North Korean Economy Watch

UPDATE 2: KCNA posted its second food “CYA” story on March 16th:

A UN special rapporteur for food issue on Mar. 8 expressed concern about worldwide food price rise.

The rapporteur said that the world is facing the same serious food crisis as in 2008 amid the rise of food prices for eight months on end, adding that this is attributable not only to the natural disasters but to speculation in the financial field.

UPDATE 1: I offered a rhetorical analysis.  Haggard has some data.

ORIGINAL POST: Here is the article from KCNA:

Pyongyang, February 7 (KCNA) — Price of foodstuff is skyrocketing worldwide, sparking serious concern.

The monthly world foodstuff price indices have gone up 3.4 percent in the period from December last year to January this year, said FAO of the United Nations on Feb. 3 quoting a survey data.

This is an all-time high since 1990 when foodstuff price survey kicked off. The price of foodstuff is expected to continue to soar in the coming months.

It is true that global food prices are rising.  Here it seems the North Korean government is both warning its people and deflecting blame for the problem.  Although few North Koreans will have access to the FAO report, KCNA is careful to highlight the foreign source (not Pyongyang). Of course making the announcement will set off a wave of hoarding in the DPRK leading food prices to increase even more.

Despite its claims, the DPRK government does have the power to improve food prices for the North Korean people.  The DPRK could shore up confidence in market institutions; give farmers greater individual incentives rather than emphasizing collective farming; make it easier for food shipments to travel internally, and ease border crossings for food shipments from China.

Marcus Noland and Stephan Haggard recently posted data on food price increases in the DPRK.

*”CYA” is “Cover your ass” (‘arse’ for our British friends).

In addition to the Haggard/Noland book release, there were a couple of other interesting North Korea events in Washington DC this week that I wanted to point out:

1. Korea Economic Institute: The Markets of Pyongyang
John Everard, UK Ambassador to the DPRK (2006-2008)

-Read his paper here (PDF).
-See his power point presentation here (PDF).
-See his full presentation in three parts: Part 1, Part 2, Part 3.

2. US-Korea Institute at SAIS: Silent Partners: Chinese Joint Ventures in North Korea
Drew Thompson, Director of China Studies and Starr Senior Fellow at The Nixon Center

-The event web page is here.
-Read an executive summary here
-Read the paper here.

Both papers are well worth reading.

Pictured Above: Pongchon Coal Mine (Google Earth)

Institute for Far Eastern Studies (IFES)
NK Brief No. 11-01-18
1/28/2011

The DPRK Workers’ Party’s newspaper, the Rodong Sinmun, recently featured a front-page editorial urging the North Korean people to increase coal production. On January 26, the KCNA reiterated the call, reporting that the newspaper editorial highlighted fertilizer, cotton, electricity, and steel as products suffering from a lack of coal, and that “coal production must be quickly increased in the Jik-dong Youth Mine, the Chongsong Youth Mine, the Ryongdeung Mine, the Jaenam Mine, Bongchon Mine [Pongchon Mine] and other mines with good conditions and large deposits.”

The editorial also emphasized that “priority must be placed on the equipment and materials necessary for coal production,” and, “the Cabinet, national planning committee, government ministries and central organizations need to draft plans for guaranteeing equipment and materials and must unconditionally and strongly push to provide,” ensuring that the mines have everything they need. It also called on all people of North Korea to assist in mining endeavors and to support the miners, adding that those responsible for providing safety equipment for the mines and miners step up efforts to ensure that all necessary safety gear is available.

In the recent New Year’s Joint Editorial, coal, power, steel and railways were named as the four ‘vanguard industries’ of the people’s economy. Of the four, coal took the top spot, and all of North Korea’s other media outlets followed up the editorial with articles focusing on the coal industry. On January 15, Voice of America radio quoted some recent Chinese customs statistics, revealing that “North Korea exported almost 41 million tons of coal to China between January and November of last year, surpassing the 36 million tons exported [to China] in 2009.” It was notable that only 15.1 tons were exported between January and August, but that 25.5 tons were sent across the border between August and November.

North Korea’s coal exports to China earned it 340 million USD last year, making the coal industry a favorite of Pyongyang’s economic and political elites. Increasing coal production is boosting output from some of the North’s electrical power plants, while exports to China provide much-needed foreign capital. However, even in Pyongyang, where the electrical supply is relatively good, many houses lack heating and experience long black-outs. Open North Korea Radio, a shortwave radio station based in the South, reported on January 24, “As electrical conditions in Pyongyang worsen, now no heating is available.” Farming villages can find nearby timber to use as firewood, but because prices are so high in Pyongyang, even heating has become difficult. Some in the city even wish for rural lifestyles, just for the access to food and heat.

According to Reuters:

North Korea was the supplier of a cache of defective weapons sold to Burundi’s army by a Ukrainian firm, said Western diplomats familiar with the case that has riled Burundi’s anti-corruption body.

The weapons deal with Burundi appeared to be a violation of the international ban on North Korean weapons exports which the U.N. Security Council imposed on Pyongyang in June 2009 after its second nuclear test, the diplomats told Reuters on condition of anonymity.

The case involved the supply of some 60 Chinese-made .50-calibre machine guns to Burundi by a Ukrainian firm called Cranford Trading, the diplomats said. The weapons, which were defective, were sold to the firm by North Korea, they added.

Diplomats say Pyongyang continues to try to skirt the arms embargo. Last year South Africa informed the Security Council’s sanctions committee about a seizure of North Korean arms bound for Central Africa.

The expanded sanctions were aimed at cutting off North Korea’s arms sales, a vital export that was estimated to earn the destitute state more than $1 billion a year.

Some facts about the Burundi weapons deal became known late last year when the country’s anti-corruption watchdog went public about irregularities it found. It said that the arms had been defective and that Burundi had been overcharged.

A report on a state audit of the deal, seen by Reuters, concluded that Cranford Trading provided Burundi’s army defective military material with the complicity of former Defense Minister Germain Niyoyanka, current army chief Godefroid Niyombare and his deputy Diomede Ndegeya.

The auditors’ report said that the bidding offer was $3.075 million, while the amount in the contract was for $3.388 million. A further $1.186 million was paid in transport fees, even though such fees were not agreed in the contract.

The auditors concluded that the defense ministry had spent a great deal of money on defective material and recommended the prosecution of all people involved on suspicion of graft.

North Korea was not mentioned in the auditors’ report.

Several officials at Burundi’s U.N. mission in New York declined to comment when contacted by Reuters.

NO CERTIFICATE OF ORIGIN

“The weapons were transferred by China to North Korea, which then sold them to Cranford,” a diplomat said, adding that the official documentation for the deal had been incomplete.

“There was no certificate of origin of the weapons, which is necessary to comply with international conventions,” the diplomat added. Another diplomat confirmed the remarks.

The contract between Burundi’s defense ministry and Cranford Trading covered the period between October 2008 through 2010. It was not clear how much North Korea would have received when it sold the defective arms to Cranford Trading.

It was not possible to track down Cranford Trading in Ukraine, since the company was not readily accessible in any public lists. Ukraine’s U.N. mission did not respond to an e-mailed query about Cranford and the arms transaction.

It was not clear when China transferred the weapons to North Korea, or who in China was responsible, or whether the Chinese government had knowledge of the deal.

The U.N. arms embargo does not ban the sale of small arms to Pyongyang, though it does require exporters to notify the Security Council’s North Korea sanctions committee in advance about any small-arms sales to Pyongyang.

If the transfer took place after the latest round of U.N. sanctions were approved in June 2009, the exporter would have been required to notify the sanctions committee.

A spokesman for China’s U.N. mission was not available for comment.

The diplomats said the sanctions committee has not been notified about the Burundi case.

Read the full story here:
Defective Burundi weapons came from N.Korea
Reuters
Louis Charbonneau
2/1/2011

According to the Choson Ilbo:

The government will set a 1-percent quota for North Korean defectors in administrative assistant jobs at public agencies, it said Thursday. The government made the decision on the assumption that about 3,000 North Koreans arrive in South Korea on average every year who have a hard time adapting to their new environment partly due to difficulties finding jobs.

Some 200 North Korean defectors are expected to be employed as administrative assistants this year, given that the total hired by the central and local governments is about 20,000 annually.

A Ministry of Public Administration and Security spokesman said the government “decided to take the lead in hiring North Korean defectors to raise awareness of them and encourage private companies to follow suit.”

The ministry plans to ask former and current public servants to serve as mentors for defectors and give them a training course through which they can develop their skills.

According to the ministry, the total number of defectors stood at 7,687 in 2005 and is expected to exceed the 30,000 mark in 2013.

Read the full story here:
1% of Public-Sector Jobs to Go to N.Korean Defectors
Choson Ilbo
1/28/2010

UPDATE 3: The JoongAng Daily (2/12/2011) reports on comments made by Robert King:

King explained that in the past, the U.S. had agreed to give North Korea 500,000 tons in food aid, but was only able to give 170,000 tons as North Korea refused the rest and ordered foreigners who had entered North Korea to deliver the aid to leave.

The envoy also said that it has not yet been decided whether the U.S. will grant food aid to the North and that three prerequisites must be fulfilled if it does.

The three conditions, he explained, are whether a real demand for food truly exists in North Korea, whether the North’s need for food is on the same level as other countries in need of aid, and whether monitoring of the aid will be securely guaranteed. Only when these three prerequisites are met can the U.S. grant aid, King said.

UPDATE 2: According to the JoongAng Daily (2/9/2011) the North Koreans have made an official request for food aid to the US government:

North Korean deputy ambassador to the UN, Han Sang-ryol, requested U.S. food aid last month through Robert King, the U.S. special envoy for North Korean human rights, a diplomatic source told the JoongAng Ilbo yesterday.

Local analysts suspect that King, who is currently in Seoul, informed the South Korean government of the request and is discussing a joint response to it.

“Ambassador Han met King in New York on Jan. 14 and requested large-scale U.S. food aid for the North,” said the diplomatic source in Washington.

It is the first time in years that a behind-the-scenes diplomatic discussion between Pyongyang and Washington on aid has come to the surface. U.S. food aid to the North has been suspended since March 2009 after the Kim Jong-il regime rejected a U.S. proposal to increase the number of Korean-speaking food-distribution monitors to make sure aid was getting to the public.

Han told King that the North was willing to enhance international monitoring of food aid “as much as the U.S. wants,” the source said.

King, who came to Seoul on Sunday, started meetings with Seoul officials yesterday, including Wi Sung-lac, the top envoy on North Korean nuclear issues. At a brief media conference after the meeting with Wi, King did not elaborate on the purpose of his visit or his discussion with the South Korean envoy, saying only it was “very good, very serious and a very thoughtful discussion.”

When asked whether food assistance to the North was on the agenda, King said they “talked about a lot of issues.”

“[It is] extremely important for the U.S., as we pursue our policies toward North Korea, to coordinate with the government of South Korea,” King said. “We have a close working relationship, we are able to work together well on issues, we share our analysis, we share our ideas in terms of making progress.”

The official United States stance, as U.S. Assistant Secretary of State Kurt Campbell said earlier this month, is that it does not have a plan to resume food aid to the North for now.

“The U.S. does not think the North has met conditions to get U.S. food aid,” the source said.

And even if Washington decides to resume aid, it will take time because of congressional procedures, the source said. But some analysts see the possibility of change, citing some opinions in the U.S. State Department in favor of engaging the North with aid to sway its attitude on other issues, including denuclearization.

UPDATE 1: According to the Donga Ilbo (2/6/2011):

The U.S.-based Radio Free Asia says the U.S. government and nongovernmental organizations are discussing the resumption of food aid to North Korea.

Quoting diplomatic sources in the U.S., the broadcaster said Washington has not decided to resume food aid to Pyongyang but is having many talks and discussions on the issue.

Voice of America said Friday that the World Food Program and the U.N. Food and Agriculture Organization, both of which are under U.S. influence, also plan an additional survey of the North`s food situation for about a month from Feb. 10.

In an interview, Dr. Kisan Gunjal of the food organization said he will survey the North’s food security and crop situations from Feb. 10 to March 12 at Pyongyang’s official invitation.

In a phone interview with The Dong-A Ilbo, an official at a South Korean aid group said, “The U.S. has asked South Korean non-governmental organizations about North Korea’s crop and food supply situations in 2011 since the North’s artillery provocation on Yeonpyeong Island in November.”

Washington, however, remains officially cautious. U.S. State Department spokesman Philip Crowley told a news briefing Monday that the U.S. government has no immediate plans to provide humanitarian aid to the North.

ORIGINAL POST: According to the Donga Ilbo (1/31/2011) the US and DPRK are talking food aid once more:

The U.S. and North Korea have begun their third round of food diplomacy, with Washington considering resuming food aid to Pyongyang.

The U.S. has halted food aid to the North twice since its first provision in 1996 after blaming Pyongyang for diverting the aid.

The North has always asked for food aid first since North Korean leader Kim Jong Il confronted a series of crises in the early 1990s, when the former Soviet Union and China stopped economic assistance to the Stalinist country.

His father and the North`s founder Kim Il Sung died in 1994. When the North was devastated by floods and other natural disasters nationwide, Kim Jong Il ordered state cadres to beg the U.S. for help.

The North Korean Foreign Ministry then formed a committee for flood damage and went hat in hand to Washington. The Clinton administration provided 19,500 tons of food through the World Food Program in 1996, expecting the North to implement the 1994 Agreed Framework and be docile in talks for the repatriation of remains of American soldiers killed in action in the Korean War.

Washington increased its food aid from 177,000 tons in 1997 to 695,000 tons in 1999. In 2000, a joint communiqué between the North and the U.S. was signed.

North Korea, however, diverted the food aid in ignoring U.S. and international principles for humanitarian aid.

As public opinion in the U.S. worsened over the assistance, the George W. Bush administration slashed the aid volume from 350,000 tons in 2001 to 40,000 tons in 2003. The U.S. Congress demanded greater transparency in the distribution of the food aid in 2004, when it passed the North Korean Human Rights Act.

Rejecting the demand, Pyongyang expelled World Food Program staff in 2005. Washington opted not to provide food aid to Pyongyang in 2006.

Flexing its muscles in November 2006 by conducting its first nuclear test, North Korea again requested U.S. aid in 2008. The Bush administration, which was nearing the end of its term, chose to sit at the negotiating table with the North and offered 500,000 tons of food aid through the World Food Program.

The North received 169,000 tons of food by expanding the areas where food distribution is monitored and agreeing to allow more Korean-speaking monitoring personnel.

In early 2009, Pyongyang decided to test the newly inaugurated Obama administration by launching a long-range rocket and preparing for a second nuclear test. In March that year, the North expelled humanitarian aid groups, saying it would not be able to keep its promise of distribution transparency.

In fall last year, North Korea unveiled its uranium enrichment program and showed its centrifuges to the U.S. in a virtual threat to conduct its third nuclear test with uranium bombs if Washington failed to provide food.

What the U.S. will eventually do is attracting interest since South Korea is opposed to aid to the North.

Read the full stories below:
Pyongyang asks U.S. to restore food aid: source
JoongAng Daily
Kim Jung-wook, Moon Gwang-lip
2/9/2011

US, N. Korea begin 3rd round of food diplomacy
Donga Ilbo
1/31/2011

Radio Free Asia: US, NGOs discussing food aid to NK
Donga Ilbo
2/6/2011

According to KBS:

South Korea says it plans to implement during the first half of the year a registration system for South Korean firms that trade goods with North Korea.

An official from the Unification Ministry in Seoul said Monday that revisions must be sought on the law governing inter-Korean exchanges and cooperation in order to introduce the registration system.

The official said that the government will conclude such legal revisions within the first half of the year.

The ministry plans to propose a related bill before May in hopes of winning parliamentary approval for the plan by June.

The ministry had unveiled plans to introduce such a system when it briefed President Lee Myung-bak late last year on its key policies for 2011.

Additional Information:

1. The DPRK is working to bypass ROK trade restrictions.

2. The South Korean government is investigating companies suspected of trading with the DPRK.

Read the full story here:
S.Korea Seeks Registration System for Firms Trading with NK
KBS
1/24/2011

According to Choson Ilbo:

North Korean products are being sold in South Korea labeled as Russian after the South stopped all cross-border trade in May last year. The North is desperate to unblock the flow of hard currency and is pushing for resumption of dialogue over the Kaesong Industrial Complex and lucrative package tours to Mt. Kumgang.

The Unification Ministry has released a list of the top 10 North Korean agricultural and fisheries imports, which show that the South brought in around 310,000 tons between 2006 to 2010. Imports totaled US$677 million tons, which worth $135 million a year. Over the last decade, North Korea also earned more than $500 million from the Mt. Kumgang tours, while the Kaesong Industrial Complex brought in $50 million annually.

Shellfish exports made the most money for the North, totaling 171,533 tons worth $268 million, followed by dried fish ($78.76 million), processed fish products ($76.02 million) and other seafood ($67.42 million).

Before the South halted trade following the sinking of the Navy corvette Cheonan, most North Korean shellfish was brought into the port city of Sokcho on the east coast. South Korean importers paid in U.S. dollars in Sokcho after signing contracts in the Chinese border town of Dandong with North Korea’s official economic cooperation agency.

But since trade was halted, North Korean shellfish has been labeled in Dandong as Chinese in origin and apparently sent to the western port city of Incheon. North Korean fisheries products are also apparently loaded on to Chinese vessels in the West Sea and brought into South Korea. As the pressure to bring in more dollars increases, chances have risen that the North’s agricultural and fisheries products are being falsely labeled.

A South Korean businessman who trades with North Korea, said, “Since trade was halted, North Korea has been trying to sell its products to South Korea labeled as Chinese or Russian in origin. This shows just how desperate North Korea is for dollars.”

The alternatives would be to sell the goods to China, the North’s largest trading partner, but prices have to be slashed and it costs more to transport them. Most of the dollars North Korean makes from selling goods to South Korea appear headed straight for leader Kim Jong-il’s coffers and used to prop up his rule. Kim’s funds are divided into local and foreign currencies and the latter, raised by selling farm and fish products, account for a key portion. Products such as shellfish and mushrooms that can bring in the most foreign currency are controlled by the Workers Party or the military, making it hard for the money to be used to boost the welfare of the North Korean people.

“North Korea uses a lot of the money it makes from trade to fund its rule, either buying gifts for government officials or building luxury homes,” said Cho Myung-chul, a professor at the Korea Institute for International Economic Policy, who taught economics at Kim Il-sung University in North Korea. “North Korea desperately needs money to win the hearts and minds of the public and gain support for the hereditary transfer of power. That’s why it’s seeking talks with South Korea, so it can find a way to sell its products.”

South Korea is also prosecuting South Korean firms suspected of trading with the DPRK.

Read the full story here:
N.Korea Sells Products in South Under False Labels
Choson Ilbo
1/22/2011

According to Radio Netherlands Worldwide:

Free North Korea Radio, a South Korea-based shortwave station targeting North Koreans, saw its annual financial support of 400,000 to 500,000 US dollars from the US government more than halved last year, a first since the station`s foundation in 2004, due to accounting errors. Mainly led by North Korean defectors, the station lets North Koreans know what is happening in both South Korea and the world by renting foreign shortwave frequencies with US funds. The broadcaster also breaks news about the isolated communist country to South Koreans. If financial support decreases, such activities cannot continue.

Read the full story here:
US government reduces support for Free North Korea Radio
Radio Netherlands Worldwide
Andy Sennitt
1/24/2011

According ot Yonhap:

South Korea is investigating about 10 companies accused of importing North Korean merchandise in violation of a ban that came into effect last year over the sinking of a warship, an official said Wednesday.

South Korea suspended all inter-Korean trade in May last year when a multinational investigation found North Korea responsible for the sinking of the Cheonan earlier that year.

…

Unification Ministry spokeswoman Lee Jong-joo said in a briefing in Seoul that the authorities are questioning the companies on suspicion of violating the ban by importing marine products, mushrooms and other items from North Korea via China.

The companies claimed that they had thought the products were from China. Lee said the government plans to step up its crackdown on imports from North Korea starting next month in an effort to reinforce the ban.

…

Read the full story here:
Companies under probe for importing N. Korean products: official
Yonhap
1/19/2010