North Korean Economy Watch

The Nation
1/18/2007

North Korea’s energy minister has been fired because he suggested that the power supply to leader Kim Jong-Il’s guesthouse should be diverted for public use, a Japanese newspaper said Thursday.

Ju Tong-il, minister of power and coal industries, was fired late last year by the leaders of the impoverished Communist state, the evening edition of the Mainichi Shimbun daily said in a story from Beijing.

“Our country’s energy situation is extremely severe,” Ju told a meeting of energy-related officials last spring, according to the daily, quoting unnamed sources close to the North Korean government.

“Or better yet, why don’t we get back electricity fed to the guesthouses of our general?” Ju reportedly suggesting, referring to Kim.

Ju later excused his remarks, saying: “I just wanted to express the fact that our domestic electricity condition is paralyzed.”

But he came under fire from leaders of the ruling Workers Party and was then dismissed, the daily said.

Agence France Presse

Golden Villas, Let’s Share Electricity!
Daily NK
Yang Jung A
1/19/2007

While North Korea’s electrical power supply worsens, North Korea’s Premier Park Bong Ju pushes for the expansion of energy supply and civil electrical support only to receive a personal punishment from authorities or in actual, his position changed.

“As a result of energy and other issues, Ju Dong Il, the Minister of the Electricity and Coal Industry was removed from his position” a Japanese newspaper “Mainichi” reported on the 18th, citing a source related to the North Korean government.

The Minister Ju was known for his proposal on energy made at a policy meeting early 2005 where a comment was made “The electricity situation in our country is seriously grave” and suggested “How about we redirect the electricity from our leader’s personal residence and use that.”

This proposal suggested that the electricity crisis be partly solved by redistributing some of the electricity supplying Kim Jong Il’s numerous personal villas throughout the nation, to much needed industries and homes.

As the Minister Ju realized his comments had set a predicament, he tried to justify himself stating “I simply wanted to express that the country’s electricity is in an immobilized state” but was known to have been reprimanded by the central authorities and his position changed. Since last October, the Ministry of the Electricity and Coal Industry had been separated to the Ministry of Electrical Industry and the Ministry of Coal Industry.

In the same month, Premier Park expressed his concerns on the export of coal to China at a trade conference saying “If this situation continues, our country will be faced with serious implications from the energy crisis. The people will be unable to use their central heating and industries will stop. It would be better to refrain from further exports.” The newspaper also mentioned that Premier Park had gone to the extent of submitting a proposal and that the ministry had even settled on the suspension of coal exports.

However, following the nuclear experiment, the National Defense Commission asserted that the acquirement of foreign currency was an absolute necessity in strengthening the military and strongly urged for the resumption of exports. In the end, the ministry’s decision was overturned and exports recommenced.

Though Premier Park has not yet been replaced, under the orders of authorities, he is known to be spending his time in self-discipline as “for now, revision is necessary.” Though Premier Park’s name is listed on the roll of honors, he has not been seen in the presence of Kim Jong Il. 

Yahoo News
1/17/2006

North Korea’s state media said Wednesday that First Vice Foreign Minister Kang Sok Ju congratulated the appointment of Nicaragua’s new foreign minister, a sign that Kang has become North Korea’s acting foreign minister after Paek Nam Sun’s death earlier in the month.

Kang “sent a congratulatory message to Samuel Santos Lopez upon his appointment as foreign minister of Nicaragua,” the Korean Central News Agency said.

Paek died Jan. 2. No announcement has been made regarding his successor.

Yonhap
1/17/2007

North Korea has failed to deliver on its promise to distribute food rations across the communist country on the occasion of the New Year, a civic aid group said Wednesday.

“Except for Pyongyang, no special New Year food rations were issued,” Good Friends, a Seoul-based civic relief organization, said in its latest monthly newsletter.

The group said that North Korean authorities had planned to provide food rations equal to the daily household consumption of rice across the country, but three days worth of rice and 500 grams of bean oil were distributed only for residents in Pyongyang.

“Mid-level officials living in Pyongyang received food rations to last a half month and electricity was provided for the city during the New Year,” it said.

North Korea has suffered from a chronic food shortage since the mid 1990s due to a series of natural disasters aggravated by an overall economic downturn. However, the North had always managed to prioritize food distribution to ensure the inhabitants of the capital Pyongyang do not go without it, experts say.

Heritage 2007 Index of Economic Freedom

North Korea’s economy is 3% free, according to our 2007 assessment, which makes it the world’s least free economy, or 157th out of 157 countries. North Korea is ranked 30th out of 30 countries in the Asia–Pacific region, and its overall score is the lowest in the world.

North Korea does not score well in a single area of economic freedom, although it does score 10 percent in investment freedom and property rights. The opening of the Kaesong industrial venture in cooperation with South Korea has been a start in foreign investment.

Business freedom, investment freedom, trade freedom, financial freedom, freedom from corruption, and labor freedom are nonexistent. All aspects of business operations are totally controlled and dominated by the government. Normal foreign trade is almost zero. No courts are independent of political interference, and private property (particularly land) is strictly regulated by the state. Corruption is virtually immeasurable and, in the case of North Korea, hard to distinguish from necessity. Much of North Korea’s economy cannot be measured, and world bodies like the International Monetary Fund and World Bank are not permitted to gather information. Our policy is to give countries low marks for specific freedoms when it is country policy to restrict measurement of those freedoms.

Background:
The Democratic People’s Republic of Korea has maintained its Communist system since its founding in 1948. A serious economic decline began in the early 1990s with the end of economic support from the Soviet Union and other Communist-bloc countries, including China. Floods and droughts all but destroyed the agricultural infrastructure and led to severe famine and dislocation of the population during the 1990s. South Korean and Chinese investments in the economy have alleviated dire conditions. The government continues to rely on counterfeiting foreign currency and sales of missiles for money. That and the nuclear ambitions and isolationism of Kim Jong Il reinforce North Korea’s status as the hermit kingdom.

Business Freedom – 0.0%
The state regulates the economy heavily through central planning. The economic reforms implemented in 2002 allegedly brought some changes at the enterprise and industrial level, but government regulations make the creation of any entrepreneurial activities virtually impossible. The overall freedom to start, operate, and close a business is extremely restricted by the national regulatory environment.

Trade Freedom – 0.0%
The government controls all imports and exports, and formal trade is minimal. Data on North Korean trade are limited and compiled from trading partners’ statistics. Most North Korean trade is de facto aid, mainly from North Korea’s two main trading partners, China and South Korea. Non-tariff barriers are significant. Inter-Korean trade remains constrained in scope by North Korea’s difficulties with implementing needed reform. Given the lack of necessary tariff data, a score of zero is assigned.

Fiscal Freedom – 0.0%
No data on income or corporate tax rates are available. Given the absence of published official macroeconomic data, such figures as are available with respect to North Korea’s government expenditures are highly suspect and outdated.

Freedom from Government – 0.0%
The government owns all property and sets production levels for most products, and state-owned industries account for nearly all GDP. The state directs all significant economic activity. The government implemented limited economic reforms, such as changes in foreign investment codes and restructuring in industry and management, in 2002.

Monetary Freedom – 0.0%
In July 2002, North Korea introduced price and wage reforms that consisted of reducing government subsidies and telling producers to charge prices that more closely reflect costs. However, without matching supply-side measures to boost output, the result of these measures has been rampant inflation for many staple goods. With the ongoing crisis in agriculture, the government has banned sales of grain at markets and returned to a rationing system. Given the lack of necessary inflation data, a score of zero is assigned.

Investment Freedom – 10.0%
North Korea does not welcome foreign investment. One attempt to open the economy to foreigners was its first special economic zone, located at Rajin-Sonbong in the northeast. However, Rajin-Sonbong is remote and still lacks basic infrastructure. Wage rates in the special zone are unrealistically high, as the state controls the labor supply and insists on taking its share. More recent special zones at Mt. Kumgang and Kaesong are more enticing. Aside from these few economic zones where investment is approved on a case-by-case basis, foreign investment is prohibited.

Financial Freedom – 0.0%
North Korea is a Communist command economy and lacks a private financial sector. The central bank also serves as a commercial bank with a network of local branches. The government provides most funding for industries and takes a percentage from enterprises. There is an increasing preference for foreign currency. Foreign aid agencies have set up microcredit schemes to lend to farmers and small businesses. A rumored overhaul of the financial system to permit firms to borrow from banks has not materialized. Because of debts dating back to the 1970s, most foreign banks will not consider entering North Korea. A South Korean bank has opened a branch in the Kaesong zone. The state holds a monopoly on insurance, and there are no equity markets.

Property Rights – 10.0%
Property rights are not guaranteed in North Korea. Almost all property belongs to the state, and the judiciary is not independent.

Freedom from Corruption – 10.0%
North Korea’s informal market is immense, especially in agricultural goods, as a result of famines and oppressive government policies. There is also an active informal market in currency and in trade with China.

Labor Freedom – 0.0%
The government controls and determines all wages. Since the 2002 economic reforms, factory managers have had more autonomy to set wages and offer incentives, but the labor market still operates under highly restrictive employment regulations that seriously hinder employment and productivity growth.

Aidan Foster-Carter
Nautilus Institute
1/16/2007

Everyone is famous for 15 minutes, at least according to the late American pop artist and cultural icon Andy Warhol.

For Paek Nam Sun, that was literally true. North Korea’s foreign minister since 1998, who has just died, hit the headlines just once in all his 77 years – and then only on the inside pages, mainly of the regional press in Asia.

Coffee with evil in Brunei

That was in August 2002, when for a quarter of an hour Paek sipped coffee with his rather better known US opposite number at the time, Colin Powell. The place was Brunei; the occasion, the ASEAN Regional Forum (ARF).

Senior American and North Korean leaders rarely meet at the best of times, which this was not. Earlier that year, President George W Bush had famously labeled Kim Jong Il’s regime, along with Iran and Iraq, as part of an “axis of evil”. So for his Secretary of State to dally thus with the enemy, even briefly, raised eyebrows in some quarters.

We know now, as suspected at the time, that Powell was keen to engage North Korea. But vice-president Dick Cheney was dead against, and Cheney had Bush’s ear.

Any hopes of renewed dialogue were dashed later in 2002. Accused by Washington of a second, covert nuclear programme, North Korea restarted its first one precipitating a crisis that continues, climaxing (so far) in its testing a nuclear device on October 9.

Paek low in the pecking order

With the nuclear crisis ongoing, we might have expected to see more of Paek Nam Sun. But they do things differently in North Korea.

A senior diplomat (and sometime ambassador to Poland) who had also been active in early contacts with South Korea since the 1970s, as foreign minister the genial Paek was a largely ceremonial figure: trundled out for occasions like the ARF. As such he was in Kuala Lumpur last July, where he reportedly also had medical treatment.

Serious negotiations, on the other hand, were and are the province of Paek’s nominal deputies: two above all. The better known is deputy foreign minister Kim Kye Gwan, who heads Pyongyang’s delegation to the on-off six party nuclear talks. A skilled and confident negotiator, Kim even gave an unscripted if brief press conference after the latest round of talks, held in Beijing last month, ended inconclusively.

But the real heavy hitter is first vice foreign minister Kang Sok Ju. He it was who negotiated the October 1994 US-DPRK Agreed Framework (AF); defusing an earlier North Korean nuclear crisis (plus ca change), back in the Bill Clinton era, which in mid-1994 had come perilously close to unleashing a second Korean War. If the six-party process ever gets anywhere, which is doubtful, Kang will be wheeled on again. For now, the more junior Kim Kye Gwan does the honours.

Puzzling pseudonymy

So Paek Nam Sun’s passing will hardly send a tremor through North Korea’s foreign policy. But it does shed light on the curious way they order matters in Pyongyang.

For one thing, what was his real name? The man who first showed up in the 1970s for Red Cross talks with South Korea was known as Paek Nam Jun. But after he became foreign minister, the J mysteriously morphed into an S.

Peculiar, but not unique. Ri Jong Hyok, Pyongyang’s current point man for ties with Seoul, was Ri Dong Hyok in the 1980s when he headed North Korea’s quasi-embassy in Paris. There are several other such cases. It’s hardly a disguise, so what gives?

(En passant, the French connection is intriguing. Nominally the last EU state to resist full recognition of the DPRK, in practice France has hosted a North Korean legation since the 1970s. And both Kang Sok Ju and Kim Kye Gwan majored in French: the traditional language of international diplomacy.)

Dying off

Another oddity: North Korean elites hardly ever retire. Like Paek, they mostly die in post, often at an advanced age. Communist regimes tend to gerontocracy: think China, at least until recently. But North Korea has taken this, like most things, to extremes.

Since Kim Jong Il succeeded his father Kim Il Sung as leader in 1994, the nominally ruling communist party, the Worker’s Party of Korea (WPK), seems to be frozen – at least at the top. No new appointments to the Politburo have been announced in over a decade. Instead its ranks have been thinned by the remorseless march of mortality.

Latest to go was Kye Ung Tae, who as KWP secretary for national security wielded far more power than Paek Nam Sun. Kye died of lung cancer on November 23, aged 81. That leaves just six full Politburo members. One anti-Japanese guerilla veteran and honorary vice president Pak Song Chol passed 93 last September. Three others are over 80. Titular head of state Kim Yong Nam turns 79 on February 4, just before the “dear leader” Kim Jong Il a mere lad by comparison reaches his 65th birthday.

That would be retiring age in most normal countries. But Kim Jong Il has yet to name a successor, among several competing sons and other contenders. His health is said to be not of the best although such rumors have proved premature in the past.

A nuclear North Korea is indeed a worry, but it is not the only one. The world, and even Pyongyang, will take the death of Paek Nam Sun (who?) in its stride. But Kim Jong Il could go just as suddenly. In that case all bets for North Korea would be off.

KCNA
1/15/2007

Officials of the Ministry of Power Industry, with a sense of responsibility for a pilot in the building of an economic power, are working hard to make an epochal turn in the power production from the outset of the year. Pak Nam Chil, minister of the Power Industry, told KCNA:

The ministry is concentrating all the forces on operating the already repaired generating equipment at full capacity, while considerably raising the existing capacities of the thermal- and hydro-power stations across the country.

In particular, it is gearing up preparations for the general overhaul of facilities at the power stations with main emphasis on putting production of the Pukchang Thermal-power Complex and the Pyongyang Thermal-power Complex on normal track.

The workers of the hydropower stations are successfully carrying on the repair of hydraulic power structures, managing water well and operating them in a scientific and technical way. Great efforts are channeled to manufacturing highly efficient turbines so as to boost the turbine efficiency.

Along with this, they are taking various measures to make best use of the produced electricity. They are readjusting the power transmission system to reduce the line loss and distributing electricity in a rational way.

Officials, workers and technicians of power stations in different parts of the country including the Chongjin Thermal-power Plant have turned out in the increased production of electricity, solving the needed materials and equipment components with their own efforts.

Korea times
Andrei Lankov
1/15/2007

Some time in the late 1940s, a young Russian journalist made a tour of the Mt. Kumgang, accompanied by a local official. The numerous Buddhist temples scattered in the valleys attracted his attention, but the official assured the Soviet visitor: “Do not worry, we will take care of them. We will close most of them, and will find a good use for others _ like, say, resorts for the working masses.”

It is difficult to say what the journalist felt back then, but when he recalled this episode in the early 1980s in his memories, his disdain was palpable. But this is indeed what happened to many _ indeed, most _ Buddhist temples in North Korea.

For decades, the North Korean state was almost unique in its hostility to all forms of religion. Indeed, few if any Communist states ever came close to proclaiming and enforcing a complete ban on all kinds of religious activity _ aside from North Korea, such a ban existed only in Albania, another ultra-Stalinist state (Pol Pot introduced the same policy in his infamous “Democratic Kampuchea,” but he did not stay in power long enough).

In the late 1980s, a very limited amount of religious activity came to be tolerated, but for some 25 years, between 1960 and 1985, North Korea had neither temples nor officially recognized religious groups.

However, if all religions are bad for the North Korean authorities, not all of them are equally bad. Some of them are worse, while others were ranked as marginally more tolerable.

For the North Korean regime in its early years, it was the Christianity that was clearly seen as an embodiment of evil.

This attitude was prompted by the fact that Christianity was a recent introduction, with too, too strong connections to foreign powers, above all, to the United States. It was both “reactionary” (as every religion) and anti-national.

The most acceptable religion probably was Chondogyo, or the Teaching of the Celestial Way. Nowadays, this eclectic cult has somewhat waned and does not play a major role in either Korea, but for a century, from the 1860s to the 1940s, it was a important force in the spiritual life of the country.

Its leaders and activists were prominent in two major outbreaks of the nationalist movement _ the Tonghak Uprising of the 1890s and the March First Movement of 1919, and this tradition made the North Korean authorities somewhat more tolerant towards it.

Buddhism fell somewhere between. It could not boast the nationalist credentials of Chondogyo _ on the contrary, in the colonial era many Buddhists collaborated with the Japanese (as a matter of fact, some colonial administrators saw Buddhism as the “religion of empire” and actively promoted it). At the same time, it did not have Christianity’s close associations with “imperialist” powers.

The land reform of 1946, proclaimed by the North Korean authorities (but actually designed by the Soviet military) inflicted the first major strike on Buddhism, and all land holdings of religious institutions were confiscated. This left the monks without any means of existence and drove many of them from the monasteries.

To keep the Buddhists under control, the Korean Buddhist Union was created in late 1945 as an umbrella organization. It did not so much represent the believers as make them accountable to the emerging state bureaucracy. This was a standard device: Similar bodies were created for other religions as well.

While all Christian churches ceased to function immediately after the Korean War, services were held in some Buddhist temples until the early 1960s. It is even possible, even if not particularly likely, that some services continued through the dark age of North Korean religious history, the period between 1960 and 1980.

Of course, the former Buddhist monks were subjected to strict surveillance and numerous restrictions were placed on their social advancement. However, it seems that they fared better than former Christian activists and priests.

The Buddhist Union was quietly disbanded in 1965 _ at least, for years nothing was heard about this body for nearly a decade, and in all probability it fell out of existence for some time. However, from around 1975 the representatives of the North Korean Buddhist Association were again seen at international gatherings where they scorned the U.S. imperialist warmongers and their South Korean puppets, all the while explaining how happy the masses in their country were to be led by the “Great Leader.”

The 1970s and 1980s witnessed a large-scale restoration of old Buddhist temples, and these days there are 63 officially recognized temples in North Korea. Some of them are allegedly used for religious services, but it is not clear when the services are real and when they are nothing but carefully staged performances for the sake of foreign visitors. It is known that nowadays there are some 300 monks in the North, all receiving their wages from the state and taking care of the temples.

Thus, by the standards of North Korean religious policy, the treatment of Buddhism was not particularly harsh. However, it seems that Buddhism is not positioned to experience a dramatic revival in future. It appears that the North will eventually go Christian, and this Christianity is likely to be of a radical, nearly fundamentalist, variety. At least this is what can be guessed from the study of the events of the recent decade.

KCNA
1/9/2007

The people of the Democratic People’s Republic of Korea have turned out with a great ambition and confidence in the efforts to make a higher leap, in response to the joint editorial issued by Rodong Sinmun, Josoninmingun and Chongnyonjonwi on the occasion of the New Year Juche 95 (2006). Surging is the enthusiasm of the officials and working people in the field of agriculture to thoroughly implement the tasks set forth by the joint editorial that put forward agriculture as the main front of the economic construction this year, too, and called for mobilizing and concentrating all the forces on farming once again.

Minister of Agriculture Ri Kyong Sik said in an interview with KCNA that the ministry has worked out a plan of making a fresh progress in implementing the Workers’ Party of Korea’s policies of bringing about innovations in seed production, potato and soya bean cultivation and two-crop-a-year farming and is striving hard to implement them.

The ministry, he added, is focusing efforts on taking steps to decisively increase the grain-cultivation area, acquire new land, reclaim wasteland and raise the fertility of soil. It also pushes ahead with full preparation for finishing the construction of setups of the Taegye Island reclaimed tideland before the start of sowing while carrying on land-rezoning projects.

Steps are being taken beforehand to plant more high yielding varieties suitable for potato producers in highlands and to protect them against blights and harmful inspects.

Preparations are being made for making the Kaechon-Lake Thaesong and Paekma-Cholsan Waterways, the gravity-fed ones, pay off and for carrying on in earnest similar waterway projects in the Miru Plain and other parts of the country.

The officials and working people in the agricultural domain are engaged in farming preparation for reaping a bumper crop this year with a high sense of responsibility for the country’s rice granaries.

Officials and working people of ministries, national institutions and various organs and enterprises at all levels and even housewives are coming out to the countryside, bringing with them large quantities of farming materials and compost, to inspire agricultural working people.

Thanks to the burning patriotic zeal of the agricultural working people to support the Songun fatherland with rice and the nation-wide sincere assistance, the agricultural front is sure to yield a rich harvest this year, the minister said with emphasis.

Joong Ang Daily
Lee Jung-min
1/9/2007

One of North Korea’s capitalist experiments may be awakening from hibernation. “The North’s National Economic Cooperation Federation and Tumen River Development Limited Company of South Korea have reached an agreement to build a heavy and chemical industry complex in Rajin-Sonbong district,” Oh Myoung-hwan, the president of the South Korean company, said yesterday. “We also agreed to carry out jointly a Mount Paektu tour project.” A letter of intent will be signed in Vladivostok, Russia, today, Mr. Oh said.

Mr. Oh, whose company is headquartered in Vladivostok, said Russian natural resources would be processed by North Korean workers in plants built with South Korean capital and technology. He added that he has informed the Unification Ministry in Seoul of his plans.

The National Economic Cooperation Federation is a North Korean foreign economic agency. Mr. Oh said Ryo So-hyon, the federation’s Vladivostok office head, will sign the letter of intent for the North Koreans.

A government official in Seoul speculated that North Korea is looking for new projects because its nuclear test in October triggered a drop in the number of South Korean tourists visiting Mount Kumgang and U.S. criticism of the Kaesong Industrial Complex has grown.

Mr. Oh said that when the new complex is running, train tours to Mount Paektu would be the next step. Tourists would travel by ship from Sokcho on South Korea’s east coast to Hoiryong and Musan, two harbors in the Rajin-Sonbong area of North Korea’s far northeast.

North Korea established the Rajin-Sonbong Free Economic and Trade Zone in 1991 on the western side of the Tumen River to attract foreign investment. It has been a near-total failure in attracting foreign investment. Mr. Oh said work on the new project would begin in 2-3 months.

Korea Herald
12/27/2006

North Korea, desperate for foreign currency under U.S.-imposed sanctions, has started to sell its gold reserves on international markets, a Japanese newspaper said Tuesday.

The United States last year blacklisted a Pyongyang-linked bank in Macau, infuriating the communist regime which walked out of disarmament talks for 13 months during which it tested an atom bomb.

Since the US crackdown on the bank, North Korea has earned 28 million dollars in foreign cash by exporting gold to Thailand, which had not imported gold from Pyongyang for the previous five years, the Yomiuri Shimbun said.

North Korea exported 500 kilograms of bullion to Thailand in April and another 800 kilograms a month later, the conservative Japanese daily said without identifying its sources.

North Korea’s central bank, Choson Central Bank was also re-listed on May 12 for trading on the London Bullion Market, said the newspaper, quoting a spokesman for the London market.

The North Korean central bank, which can issue currency, joined the London gold market in 1976 but was de-listed in June 2004 due to inactive trading, the newspaper said.

The Yomiuri, citing South Korean data, said North Korea was estimated to have between 1,000 and 2,000 tons of gold reserves.

The United States blacklisted Macau’s Banco Delta Asia in September 2005, saying it suspected that 24 million dollars in North Korean accounts were linked to counterfeiting or money-laundering.

The accounts have been frozen and other Asian banks have taken similar moves.

The financial sanctions were a main topic during six-nation talks, aimed at persuading North Korea to end its nuclear program, which ended in deadlock last week in Beijing.