North Korean Economy Watch

BBC
6/2/2003

Video of the ship’s sinking on Youtube: 1, 2

Tourists in Tokyo are flocking to visit the salvaged remains of a suspected North Korean spy ship, sunk after a gun battle with the Japanese coast guard in December 2001.

The unusual tourist attraction in the fashionable O-Daiba area attracted more than 20,000 people in its first weekend on display to the public.

Exhibits included an underwater scooter and a portable missile launcher, as well as the bullet-scarred hull.

The spy ship was put on display by the coastguard in order to raise awareness of the threat from North Korea, whose alleged nuclear programme has severely strained its foreign relations with Japan in recent months.

Some visitors said that the exhibit confirmed their view that Tokyo was too soft on Pyongyang.

“Japan is just too wimpy,” 60-year-old Goro Masuda told Reuters news agency. “We must take a stronger line.”

But others thought that the Japanese coastguard was trying to manipulate the public.

“I think the coast guard had its own reasons for wanting to show us this,” said Akihiko Nishimura.

The ship was disguised as a Chinese fishing boat when it was intercepted by the Japanese coastguard.

It was sank after a six-hour chase and fire fight with Japanese patrol ships.

The vessel, which was said to have failed to heed Japanese warning shots and an order to stop, fled in the direction of China before it sank.

After salvaging the wreckage, coastguards found a small button labelled “self-destruct” on board, which they believed was used by the crew to scupper the boat rather than be captured.

Ten bodies were recovered from the ship, although officials said that the array of equipment on the ship meant that there were probably several more North Koreans on board.

BBC
5/30/2003

Six US congressmen have begun a visit to North Korea, hoping to ease tensions in the crisis over the North’s suspected nuclear weapons programmes.

They are the first US officials to be invited to the North since the nuclear crisis erupted in October, but they have made clear they are not travelling as envoys of the US Government.

The congressmen describe their visit as a “fact finding mission”.

They have asked for a tour of the controversial nuclear complex at Yongbyon which has been at the centre of the nuclear stand-off, but it is not clear whether this will take place.

The North Korean authorities announced that they were reactivating the plant following a US decision to suspend oil shipments to the country over suspicions that a secret uranium enrichment programme was underway.

The congressmen are expected to meet the chairman of the North Korean parliament, Kim Yong Nam, and visit various institutions including a school, a factory and a church.

Territorial waters dispute

The delegation leader, Curt Weldon, said they would be making clear that the world was ready to help economically and provide humanitarian help, but only if the North Koreans were prepared to completely close down their nuclear programme.

The visit follows another warning from North Korea to the South over the alleged violation of territorial waters.

A statement on the official news agency said such provocative acts could lead to “irrevocable serious consequences”.

The agency said four South Korean navy boats sailed into Northern waters on Thursday, following incursions by 16 warships on Wednesday and three on Tuesday.

South Korea has denied the accusations and said that fishing boats from the North had violated the sea border on three successive days this week.

From the BBC:

Foreign minister Choe Su-hon is attending the opening ceremony, and he will meet his British counterpart Bill Rammell, who will press for more information about the secretive nation’s nuclear programme.

The isolated Stalinist state’s interests will be represented from the house of its charge d’affaires, Ri Tae-gun, in Ealing, west London.

Britain initiated diplomatic relations with North Korea in December 2000, after five decades of mutual enmity after the Korean war.

A British embassy was opened in the communist state in July 2001, while three North Korean officials were accredited to an office in London.

The leafy suburb of Ealing is far from the opulence of Kensington and Mayfair where embassies are traditionally located.

But North Korean diplomats will benefit from easy access to Heathrow, extensive green spaces and good public transport links.

Officials are said to be looking for a permanent site in central London.

In line with the secretive atmosphere in North Korea, an official at the embassy refused to discuss Wednesday’s ceremony “for security reasons”.

from the BBC:

North Korea announces tough restrictions in a bid to prevent the spread of the deadly respiratory disease Sars.

It has introduced strict quarantine measures and suspended a shipping service to Japan as well as a joint tourism project with South Korea.

Public health officials have outlined some of the steps being taken on state TV.

Emergency anti-epidemic centres have been set up at national and local level and quarantine officers are implementing stringent checks at all points of entry into the country, said Choe Ung-chin, head of the State Hygiene Inspection Institute at the North Korean Public Health Ministry.

Travellers bear cost

North Korea’s proximity to China, where the outbreak was first recorded, is the cause of particular concern.

“Most North Koreans who make business trips abroad and foreigners who enter our country do so via China,” Han Kyong-ho, another senior health official, explained.

“When the international train that runs from Sinuiju [border station] to Pyongyang enters the station, all travellers are thoroughly checked to see if they have Sars symptoms such as fever and dry coughs.

“Furthermore, all travellers coming into the DPRK from the places of origin of Sars are strictly isolated for 10 days.”

Mr Han said that Sars germs could be present in travellers’ luggage or in insects such as cockroaches.

“Therefore, every one of the travellers’ possessions is thoroughly sterilised, and medical inspections of all workers at the station who have had contact with people who have travelled abroad are being carried out in detail,” he said.

At Pyongyang international airport, incoming travellers who display any Sars symptoms are hospitalised while those who do not are quarantined for 10 days at specially designated hotels.

Russia’s Itar-Tass news agency reports that the cost of such unforeseen stopovers – 100 euros a night exclusive of meals – will be borne by foreign travellers themselves.

Services suspended

North Korea has also suspended the Man Gyong Bong-92 shipping service to Niigata Port.

Japan’s Kyodo news agency said the ship was slated to make three port calls to Japan in May, but two have already been cancelled.

The North Korean Government is also reported to have sent emails to thousands of pro-Pyongyang ethnic Koreans in Japan urging them not to visit their homeland for the time being.

And South Korea’s Hyundai Asan Corp was “stunned” to learn that North Korea had suspended a joint North-South tourism project it operates over Sars fears, South Korea’s Yonhap news agency reports.

The South Korean firm has run loss-making cruises for tourists to the North’s scenic Mount Kumgang since 1998 in a symbolic project to promote inter-Korean reconciliation.

The suspension of the tours heightens the possibility that all of Hyundai’s inter-Korean projects may come to a “screeching halt”, at a time when the company has been campaigning hard to revitalize the business, the agency adds.

From the New York Times
James Brooke
March 3, 2003 

As the Pentagon studies moving tons of military hardware within striking range of North Korea, some say the weapon most feared by the Stalinist government there may be a disposable radio the size of a cigarette pack.

“Little throwaway radios, you listen, you throw away — the smaller the better, the more disposable, the better,” said Pastor Douglas E. Shin, a Korean-American human rights activist who advocates smuggling thousands of tiny radios capable of receiving foreign broadcasts into the North.

The radio smuggling is part of a growing public and private effort, including foreign radio broadcasts, to crack an information monopoly in the North that has helped keep the Kim family in power for nearly 60 years. So tight is the information blackout that defectors report that they believed that their country — one of the world’s poorest — was wealthier than South Korea and that the United States donated rice as a form of tribute to the powerful Communist state.

In January, in a bid to emulate the experience of East Europeans in the cold war, Radio Free Asia and Voice of America doubled their hours of Korean-language broadcasting into North Korea. In February, Radio Free Asia joined Voice of America in broadcasting into North Korea on medium wave, a bandwidth accessible with cheap AM radios.

But the first challenge, skeptics note, is that few people in the North have the radios — or the courage — to listen to foreign broadcasts, something that advocates of the tiny disposable radio say they are determined to change.

Under threat of severe penalties, the vast majority of North Korea’s 22 million people are not allowed any contact with the outside world — letters, telephone calls, travel, radio or television programs.

All citizens are required to register their radios with the local police. On registration, foreign-made radios are tuned to the state radio frequency, soldered into place, and sealed. The police then make unannounced inspections of households with foreign-made radios to verify that they have not been tampered with.

“A lot of people in the White House believe the Iron Curtain came down because U.S. government radio supplied the information that created the Velvet Revolution,” said an American diplomat here, referring to Czechoslovakia’s revolt against Communism. “But in the case of North Korea, is it the sound of one hand clapping? Is it getting in there?”

Advocates of smuggling radios into the North, mostly human rights and Christian church groups, say their effort is aimed at ensuring that someone is indeed listening. Even if only a tiny elite tune in, they say, the effect can be powerful.

“The populace will suffer a kind of psychological collapse when they learn what has been done to them and what the real world is really like,” predicted Radek Sikorski, who grew up listening to Voice of America and Radio Free Europe in communist Poland and now works at the American Enterprise Institute.

“Control of information,” he said, “is absolutely crucial to the survival of this regime because the system is based on lies.”

In a recent manifesto , Mr. Sikorski joined 16 American policy makers in demanding that the Bush administration tie talks with North Korea over its nuclear weapons program to an opening on human rights, including freer information.

Citing the impact of the Helsinki Agreement of 1975 in undermining the Soviet Union and its East European allies, the group called for “significantly expanding the current, scandalously inadequate Korean-language Radio Free Asia broadcasts.”

Already, in a small office rented on the seventh floor of a Seoul newspaper building, Radio Free Asia broadcasters try to bring to North Koreans four hours of news a day.

“North Korean people are not told the truth, so somehow we have to be surrogates, to tell them what is going on,” said Ahn Jae Hoon, who was born in Pyongyang, North Korea, and became director of the Korean branch of Radio Free Asia in 1997, after 26 years at The Washington Post.

The reports are clearly aimed at undermining the leadership of Kim Jong Il. Some broadcasts report on food and power shortages, others on the image of North Korea as isolated and weak abroad. Still other reports discuss military dissatisfaction and coup attempts in the 1990’s, and the fact that Mr. Kim insists that all soldiers be disarmed before he visits a military unit.

The radio also gives practical information for defectors — how to contact missionary groups in northern China, how to dress and behave to escape arrest and deportation to North Korea.

In contrast, under Seoul’s “sunshine policy” of reconciliation, South Korea’s state-owned Korean Broadcasting Service increasingly airs programs intended not to provoke the North and to promote peaceful coexistence on the peninsula.

On Saturday at a national park near Kosung, North Korea, two park guides spoke dismissively of foreign broadcasts. “Why would we want to listen to radio from the South? No one is stopping us from listening, but we don’t want to anyway,” said Kim Dong Chul, 31. “The music is not our style and the news is not for us. It’s for the people in Seoul.” Another guide, a 26-year-old man who declined to be identified, said, “I don’t have enough time in a day to listen to our radio, and then to listen to radio meant for other people.”

The guides are largely chosen for their political loyalties, because they come in contact with large numbers of South Korean tourists.

Backers of foreign broadcasts, however, say more and more North Koreans are finding ways to tune in.

As trade with China increases and radio prices fall, some North Koreans now buy two radios, but register only one with the police, defectors say. In a country wracked by power shortages, government jamming is spotty. Also, some North Koreans dare to tinker with state-supplied radios, defectors add.

Still, for now, foreign broadcasting is largely limited to North Korea’s elite.

In 1999, Mr. Ahn said, a survey commissioned by Radio Free Asia found that one of 12 “elite” defectors polled had listened to Radio Free Asia. A similar survey in 2001 found that the proportion had risen to 6 of 12.

from the BBC:

The BBC’s Kevin Kim joined the first overland tourist trip to North Korea, and reflects on his journey to the other side of the border.

“I was on board one of 20 buses that crossed the DMZ for the first time.

As a South Korean it felt really strange, because up to now we were strictly forbidden from getting near to the DMZ.

The mountains on the North Korean side looked totally different from the mountains on the South Korean side.

It was very barren. There were hardly any trees.

North Korea is in an energy crisis right now and every single tree is put to good use, for heating.

The South Korean guide told us that while travelling through the DMZ we must not take pictures, wave outside, or show any South Korean newspapers or magazines through the window.

I guess that is why everyone on the bus was talking in a very soft voice.

Every few hundred metres there were North Korean soldiers with their rifles just looking on as the buses went by.

I was really tempted to just open the window and say “hello” or “nice to see you”.

But I had been told by my South Korean guide that I could open the window but I could not say anything to them.

Like the words of the South Korean song, “Longing for Mount Kumgang”, getting to North Korea and seeing its natural beauty has been something that people in the South could only long for until now.

Unification, too, is something that Koreans have only dreamed about.

But having travelled through the most heavily fortified border in the world, I began to think that while unification in the Korean peninsula may seem impossible right away, it does not have to stay as a dream.

Who knows, in 20 years time we might actually be seeing the fences coming down.

It is wishful thinking. But Koreans are natural born optimists. ”

Also from the BBC:

The overland border between the two Koreas has opened for the first time since the Korean war ended half a century ago. The BBC’s Seoul correspondent Caroline Gluck was among the first to cross.

Fanfare, fireworks and balloons greeted us at a ceremony on the South Korean border, as we prepared to journey through the world’s most heavily fortified road border to the North.

This is the first land route for civilians since the end of the Korean war half a century ago.

The pilot journey is due to pave the way for regular overland tourist trips to the North’s scenic resort of Mount Kumgang, or Diamond Mountain – which has been developed by the South Korean company Hyundai Asan.

Hyundai Asan’s president, Kim Yoon-Kyu, described the trip as a historic moment.

“I can compare it to breaking the wall between East and West Germany,” he said.

Opening the border was also one of the ways to reduce tensions between North and South Korea, he said.

“I’m going to persuade (the North Koreans) not to have any nuclear power. We need money. Money is better than nuclear power,” he said.

At the demilitarized zone, there was a razor wire fence on either side, and signs warning that landmines were present.

When we reached the military demarcation line, I could see the first North Korean soldiers watch the convoy – around 20 buses in all.

All around me I could see the mountains covered in snow.

It is a barren landscape but quite beautiful. Many believe that if the two Koreas reunify, it should be turned into an ecological zone.

On the North Korean side, a welcoming committee with a female brass band was waiting for us, playing the North Korean song Pangap-sumnida, or Nice to Meet You.

Around 150 North Koreans took part in the ceremony to welcome their southern counterparts.

Ro Chang hyup, a North Korean tourist official, said it was an important step forward in inter-Korean exchanges.

“This is a first step towards unification. It is helping to break the ice and I really welcome our south Korean brothers.”

Ri Jong-hyok, deputy head of the North’s Asia-Pacific Peace Committee which handles the North’s joint ventures with South Korea, said: “People are here for tourism. Why are you talking about nuclear issues? I get a headache when people talk about that”.

Bang Jong-Sam, head of the Mount Kumgang international tourism company, had a similar message.

“We don’t have nuclear weapons. Let the crazy people say whatever they want. All we have to do is to continue tourism,” he said.

Since 1988, when tours by cruise boat to Diamond Mountain began, around half a million South Koreans have travelled to the area.

For most, it is their only chance to visit the Communist North. They come to explore the peaks of the fabled mountain – immortalised in songs, paintings and poetry.

Fenced-in resort

But contacts between the two Koreans at the resort is limited.

The Hyundai-built tourism site is fenced in, and North Korean guides are on hand to monitor all movements.

You can catch glimpses of North Korean villages and people travelling on roads only allowed for locals – but most visible are the soldiers.

A group of around 40 soldiers marched by our tour group, singing the praises of their leader, Kim Jong-il.

He’s our great commander, they said.

“His love is like the sun, reaching out to every corner.”

If the project is aimed at breaking down barriers between the two Koreas, there is clearly a long way to go.

But some ventures, like a locally run restaurant open only to South Koreans, at least help to allow more contact between the two sides.

“I’m sure unification will come,” said my waitress.

“It’s really good that so many South Koreans are coming here. I’m proud to work here – and I welcome them.”

Projects like this and the opening of the cross-border road between the two Koreas are full of symbolism.

But, in practice, it is clear that there is still a long way to go before the two sides can freely mingle.

BBC
2/3/2003

South Korean prosecutors have decided to scrap their investigation into payments made to North Korea prior to its summit with the South in 2000.

A spokesman for the prosecutors office said the investigation was being stopped in the “national interest”.

The move follows a plea from South Korean President Kim Dae-Jung, who asked prosecutors to drop the case to allow the matter to be settled in parliament.

The decision is likely to anger opposition politicians, who have accused Mr Kim’s government of being behind the money transfer, in order to gain from the summit politically.

Money transfer

The dispute centres on payments made to North Korea by the multinational conglomerate Hyundai shortly before the summit.

On 31 January investigators said the company had secretly transferred $200m to the communist North just a week before the landmark meeting.

Hyundai had borrowed the money from a South Korean state-controlled bank.

Opposition members claim the money was given as “payment” to the North for attending the summit – at the request of President Kim Dae-jung’s government.

The summit increased Mr Kim’s international standing, and contributed to his being awarded the Nobel Peace Prize in 2000.

North-South ties

On Monday President-elect Roh Moo-hyun backed Mr Kim’s appeal for a “political” settlement to the dispute.

Mr Roh “wants details of the scandal to be brought to light, but it would be better to let the National Assembly decide how to resolve the dispute,” his spokesman Lee Nak-yon said.

But the main opposition Grand National Party has said it will push for a formal investigation.

“The only way of cleansing the sin of deceiving the people is to confess frankly and apologize sincerely,” said Park Hee-tae, acting chief of the opposition.

The Hyundai group has done much to encourage links between North and South Korea.

But it has been badly affected by a joint venture tourism project with North Korea, and insisted it used the state-issued loan to improve its financial position.

Mr Kim, who has previously denied knowing about Hyundai’s dealings with the North, appeared to acknowledge them on Thursday when his spokeswoman said that the money was justified “if (it) was spent on promoting South-North economic co-operation”.

“The unique nature of South-North relations has forced me to make numerous tough decisions as the head of state,” Park Sun-Sook quoted him as saying.

From the Washington Post

Flow of money, goods frustrates US drive to tighten isolation

Doug Struck

February 3, 2003

Once a month, Hiroshi Yano bundles together a few million yen, wraps the money in plastic with a Japanese customs seal, and put it on a ship to be handed over at sea to a boat captain from North Korea and delivered to the Stalinist government there.

It’s all legal: The money is payment for North Korean snow crabs that Yano imports for Japanese tables.  And Yano said he wants to continue the business, nukes or no nukes.

“We are just a private company doing trade.  We are independent of politics,” said Yano, manager of an import business that runs three ships to North Korean waters from this port town 350 miles west of Tokyo.

The payments are just one example of the many flows of money and goods that prop up the North Korean system and circumvent the isolation that the US and other countries have sought to impose.

The Bush administration’s strategy to tighten that isolation and compel North Korea to dismantle its nuclear weapons program may be undermined by the complexity and number of trade routes that snake in and out of North Korea.

The trade ranges from the global export of missiles to lone Korean smugglers who wade the river border into China to barter for their food.  It includes products as legal and innocuous as Yano’s snow crabs and as dangerous as smuggled drugs delivered to Japan’s coast line by unmarked ships.

[But each year] North Korea makes missile sales estimated to bring in anywhere from several hundred million to $1billion.  Its customers, intelligence agencies say include Libya, Iraq, Iran, Yemen and in the past, Pakistan. 

Japanese importers pay the North Koreans with bundles of cash or with bartered goods such as food, sports shoes or a bike for the sailors, or generators.  30,000 large crabs are worth about $4,000.

Seafood is the biggest component of Japan’s $370 million annual trade with North Korea, which brought the DPRK’s ships to Japan 1,200 times last year.

South Korea has $350 million in trade with the DPRK.  Most of it from sending textiles to the north and buying finished clothes. 

China reported its trade at $730 million, and that is just the legal trade.  It used to be food and oil, now it is everything: pots, pans, shampoo.

Many intelligence analysis believe that smuggling is orchestrated directly by powerful North Korean officials.  Japanese claim they manufacture methamphetamines.

BBC
1/30/2003

South Korean government investigators have said that $200m was secretly transferred from a state-controlled bank to North Korea one week before a landmark inter-Korean summit in June 2000.

The summit was seen as a boost for outgoing President Kim Dae-jung’s policy of engagement with the North, but critics have dismissed the historic meeting as cheque-book diplomacy.

The government investigators’ report was the culmination of a three-month inquiry into loans granted to the South Korean conglomerate Hyundai.

Mr Kim, who has previously denied knowing about Hyundai’s dealings with the North, appeared to acknowledge the report’s findings on Thursday when his spokeswoman said that the money was justified “if (it) was spent on promoting South-North economic co-operation”.

“The unique nature of South-North relations has forced me to make numerous tough decisions as the head of state,” Park Sun-sook quoted him as saying.

Hyundai funding

Sohn Sung-Tae, an official with South Korea’s Board of Audit and Inspection which conducted the probe, said the 223.5bn won ($200m) was part of a loan from state-run Korean Development Bank (KDB) to a Hyundai subsidiary.

The BBC’s Seoul correspondent says the investigation has been frustrated by the company, which had refused to submit financial documents.

But threatened with legal action, the company finally complied this week.

In its report, the Board of Audit and Inspection confirmed that the loans of nearly $400m to Hyundai Merchant Marine were extended one week before the historic inter-Korean summit, and that half of the amount was then transferred to the Communist State.

Opposition politicians have alleged that the money was used as a bribe to induce North Korea to take part in the summit.

The Hyundai group has funded numerous inter-Korean economic projects and has played a key role in nurturing better ties between South Korea and the isolated Communist North.

But it has been badly affected by a joint venture tourism project with North Korea, and, in deep financial trouble at the time of the summit, insisted it used the loan to improve its financial position.

South Korea’s JoongAng Ilbo newspaper quoted an aide to President-elect Roh Moo-hyun on Thursday as saying that the Hyundai firm had transferred the money to the North with the help of the government’s National Intelligence Service.

“This proves that this government’s biggest achievement, the June 15 South-North summit, was bought with money,” opposition party spokesman Park Jong-hee said in a statement.

Mr Park called on Mr Kim to apologise.

The legacy of outgoing President Kim Dae-jung’s administration has been seen as his success in improving ties with the North.

He was awarded the Nobel Prize for Peace in 2000 following the inter-Korean summit.

Washington Post
John Pomfret
1/27/2003, Page AOl

Nuclear Crisis May Have Roots in Economic Failure

Six months after North Korea announced unprecedented wage and price increases to jump-start its miserable economy, runaway inflation is emptying millions of pocketbooks and bottlenecks in production are causing widespread shortages, according to Chinese and North and South Korean sources.

The black market price of rice, the staple of the Korean diet, has jumped more than 50 percent over the past three months in most parts of the country while tripling in others, according to North Koreans, Chinese businessmen and Western aid agency workers. Some factories in poorer parts of the country, such as the heavily industrialized east coast, have stopped paying workers the higher salaries that were a cornerstone of the reforms, recent North Korean arrivals to China said. Others have taken to paying workers with coupons that can be exchanged for goods, they said, but there are no goods in the stores to buy.

“Theft new economic policy has failed,” said Oh Seung Yul, an economist at the government-funded Korea Institute for National Unification in Seoul. “The hopes that were raised in July are today pretty much dashed.”

The apparent failure of North Korea’s attempt to promote economic activity and improve living standards constitutes an important backdrop for its recent threats to resume a nuclear weapons program, according to the sources.

On one hand, Oh and others said, North Korea’s isolated government needed a scapegoat. On the other, according to Chinese sources close to the secretive government of Kim Jong Ii, Pyongyang has determined that it risks economic collapse without security guarantees and access to international lending institutions such as the World Bank and International Monetary Fund, to which the United States holds the keys. So Kim manufactured a crisis to win concessions, they said.

“Now the economic situation is more precarious than before the reforms. They can’t do this halfway,” said Cui Yingjiu, a Chinese Korean economist and adviser to the North Korean government. “They risk social chaos and economic collapse.”

The crisis has been exacerbated by a drop in the humanitarian aid that had kept North Korea on life support since 1995. Because of a shortage of donations, the World Food Program has cut back the number of North Koreans it is assisting this year from 6.4 million to 3.5 million of the country’s estimated 22.6 million inhabitants. In September, the elderly and primary school-age children on the west coast were cut off. In October, kindergarten-age children, pregnant women and nursing mothers there lost out. In November, nurseries were scratched from the list.

“It’s a tough call deciding who has to be deprived,’ said Gerald Bourke, an official with the World Food Program in Beijing. Bourke said the recent “very rapid inflation” of rice prices is “putting food way beyond the pale for a lot of people.”

The World Food Program has 25,000 tons of food in North Korea and pledges of 75,000 additional tons, he said. It needs 511,000 tons this year.

North Koreans traveling over the border to Yanji, about 700 miles northeast of Beijing, said an initial wave of hope triggered by the changes announced in July is gone in almost all parts of the country except the capital, Pyongyang.

Lee Xiangyu, a North Korean refugee in China, was arrested by Chinese border police and returned to North Korea last summer, when the changes began. After a short stint in jail, the 19-year-old returned to her home town, Musan, along the border with China. By October, she said, the lumberyard where her father worked had stopped paying him and other workers the huge raises they had received as part of the effort to promote some aspects of a free-market economy.

But prices continued to rise. “There was no money in my house, and now the prices are so high,” she said. Lee sneaked back into China in December. “It’s not like it was in 1997 when people were starving to death,” she said, speaking of the famine that cost hundreds of thousands of lives. “But it’s worse in a way. Because everybody had hope for a little while and now they are desperate again.”

North Korea’s announcement of economic reforms was front-page news, in part because the measures fit into a series of other moves that led some observers to conclude Kim was ready to lead his country out of isolation. The steps included expression of regret following a clash between North and South Korean naval forces in June, the suggestion that North Korea would hand over Japanese Red Army members wanted in Japan for hijacking a Japanese airliner in 1970, an informal meeting in July between North Korean Foreign Minister Paek Nam Sun and Secretary of State Cohn L. Powell, transportation links between North and South Korea, a summit between Kim and Japanese Prime Minister Junichiro Koizumi and talk of establishing as many as five special zones for foreign investment.

The economic changes included raising prices and wages, devaluing the North Korean won against the dollar and cutting state subsidies for failing businesses. Wages were increased between 900 percent and 1,500 percent. Prices, which are in theory set by the state, went up as well. Rice went up 4,000 percent, corn 3,700, pork 700, diesel fliel 3,700, electricity 5,900, apartment rent 2,400 and subway tickets 900.

The government announced that factories with bloated workforces could effectively lay off unnecessary workers so they could concentrate on making things again — a step North Korean industry had not taken since economic troubles began in 1995.

The main motivation for increasing the price of rice was to prompt farmers to plant more food. But Cui, who attended a conference on North Korea’s economic changes last fall in Pyongyang, said farmers were not happy.

“Grain prices went up, but so did prices for inputs like fertilizers and seeds,” he said. ‘So all gains were canceled out.”

Another issue, Cui said, is electricity. North Korea has good hydropower resources, but as farmers become interested in planting more crops, they will want to use water in reservoirs for irrigation, not for power generation. “There are a whole series of these conundrums and Catch 22s,” Cui said.

He said North Korean factories have yet to begin producing goods people want to buy. That is why trucks rolling into China from the Dandong border crossing, 350 miles southwest of Yanji, now carry clothes, television sets, shampoo and other consumer goods.

The changes befliddled Western and Chinese economists from the beginning. Chinese experts noted that when China undertook its first major economic reform in 1979, it increased the price of grain by only 25 percent. Second, they said, when China began this process, 80 percent of its population lived in rural areas, so there was a huge pooi of potential beneficiaries from the liberalized agricultural policies. But North Korea is highly industrialized: Two-thirds of its people live in cities.

Marcus Noland, at the Institute for International Economics in Washington, speculated that the changes were either a desperate attempt to jump-start a half-dead economy or a backhanded attack against North Korea’s nascent private economy. Increasing prices would reduce the value of currency held outside the state system, breaking the back of private entrepreneurs.

But then again, he said in a recent paper, “the possibility that economic decisions are being made by people who do not grasp the implications of their actions should not be dismissed toohastily.”

Correspondents Doug Struck and Peter £ Goodman in Seoul contributed to this report