North Korean Economy Watch

Choson Ilbo
Yun Duk-min
3/19/2007

It was set off by a nuclear test. The Bush administration, which insisted it could not reward a wrong and wouldn’t conduct bilateral negotiations with North Korea, made a U-turn and promised the North political and economic compensation in bilateral talks. North Korea’s response has been equally astonishing. North Korean Vice Foreign Minister Kim Kye-kwan recently had a long meeting with former U.S. secretary of state Henry Kissinger. What he said sounds unbelievable. Expressing a deep interest in improving U.S.-China relations, he asked if the U.S. has “strategic interests” in North Korea and added, “The Korean Peninsula has been invaded by foreign powers like China and Japan. Strategic relations with the U.S. will be of help to North Korea and regional stability.”

The U.S.-China rapprochement early in the 1970s involved two factors. The U.S. wanted to use China’s strategic value to check the Soviet Union’s expansion, so it broke close relations with Taiwan in exchange for diplomatic relations with China. By the same token, it seems that North Korea is now willing to cooperate with the strategic U.S. interest of restraining China.

North Korea will inwardly have been concerned about its deepening economic reliance on China and increasing Chinese influence on its domestic affairs. In view of the rumors that China could be attempting a change in the North Korean leadership in the wake of the North’s nuclear test, the North may be trying to check the attempt by drawing in the U.S. As the U.S. abandoned Taiwan for the sake of diplomatic ties with China, North Korea may attempt to isolate and restrain South Korea through strategic relations with the U.S.

Kim Kye-gwan’s remarks suggest that the North intends to check South Korea and China by drawing in the U.S. Why does North Korea, after saying it only developed nuclear weapons because of the U.S., now embrace Washington to restrain the South and China? Having introduced a capitalist system in the 1970s, China is emerging as a serious threat to the North Korean regime. What’s more, Beijing in the wake of the collapse of the Berlin Wall forsook Pyongyang and established diplomatic ties with Seoul. South Korea’s rapid economic growth and democratization posed a threat of unification by absorption. In order to avoid either absorption by the South or becoming a Chinese satellite, Pyongyang needed two approaches; nuclear armament and establishment of strategic relations with Washington.

A close review of the 17-year process of negotiations on the North’s nuclear weapons development program clearly reveals North Korea’s intent. The only counterpart in negotiations was the U.S. But unlike the Clinton administration, which negotiated with North Korea directly, the Bush administration, with its top priority on the creation of a new order in the Middle East, had practically left the issue to China. Two aircraft carrier fleets are deployed in seas near Iran, but none came anywhere near the Korean Peninsula when North Korea test-fired missiles and tested a nuclear device. Thanks to its nuclear test, North Korea has now managed to bypass China and secure direct negotiations with the U.S.

Secondly, the North pledges to pose no threat to the U.S. if the latter tacitly approves its limited nuclear armament. It can relinquish long-range missiles capable of attacking America and will never transfer nuclear weapons or materials to third parties or terrorists, the North says. Thirdly, Pyongyang says it can recognize the U.S. forces on Korea. Already in 1991, the senior North Korean leader Kim Yong-sun, deceased in 2003, told high-ranking U.S. officials that North Korea could be a U.S. ally and recognize the USFK. Pyongyang has now only added its willingness to cooperate with Washington’s China strategy.

North Korea’s attempts failed so far because the North wanted both — strategic relations with the U.S. and nuclear armament. Without the premise of resolving the North Korean nuclear crisis, the U.S. could hardly accommodate that. But North Korea’s willingness to cooperate in restraining China must be a very interesting development for the U.S. Rumors are afoot that the U.S. may give tacit consent to the North’s nuclear armament. If the nuclear problem is shelved, it is possible for the U.S. to accommodate North Korea’s demands.

We are at a crucial juncture with denuclearization of the Korean Peninsula. While the North endeavors to build a survival framework through nuclear armament and the help of foreign powers, we are bogged down in domestic bickering as to who will benefit more from a possible inter-Korean summit and a peace agreement. We must recognize that our principle of not tolerating any nuclear weapons on the peninsula could prevent a U.S.-North Korea compromise that would be unfavorable to us. North Korea, too, should realize quickly that the survival of its regime and the happiness of its people depend on its relations not with the U.S. but with South Korea, which accounts for two-thirds of the peninsula’s population and 99 percent of its economic strength. 

BBC
3/16/2007

South Korea is to resume shipments of fertiliser aid to the North later this month in a further sign of progress after a recently-agreed nuclear deal.

The South Korean Red Cross said the first of some 50 shipments would be sent on 27 March.

Seoul had suspended humanitarian aid to its secretive Communist neighbour after Pyongyang’s nuclear and missile tests.

Separately, the ending of a US probe into a bank linked to North Korea has been welcomed by a pro-Pyongyang paper.

The Japan-based Choson Sinbo described as a “very positive sign” the US Treasury’s announcement that it had ended its 18-month investigation into the Macau bank Banco Delta Asia (BDA).

The US found the BDA complicit in alleged North Korean money-laundering and counterfeiting activities and has barred the bank from accessing the US banking system.

But the Treasury decision does mean the Macau authorities could now remove the bank from receivership and return some of North Korea’s money.

North Korea had insisted the freeze on its assets – estimated to be up to $25m (£13m) – be lifted as part of any agreement on ending its nuclear programme.

“We can call this a truly epochal event because the most arrogant and violent regime ever in the United States did so as if it knelt before a small country in the east,” the Choson Sinbo said.

While North Korea itself has yet to comment on the US Treasury decision, China on Thursday said it “deeply regretted” the move.

The BDA denies it ever intentionally handled illicit funds.

‘Fully committed’

Nuclear negotiators are in Beijing for preparatory discussions ahead of more high-level talks next week.

They will discuss progress on the agreement of 13 February, which was reached during talks involving the two Koreas, China, the US, Japan and Russia.

Under the deal, the North has pledged to “shut down and seal” its Yongbyon nuclear reactor within 60 days in exchange for energy aid.

The UN nuclear chief, Mohamed ElBaradei, travelled to North Korea earlier this week to discuss the resumption of international inspections.

He said Pyongyang was still “fully committed” to giving up its nuclear programme.

Since 13 February various bilateral meetings have been taking place.

The two Koreas held their first talks in several months soon after the nuclear deal was reached, and discussed a number of issues including the resumption of reunions for families split since the division of the Korean peninsula.

But Seoul had linked the resumption of deliveries of rice and fertiliser to North Korean progress on dismantling its nuclear programme in accordance with the February deal.

South Korea’s Red Cross chief Han Wang-sang said the organisation would send its first shipment of 300,000 tonnes of fertiliser on 27 March.

“It will take about three months to complete the whole process, which will consist of about 50 separate shipments,” he said.

The fertiliser shipments will arrive in time for the impoverished North’s spring planting season.

Asia Times
Bertil Lintner
3/15/2007

Video of the Restaurant on Youtube: 1, 2, 3

Its undoubtedly the liveliest and most popular Korean restaurant in town. Packed for lunch and dinner, the Pyongyang Restaurant is famous not only for its cold noodles and barbecue served with kim chi, but also for its talented wait staff, which when not serving are dancing to traditional Korean tunes played on violins and electric piano.

But the Pyongyang Restaurant in Cambodia’s capital Phnom Penh is no ordinary Korean eatery. For one, it’s owned and run by the North Korean government, a capitalist enterprise that sends its profits directly to state coffers in Pyongyang. As with most other upper-crust restaurants in Phnom Penh, the meals have to be paid for in US dollars, not in riel, as the local currency is not convertible outside Cambodia.

When the international community imposed economic sanctions against North Korea after its nuclear tests last October, the Pyongyang authorities were able to continue to run a string of small-scale companies and businesses across the region that kept foreign-currency earnings flowing back home. Restaurants such as the Pyongyang Restaurant in Cambodia have in no small way helped keep the North Korean government afloat during tough diplomatic times.

And the establishments’ often booming business are proving North Koreans are no slouches as capitalists. Government-backed North Korean eateries are mushrooming across the region. For years there have been various North Korean-themed restaurants in Beijing, Shanghai and other Chinese cities. But the first was opened in Southeast Asia only in 2002 in the Cambodian town of Siem Reap, a popular tourist destination because of its proximity to the Angkor Wat temple complex.

It became an instant success – especially with the thousands of South Korean tourists who flock to see the ancient Angkor ruins every year – so successful, indeed, that Pyongyang decided to open a second venue in Phnom Penh in December 2003. Most of the clientele there are South Korean businessmen who work in Cambodia as well as a smattering of homesick South Korean tourists who drool over the authentic Korean eats. And while severe food shortages still plague North Korea itself, the fare in Phnom Penh is good and plentiful.

The choice of Cambodia for this North Korean capitalist experiment was, of course, no coincidence. Norodom Sihanouk, the country’s erstwhile strongman – first as king, then as prince, later as leader in exile and finally king again from September 1993 until his abdication in October 2004 – is a longtime close friend of North Korea.

He met the late North Korean leader Kim Il-sung in 1961 at a Non-Aligned Movement meeting in Belgrade. Four years later, Sihanouk was invited to visit Pyongyang, and a personal bond developed between the two leaders. When Sihanouk was ousted by his own military in a coup in March 1970, he was immediately offered sanctuary in North Korea.

Sihanouk’s government-in-exile, which included senior Khmer Rouge cadres, was in Beijing. But by 1974, Kim Il-sung had built a special private getaway expressly for Sihanouk about an hour’s drive north of Pyongyang. A battalion of North Korean troops worked full-time for nearly a year on the palatial residence and, when it was finally finished, only specially selected guards were allowed anywhere near Sihanouk’s 60-room home away from home. Overlooking scenic Chhang Sou On Lake and surrounded by mountains, the Korean-style building even included its own indoor movie theater. Like the “Great Leader”, Kim Il-sung, and his son, “Dear Leader” Kim Jong-il, Sihanouk loved to watch movies.

Sihanouk returned to Cambodia after the government of Lon Nol was overthrown in April 1975 and Sihanouk’s communist allies, the Khmer Rouge, came to power. But when the Khmer Rouge put him under virtual house arrest in the royal palace in Phnom Penh, from where he narrowly managed to escape when the Vietnamese invaded in January 1979, Sihanouk was flown out on a Chinese plane and returned to his grand North Korean residence.

When Sihanouk triumphantly returned to Phnom Penh in 1991, he came with North Korean escorts, both as personal bodyguards and as diplomats, who took up residence in a huge new embassy built for them near the Independence Monument in downtown Phnom Penh. And in 1993, when Sihanouk was officially reinstalled as the king of Cambodia, he surrounded himself in the civil-war-torn country with people he knew he could trust – North Korean bodyguards.

So it is not surprising that hanging prominently on the wall at Phnom Penh’s Pyongyang Restaurant is a picture of Sihanouk, his wife Monique and their son King Norodom Sihamoni. According to locals familiar with the restaurant’s opening, the Cambodian royal family was among the first guests to dine there.

Business opportunities are still fairly limited in Cambodia, so last year the North Koreans opened an even bigger restaurant in neighboring Thailand. Its first day of operation was auspiciously chosen as August 15, coinciding with the anniversary of Japan’s surrender in World War II. The Bangkok branch of the Pyongyang Restaurant is tucked away down a side alley in the city’s gritty Pattanakarn suburb, far from areas Westerners usually frequent but very near the North Korean Embassy.

Inside, the walls are decorated with paintings of Kim Il-sung’s alleged birthplace, a peasant hut in Mangyongdae near Pyongyang. An all-women’s band, dressed in traditional Korean dresses known as hambok and in the North, chima jogoiri in the South and, of course, with little Kim Il-sung badges on their blouses, plays upbeat music on electric guitars, drums and electric piano.

It’s not exactly a tourist attraction, but it’s a colorful backdrop for businessmen and diplomats to cut deals or exchange the information that has in recent years helped to make Thailand into North Korea’s third-largest global trading partner after nearby China and South Korea. There are no signs of economic sanctions or deprivation here, but rather, perhaps, a tantalizing glimpse of a one day more prosperous and joyful North Korea.

Daily NK
Kim Min Se
3/14/2007

It is a well known fact that goods made in China are sweeping across North Korea with Chinese merchants taking the role of distributor.

However, Chinese merchants are not only exporting goods into North Korea but are also importing goods made in North Korea such as seafood, medicinal herbs, coal and minerals back to China.

Particularly, dried shellfish sells very well in China. As more and more Chinese merchants buy dried shellfish from North Korean markets, they play a critical role in the lives of North Korean citizens as sellers who are then able to raise the price due to demand. Every year, from April~Sept, people from the North-South Pyongan, Haean collect shellfish along the shore. 10kg of rice can be bought with 1kg of shellfish meat. Consequently, citizens of other regions also come to the beaches to collect shellfish.

If Chinese merchants did not import any goods and North Korea’s finest goods were not exported to China, the cost of goods at Jangmadang would increase exponentially. This is how close the relationship between the lives of North Korean citizens and Chinese merchants have become interconnected.

Significance of information runners

Though Chinese merchants are currently contributing to market stability, it does not necessarily mean that their existence will continue to be positive to North Korean authorities.

The people first to inform news of the Yongchun explosion in April 2004 to the outside world were Chinese merchants.

At the time, after confirming the lives their family members in North Korea, Chinese merchants who heard the explosion in Dandong gathered information about the explosion details from relatives in Shinuiju and Yongchun over mobile phones. Undoubtedly, news spread instinctively. The economic development zone, Dandong, which is at the mouth of the Yalu River is merely 10km from Yongchun.

Due to this incident, Kim Jong Il banned the use of mobile phones in North Korea. Chinese merchants have played a great role in the outflow of inside North Korean issues, a problem feared by North Korean authorities that contributes to the inflow of foreign information.

Recently, Chinese merchants have been charging a 20% fee involved in remitting dollars to defectors wanting to send money to family in North Korea. For example, if a defector wishes to send $1,000 to family in North Korea, a merchant will extract $200 and transfer the remaining $800 to the family.

As long as Chinese merchants have a specific identification card, they are free to travel between the North Korean-Chinese border and hence many defectors prefer to use Chinese merchants as the intermediary. Thanks to these merchants, many people can convey money and letters to family within North Korea.

In these respects, Chinese merchants are not only selling goods but are acting as information runners transporting news of the outside world into North Korean society.

As more and more North Koreans rely on markets as a means of living and trade between China and North Korea, the North Korean market will only continue to expand. We will have to wait and see whether or not Chinese merchants will have a healing or poisonous affect on the Kim Jong Il regime from here on in.

KCNA
3/13/2007

The United Nations Development Program recently announced that it would suspend its country program for the DPRK and, accordingly, withdraw the staff members of its office from Pyongyang.

A spokesman for the DPRK Ministry of Foreign Affairs Tuesday answered the question raised by KCNA in this regard.

The responsibility for this abnormal thing that happened in the cooperative relations between the DPRK and the UNDP, which have favorably developed for the past several decades, rests with the U.S. and Japan and some circles inside the organization, who took this discriminative action against the DPRK only, yielding to the pressure of the above-said two countries, the spokesman said, and continued:

The U.S. has spread sheer lies about the DPRK’s “diversion of UNDP’s program fund” since the outset of the year in a bid to tarnish the international image of the DPRK. Taking advantage of this, Japan has pressurized the UNDP to suspend its country program for the DPRK. It wooed some member states of its executive board to reopen the discussion on the already passed country program for the DPRK.

Some officials of the UNDP tried to cancel the country program of developmental nature for the DPRK contrary to its mission under the pressure from outside and adjust it into a country program of humanitarian nature and has unilaterally closed or cancelled the ongoing project.

As regards this discriminative step taken against the country program for the DPRK only, it demanded the UNDP explicitly explain and clarify the step. The UNDP, however, has kept mum about the demand, deliberately avoiding its answer.

The DPRK does not care about whether it receives small assistance from the UNDP or not but it will not tolerate even a bit any foolish attempt to hurt its dignity.

It is the firm stand of the DPRK not to receive any politically motivated assistance seeking a sinister aim in the future, too.

Asia Times
3/13/2007

Chinese auto maker Brilliance Auto recently signed an agreement with PMC of South Korea on jointly launching an assembly plant in North Korea.

The North Korean facility will be Brilliance Auto’s third after its operations in Egypt and Vietnam.

Brilliance Auto is neither the first nor the most active of the Chinese auto makers making direct investments abroad. Quite a few have already done or are doing so. Among them are Chery, Geely, Jianghuai, Chang’an, Great Wall, and BYD Auto, which have launched greenfield auto plants abroad, and Shanghai Automotive and Nanjing Automotive, which have invested abroad through merger and acquisition.

Chery is a leader in this regard, making great efforts on building CKD (complete knockdown) factories abroad in recent years. Aside from the existing assembly plants in Iran and Russia, it is looking for such opportunities in Egypt, Romania, Turkey, Indonesia, Italy and Argentina. Its Argentina joint-venture project with the local Socma group, involving investment of US$100 million, will be controlled by Chery. If it goes ahead, it will be the first China-invested auto venture in South America. Chery plans to own 12 assembly plants worldwide within a short time.

Geely also has been active in going global. It has invested in Malaysia and is preparing for another new factory in Russia.

Jianghuai, meanwhile, has established light-truck assembly plants in Vietnam, Malaysia and Indonesia.

Industry analysts hold that excessive capacity in the domestic market after rapid expansion in recent years is prompting Chinese auto makers to look for overseas markets. However, they are often hit with tariff barriers from the importing nations. For instance, Russia levies about a 25% tariff on complete vehicle imports, but only about 3% on knockdowns.

Direct investment overseas is regarded as a solution to such barriers.

So far, the overseas investments of Chinese auto makers have been concentrated in emerging markets such as the Middle East, Southeast Asia and Africa.

Choson Ilbo
3/12/2007

Intelligence services have information that the Macau home of North Korean leader Kim Jong-il’s eldest son Kim Jong-nam was burgled, sources say. Authorities are trying to confirm the information. A government official in Seoul told a reporter there was a rumor that homes in an exclusive villa complex in Coloane Island were broken into, and related government offices and police are investigating.

The Zhuyuan Haoyuan villa complex is 15 minutes from downtown Macau and its 80 villas are among the territory’s most exclusive. The average price of each villa is estimated HK$15 million, roughly US$1.92 million. Yellow sunflower symbols adorning the doors of nos. 361 and 371 easily identify them as Kim Jong-nam’s.

Update: the money went missing.

South Korea criticizes North Korea for failing to disclose how aid was used
Herald Tribune
2/11/2008 

South will give money directly to North Korea
Joong Ang Daily
Lee Young-jong and Ser Myo-ja
3/12/2007

Although South Korea does not allow cash to be given directly to North Korea, it made a deal of its own.

The two countries announced Saturday that Seoul would give Pyongyang cash to buy video conference equipment. A South Korean official said yesterday the amount will be $400,000.

North Korea will use the money to set up video conference calls between families separated during the Korean War, according to a joint statement issued Saturday by the two countries.

The South Korean government has strictly banned humanitarian groups ― as well as all residents ― from giving cash to the North due to concerns the money could be spent for other purposes.

“We decided to assist the North to smoothly resolve the separated family issue,” the official said, adding that the government will thoroughly monitor the spending of the money and the use of the equipment.

The cash payment agreement was first made at a Red Cross meeting in June 2006, but never publicly announced. The money was not exchanged because North Korea conducted a missile test the next month, temporarily freezing inter-Korean relations.

After progress in the recent six-party talks designed to make North Korea nuclear-free, South Korean Red Cross officials pledged again on Saturday at a meeting at a Mount Kumgang resort to give Pyongyang the money, the official said on condition of anonymity.

According to the joint statement, the two Koreas agreed that video conference call reunions will be expanded. The two Koreas also agreed a video conference call reunion center will be built in Pyongyang, separately from the reunion center under construction at Mount Kumgang, and that Seoul will provide construction material and equipment. The material and money will be released at the end of March, the agreement said.

Neither the joint statement nor the press release specified the amount of money, but the Seoul official said it will be $400,000. The construction material to be provided to the North is worth another $3.5 million, he said.

The South Korean government was unable to give the video conference call equipment, such as liquid crystal display monitors and computers, directly to the North because of United States regulations banning the export of dual-use goods to North Korea. Under the United States export administration regulations, strategic goods that include more than 10 percent of United States-made components or technology, are banned for export to state sponsors of terrorism, which include North Korea.

According to the official, South Korea advised the North to purchase the items from China with the cash. Washington could make an exception to the export ban, presumably at Seoul’s request, but it would take time to do so.

In addition to the cash, the $3.5 million worth of goods, such as trucks, construction materials, air conditioners, heaters and cables, will be provided to build a video conference call center in Pyongyang.

At the Red Cross talks, the North also agreed to resume the construction of the reunion center on Mount Kumgang on March 21. The two Koreas began the construction in August 2005, but the work stalled last July. The buildings are about 30 percent complete.

Last week’s Red Cross meeting was scheduled for only one day, for about two hours. Due to the North’s persistent demands for cash and materials, the talks went on for a second day, the government official said.

Chicago Tribune
Bay Fang
3/11/2007

Office closes at the same time an audit was ordered into payments

The United Nations Development Program office in Pyongyang, North Korea, sits in a Soviet-style compound. Like clockwork, a North Korean official wearing a standard-issue dark windbreaker and slacks would come to the door each business day.

He would take a manila envelope stuffed with cash — a healthy portion of the United Nation’s disbursements for aid projects in the country — and leave without ever providing receipts.

According to sources at the United Nations, this went on for years, resulting in the transfer of up to $150 million in hard foreign currency to the Kim Jong Il government at a time when the United States was trying to keep the North Korean government from receiving hard currency as part of its sanctions against the Kim regime.

“At the end, we were being used completely as an ATM machine for the regime,” said one U.N. official with extensive knowledge of the program. “We were completely a cash cow, the only cash cow in town. The money was going to the regime whenever they wanted it.”

Last week, the development program, known as UNDP, quietly suspended operations in North Korea, saying it could not operate under guidelines imposed by its executive board in January that prohibited payments in hard currency and forbade the employment of local workers handpicked by the North Korean government.

But some diplomats suspect the timing of the suspension was heavily influenced by a looming audit that could have proved embarrassing to the United Nations.

Documents obtained by the Chicago Tribune indicate that as early as last May, top UNDP officials at headquarters in New York were informed in writing of significant problems relating to the agency’s use of hard foreign currency in North Korea and that such use violated U.N. regulations that local expenses be paid in local currency. No action was taken for months.

Then, under pressure from the United States, U.N. Secretary-General Ban Ki Moon on Jan. 19 ordered an audit of all U.N. operations in North Korea to be completed within 90 days, or by mid-April.

The Board of Auditors, the U.N. body tasked with the audit, made no movement on the audit for 40 days after Ban’s order. It sent out its notification letter for the beginning of the audit on the same day the development program announced the closure of its office — March 1.

That timing, combined with past concerns about the UNDP’s transparency, has raised suspicions that suspending operations would be a way to hamstring the audit, the results of which may prove damning to the organization.

“The office was closed precisely for that reason,” said another U.N. official with extensive knowledge of the program. “With no operations in place, first of all, you have no claim to get auditors into the country. Second, it will take months and months to get documentation out of the office there, to transfer to somewhere else like New York.”

The U.N. sources who spoke about the development operations in North Korea requested anonymity either for fear of retribution or because of the diplomatic sensitivity of the subject.

The saga of the UNDP in North Korea joins a list of other episodes in which critics have complained that the United Nations is a sprawling bureaucracy with few safeguards and little accountability. The Bush administration has been particularly outspoken about the United Nation’s need for reform.

The Oil-for-Food scandal, which erupted in 2004, involved corruption in a program designed to provide humanitarian aid for Iraqis, whose country faced economic sanctions. Ultimately, it emerged that the program had resulted in $1.8 billion in kickbacks and surcharges paid to Saddam Hussein’s regime.

Ban, a South Korean who took office in January, has sought to present himself as a fresh-faced reformer.

All this occurs against the backdrop of intensifying talks with Pyongyang over its nuclear weapons capacity, the most recent of which took place last week in New York. Last month, the United States and four other nations signed a deal with North Korea promising aid in exchange for the shutting down of a nuclear reactor and a series of steps toward disarmament and normalized relations.

A spokesman for the U.S. mission to the United Nations, Richard Grenell, said the United States supports the audit going forward to find out the extent of the problems at the UNDP office in Pyongyang. North Korean officials could not be reached.

Despite the closure of the UNDP office in North Korea, the audit is moving ahead. U.N. officials say they expect the audited documents to show not only the hard currency transfers to representatives of Kim’s government, but also the inability of staff on the ground to confirm that the money was going to its programs.

According to sources familiar with UN operations in North Korea, the international staff of the development program and other UN agencies were not allowed to leave the compound without a government escort.

They were not allowed to go outside Pyongyang without receiving special permission from the military at least a week in advance. They were not allowed to set foot in a bank. And under no circumstances were they allowed to make unrestricted visits to the projects they were supposed to be funding.

These rules mirror the restrictive conditions set by the U.S. government on diplomats from North Korea who must stay within 25 miles of New York City.

The UNDP, whose mission is to help the country develop economically, was one of several UN agencies operating in North Korea, including UNICEF and the World Health Organization. The United Nations is one of few channels for foreign aid in the secretive, authoritarian country.

One of the UNDP projects, sources said, involved the purchase of 300 computers for Kim Il Sung University. The computers supposedly arrived in Pyongyang, but the international staff was not allowed to see the equipment it had donated.

Finally, after a month and a half of pressuring their North Korean handlers, staffers were led to a room in which two computers sat. They were told the others were packed in boxes, which they were not allowed to open.

And while the UNDP’s programs — which have included projects such as “Human Resource Upgrading to Support Air Traffic Services” and “Strengthening of the Institute for Garment Technology” — cost anywhere from $3 million to $8 million a year total, the development program also acted as the administrative officer for all the UN agencies and wrote checks for tens of millions of dollars worth of programming every year.

The UNDP’s financial officer and its treasurer in Pyongyang, who issued those checks, were both North Korean.

UN officials privately describe a vivid scene playing out at the agency’s compound each day.

A driver in a UN-issued Toyota Corolla would pull out of the compound’s gate, taking UN checks to the bank. A short time later the driver, a North Korean employed by UNDP, would return with manila envelopes stuffed with tens of thousands of dollars in hard currency.

Then the windbreaker-clad North Korean official would show up and take the cash away.

UNDP spokesman David Morrison said the use of hard currency and the hiring of staff through local governments was standard practice in authoritarian countries like North Korea. Morrison said his understanding was that the agency had never had problems with site visits, and that in 2005 its staff had visited 10 of its 11 monitorable projects.

The agency was complying with the audit, Morrison said, “in order to take away even the perception that anything was untoward.”

But others believe the development program has no choice but to cooperate with the audit.

In January, a letter written to the head of UNDP by Mark Wallace, the U.S. ambassador to the UN for management and reform, was leaked to the U.S. media. The letter, which drew on Wallace’s review of internal audits dating back to 1998, accused the program of having been “systematically perverted for the benefit of the Kim Jong Il regime.”

These claims by the United States, supported by Japan, the two biggest donors to UNDP, pressured the secretary general to quickly order the audit.

“If there were simply the use of hard currency, or simply no site visits, that’s one thing,” said a UN diplomat familiar with the issue. “But when you combine the fact that large cash payments were made directly to officials of Kim’s government with the fact there were no site visits to verify how the cash was being used, that’s a great cause of concern.”

The first phase of the audit is scheduled to begin Monday in New York. It remains unclear whether the auditors will attempt to visit North Korea. It is possible that even if the UNDP office were still open, Pyongyang would not have granted them visas.

Even with its limited scope, the audit could yield significant revelations about how the agency worked in a dictatorial, tightly controlled society.

“There wasn’t a snowball’s chance in hell that they’d allow us to see what they did with all the cash they received,” said a member of the diplomatic community in New York. “But UNDP headquarters and the country office should be able to tell us what kinds of checks they were making, were they paid in cash, what, who, where the money was going to.”

The Board of Auditors had no comment for this article, but Morrison, the UNDP spokesman, said the organization was making arrangements to safeguard documents by transferring them to one of the other UN agencies in Pyongyang. He said that those necessary for the initial stages of the audit would be copied and carried to New York in electronic form by the UNDP chief in Pyongyang, who is due to leave North Korea within days.

But some suggest the mid-April deadline does not leave enough time to produce a thorough review.

“I don’t think this is an audit you can whip through in 30 days; this may take some time,” John Bolton, the U.S. ambassador to the UN until the end of last year and a staunch critic of the world body, said when contacted by the Tribune for a reaction to the newspaper’s reporting of the cash payments. “But I think for the reputation and integrity of the UN system, it’s critical that it proceed without delay.”

Donga Ilbo
3/10/2007

820 2nd Avenue, New York City. This is the address of the permanent mission of North Korea in the United Nations, the only North Korean diplomatic arena in the U.S. It is a four-minute walk from the UN headquarters and a two-minute walk from the permanent mission of South Korea to the U.N. It is located on the 13th floor of the “Diplomatic Center.”

About 10 North Korean diplomats including North Korean Ambassador to the U.N. Pak Gil Yon are working in this place. When you look at the list of member states of the U.N., you’ll find names like ‘Mrs. Pak’ and ’Mrs. Kim’ right below the list of North Korean diplomats. These are diplomats’ wives who help their husbands at the office by answering phones.

They live in an apartment on Roosevelt Island located on the opposite side of the U.N. headquarters. Many diplomats from poor countries such as North Korea and African nations live there because the rents are relatively inexpensive compared to those of Manhattan.

The diplomats except for Ambassador Park go to work together via minivan. Deputy Ambassador Kim Chang Guk is in charge of U.N.-related affairs and Minister of Political Affairs Kim Myong Gil handles U.S.-related issues. North Korean diplomats have a good command of English. Minister Kim’s English is fluent enough to communicate with reporters in English. Some young diplomats speak French as well.

However, during North Korea-U.S. talks, Choi Son Hee, a fellow researcher of North Korean Foreign Ministry, interpreted for the North Korean delegation headed by Vice Foreign Minister Kim Kye Kwan. She is not only an interpreter but also a diplomat. Choi, who visited the U.S. for the third time, drew attention as an excellent interpreter.

North Korean diplomats are required to get permission from the State Department when they travel beyond the 30-mile limit from the Columbus Circle in Manhattan. When Ambassador Park has to go to Washington, he has to get permission.

Recently, Harvard University was going to invite Mr. Park to hold a forum but failed because the State Department did not issue permission. So the host tried to change the location to Columbia University, which is located within the 30-mile limit. .

South Korean diplomats contacting North Korean diplomats directly or indirectly say they are not financially abundant. It is said that ethnic Koreans who are friendly to North Korea help the North Korean representatives in one way or another. The North Koreans sometimes visit a Korean restaurant on the 32nd Street but not often. Some people say they saw them eat at a delicatessen.

North Koreans often use a Chinese restaurant just beside the North Korean mission when they have an official meeting. A lunch set menu costs about 40 dollars per person and the restaurant offers delicious food so that many South Korean diplomats visit the place. North Korea invited the U.S. delegation to the restaurant for lunch as a return courtesy.

The Korea Society sponsored a large sum of money for the 7-day stay of the North Korean delegation consisting of 7 members, and Stanford University`s North Korea expert group paid for the money needed for the stay in San Francisco. The National Committee on American Foreign Policy also chipped in. Non-profit organizations in the U.S. sponsored the delegation from hotels, restaurants and musicals, as well as round-trip flights from Beijing to San Francisco and New York.

The Korea Society, an organization founded by Korea experts dedicated to the promotion of greater awareness, understanding and cooperation between the people of the United States and Korea, says funding for its programs is derived from contributions, endowments, membership dues and program fees on its website. Many U.S. branch chiefs of Korean conglomerates such as Hyosung and Posco work in the board of directors, and many U.S. companies trading with South Korea sponsor the organization. The South Korean government is supporting it indirectly through the Korea Foundation. A 2004 document shows that the foundation gave 1.1 million dollars to the Korea Society.