioner general of the NPA, mentioned the suspicion of the facilities during his speech as a Japanese representative at the U.N. Commission on Narcotic Drugs’ closed-door meeting in Vienna on Wednesday.

The commission is under the U.N. Office on Drugs and Crime.

Two of the three factories are located in areas where pharmaceutical factories were situated when the Korean Peninsula was under Japanese colonial control, Yomiuri reported quoting sources.

It is highly possible that North Korea has been using the factories to produce the drugs, according to the report.

It is the first time that the NPA has mentioned at an international conference the locations of stimulant drug factories in North Korea.

Over smuggling of North Korea’s stimulant drugs, the NPA reexamined seven cases uncovered from 1997 to May last year, in which about 1,500 kilograms of stimulant drugs were seized.

As a result, the NPA determined in July that Pyongyang was involved in an organized way on the grounds:

_ Spy boats of North Korea’s secret agency have been used as a means of transportation.

_ North Koreans arrested for smuggling made confessions hinting they had been acting under the instructions of the North Korean government.

According to the authorities, the drugs seized are divided into three types, based on analyses made of the contents. Due to differences in impurities and crystalline elements, the police are increasingly under the belief the drugs were produced at different locations.

Further, the authorities analyzed confessions of suspects arrested for smuggling stimulant drugs, data from intelligence satellites and the moves of covert operations boats and cargo vessels that transported the drugs.

The police strongly believe buildings in Wonsan in North Korea’s east and Chongjin in the northeast are drug factories.

Both places are where the Japanese pharmaceutical factories were located before World War II.

Also, it has been confirmed that stimulant drugs were sent from a port at Nampo near Pyongyang and there is a building suspected to be a drug factory near the port.

In addition, the NPA has obtained information there is another factory along the Yalu River near the border with China.

In November, the NPA reported at an international conference in Bangkok on controlling drugs in the Asia-Pacific area of North Korea’s state involvement in stimulant drug smuggling.

Korea Times
Andrei Lankov
3/19/2007

Herbal medicine occupies a very prominent place in the North Korean health care system.
In fact, it would be but a minor exaggeration to say that nowadays the North Korean health care system is largely built around traditional herbal medicine.

But this was not always the case. In the early years, until the mid-1950s, herbal medicine was looked upon with disapproval.

It did not appear ‘scientific’ enough, and the Soviet educated doctors saw it as a potentially dangerous superstition.

The first signs of the coming change in attitude were in 1954 when the licensing system for herbal doctors was first introduced.

But the revival of herbal medicine began in earnest in April 1956, when the North Korean cabinet of ministers accepted Decree No. 37, which envisioned the incorporation of herbal medicine into the official medical system. At the same time, Kim Il-sung made a very positive reference to herbal medicine in his lengthy speech delivered to the KWP Third Congress. By the end of 1956, there were 10 herbal medicine centers operating across the country, and by 1960 the number had reached 332.

I think it was not without good reason that this sudden revival of the medical tradition took place in 1956. This was when the North began to steer itself away from its Soviet patron, whose new policy of de-Stalinization met with growing disapproval in Pyongyang. It was also the time when nationalist trends began to grow in the North _ partially because nationalism served the interests of Kim Il-sung and his group, but also because it resonated with the feelings and world view of common Koreans. This created a fertile soil for the rejuvenation of hitherto neglected traditions. It is not incidental that in later eras the initial rejection of herbal medicine came to be blamed on the ‘factionalists’ _ that is, people who did not share Kim Il-sung’s nationalism and his drive for heavy industry and a powerful army at all costs.

And there was another dimension as well. We have been accustomed to thinking of herbal medicine as more expensive than its Western counterpart, but back in the 1950s the opposite was the case. Generally, East Asian medicine, which relied on local herbs, tended to be cheaper and this mattered in a poor country with limited resources.

Around the same time, herbal medicine was encouraged by the South Korean authorities as well. They also saw it as a cheap palliative, a substitute for the “real” Western medicine which only a few South Koreans could afford.

And, last but not least, the basic ideas of herbal medicine resonated quite well with Kim Il-sung’s new policy of selfreliance.

In a sense, herbal medicine was an embodiment of self-reliance in health care.

Thus, the 1960s was a period of triumphal advance for Eastern medicine in the North. For a while herbalists were trained in junior colleges, but from 1960, Pyongyang medical college opened a traditional medicine department. A number of research centers were created with the task of fusing the achievements of Western and traditional medicine. From 1960, a state evaluation committee began to operate, and in that year 239 North Korean herbalists became “Eastern medicine doctors, first class,” while 1,495 had to satisfy themselves with their inferior standing of “Eastern medicine doctors, second class.”

Of course, the growth of herbal medicine was accompanied by claims about wonder drugs and miraculous discoveries, to which the Stalinist regimes were so vulnerable (suffice to remind ourselves of the Lysenko affair in the USSR, or the improbable claims of wonder harvests in Mao’s China).

But the domination of Dr. Kim Pong-han, North Korea’s Lysenko, lasted for merely six years. In 1960 he claimed that he had discovered a new principal type of centralized system in the human body, somewhat similar to a nerve system of blood circulation. There was much talk of this alleged discovery and related medical miracles, but from 1966 all references to Professor Kim suddenly disappeared from the Pyongyang press.

The subsequent decades witnessed a continuous growth in the herbal medicine endeavor, which frequently received direct encouragement and approval from the Great Leader himself (after all, Kim Il-sung’s father once was a part-time herbalist himself). The reasons for the policy remained the same, and even some statements by Kim Il-sung were remarkably frank.

In 1988 he said, “If we produce a lot of Koryo medicine drugs, it is good not only for curing diseases, but also for solving the drug problem, since it will reduce the importation of drugs from other countries.” More than a dozen colleges now train herbalists in the North, and from 1985 would-be Western doctors have also been required to take introductory classes in Eastern medicine.

Perhaps, in some post-unification world the North will become a major source of quality herbal doctors, and their presence will help to drive down prices for this service which many Koreans take so seriously. Who knows, but there are already North Korean herbalists working in the South.