North Korean Economy Watch

UPDATE 7- July 23: South Korean government prevents South Korean civic groups from visiting DPRK until the North’s government agrees to participate in shoting investigation. (Donga Ilbo) 

As of Tuesday, six organizations had been offered invitations to visit the DPRK (Donga Ilbo):

One hundred members of the Korean Teachers and Educational Workers’ Union applied for permits to visit North Korea during August. In addition, 120 South Gyeongsang Province officials including Governor Kim Tae-ho are reportedly planning to visit the regime.

Humanitarian organizations such as Good Neighbors International, Nanum International and the Korean Sharing Movement will reportedly send 40-150 delegates to the North in August (for the former two) and September. In addition, North Korean officials invited around 120 members of Peace Three Thousand, and the representatives of the two will meet in Gaesong on Saturday to discuss the invitation.

These organizations [would] stay two to four days in North Korea and [] attend joint meetings with the North Korean Teachers’ Union, visit North Korean industrial facilities, tour Mount Baekdu, and attend an Arirang performance – a play propagandizing the regime.

UPDATE 6- July 21: Suspension of the Kumgang Tours will cost the DPRK $20 million per year.  If South Korea suspends the Kaesong tours (to the city, not the industrial zone) it will cost the DPRK government $15 million. (Choson Ilbo)

Maybe these numbers are sinking in. According to the Donga Ilbo:

North Korean officials recently followed one after another in expressing their perplexity regarding the incident, and fell over themselves to invite a horde of South Korean civic groups in August. These recent moves by the North have led some to believe that the North Korean authorities have somehow changed its stance towards the South.

An American source who recently met with North Korean officials in China and a working-level official at a South Korean civic group also said, “North Korean authorities told us that the shooter was a ‘very young’ person.”

The source added, “North Korean authorities told us that the incident equally took them aback. They added that especially at a time when the South Korean authorities are anxious to give them 50,000 tons of corn, those who thought the incident was intentional simply do not know anything about their regime.”

Unification Ministry spokesman Kim Ho-nyun also confirmed the Dong-A Ilbo’s report that North Korea invited a large group of South Korean visitors to Mount Baekdu and Pyongyang.

The Choson Ilbo remains skeptical. 

UPDATE 5 - July 17: The North’s story has changed.  DPRK rejects South’s inspectors. Seventy percent of officials of the United Front Department who were in charge of foreign affairs with South Korea were expelled from their positions early this year. It seemed to be an initiative step for taming the Lee administration and controlling the South’s policy (Daily NK).

UPDATE 4 - July 15: South Korea ups the ante by threatening to suspend tours of Kaesong unless the DPRK participates in the Kumgang shooting investigation (Bloomberg). 

NKeconWatch analysis: Suspending tours to Kumgang is relatively expensive for both North and South.  Hyundai and the South Korean government spent a lot of money developing the facilities, and by this time, the North Koreans who were earning from the project have grown accustomed to the cash flow.  The tours of Kaesong are different, however.  The South invested relatively little capital in the Kaesong tours, so suspending them idles few of their resources but hits the pocketbooks of the North Koreans who sponsor the program.  Could the Kaesong Industrial Zone be turned into a bargaining chip? 

UPDATE 3 - July 14: South Korea officially casts doubt on North Korea’s portrayal of events leading up to the shooting based on CCTV video and an eyewitness account. (Choson Ilbo) 

UPDATE 2: This story in the Korea Times (h/t ROK Drop) seems to indicate that there was a witness to the shooting and that there were no substantial barriers or warnings that vacationers could wander into a restricted military zone.   

UPDATE 1: The North Koreans expressed regret for the shooting, but says the responsibility lies entirely with Seoul.  They also refuse to cooperate with the South Korean government in an investigation of the incident citing that they have already sorted things out with Hyundai Asan. Although South Korea’s President Lee Myung-Bak ignored the situation in a parliamentary speech he gave shortly after the shooting, the Unification Ministry has now publicly stated that the shooting was “wrong by any measure, unimaginable, and should not have occurred at all.” 

ORIGINAL POST:Tourism numbers at the Kumgnag resort were up this year, despite high political tensions. 

From the AP:

A North Korean soldier fatally shot a South Korean tourist Friday at a mountain resort in the communist North, prompting the South to suspend the high-profile tour program just as South Korean’s new president sought to rekindle strained ties between the divided countries.

The news of the unprecedented shooting of a 53-year-old woman at Diamond Mountain resort emerged just hours after new President Lee Myung-bak delivered a nationwide address calling for restored contacts between the two Koreas, which have been on hold since he took office in February.

Kim said South Korea would suspend future Diamond Mountain tours until it completes an investigation. The other some 1,200 tourists already at the resort are to complete their tours as scheduled by as late as Sunday, said Hyundai Asan, the South Korean company that operates the resort.

Links to full stories below the fold:

(more…)

Last Friday, Yonhap reported that Kim Jong Il has ordered an anti-corruption investigation of two key agencies, both of which manage South Korean investments in the DPRK: the United Front Department (which Lankov claims is involved in clandestine operations) and the National Economic Cooperation Council.

North Korea is in the midst of a massive anti-corruption drive which has already resulted in the arrest of one of its top officials handling business with South Korea, informed sources in Seoul said Saturday.

The campaign, ordered by leader Kim Jong-il, was prompted by widespread allegations that some top party and administration officials took bribes as they pushed business projects with South Korean industrialists, said the sources well versed in North Korean affairs.

“The probe was launched as National Defense Commission Chairman Kim Jong-il said there was a lack of supervision over the United Front Department [a key party organization that supervises inter-Korean affairs], although lots of suspicions were raised over the department’s corruption,” one source told Yonhap News Agency.

According to the sources in Seoul, the North Korean leader was enraged after getting a report that some party and government officials allegedly pocketed bribes and diverted food and other aid from South Korea to black markets.

Also under investigation is the National Economic Cooperation Council, a government body that handles business with South Korean entrepreneurs, the sources said.

The Council’s chief, Jeong Woon-eop, remains under arrest pending investigation into allegations that he took “huge amounts” of bribes, said the sources, who wanted to remain anonymous. (Yonhap excerpted)

Frequently “anti-corruption campaigns” in developing countries have nothing to do with making the bureaucracy more accountable or responsive to public demands, but rather are political maneuvers to prevent “rents” or funds from being channeled to uses that lie outside the leadership’s control (or some faction of the leadership).  In other words, they are regime enhancing.  The announcement of this campaign demonstrates two important principles that deserve explicit mention:

1. Not all profits earned by North Korean joint ventures are channeled to the leadership, and in fact many of them are siphoned off by middlemen who actually control the financial machinery.  Once skimmed off the top, it is likely that these funds are used in illicit private commercial operations since they cannot be legally declared by the owner (unless there are domestic channels for laundering money in North Korea).

2.  If funds are being siphoned off of high-profile official joint venture operations, then the leadership is not in control of its internal fiscal affairs.  Indeed it is likely that, as in the Soviet Union, the people who keep the private economy running are the trusted mid- to senior-level officials who can skirt the rules and know how to actually get things done within the system.

Update 2/24/2008:

North Korean authorities have been investigating the chief of a North Korean committee in charge of inter-Korean economic cooperation for months after seizing $20 million from his house, a report said Friday.

The full article can be found here:
NK Official Suspected of Embezzling Funds From Seoul
Korea Times
Jung Sung-ki

Update 2/12/2008:

The chief of Daesung General Bureau, a division of the 39th Department which manages foreign transactions, was fired on suspicion of embezzling US$1.4 million last fall.” (Daily NK)

The full article can be found here:
North Korea launching massive anti-corruption drive
Yonhap
2/9/2008

Korea Times
Andrei Lankov
7/1/2007

What is the “North Korean KGB?’’ This common question is actually rather meaningless _ not because North Korea does not have an analogue to the Soviet agency (it does), but because the structure of the North Korean “intelligence community’’ is remarkably complicated. In North Korea there are three major independent intelligence services _ and an array of minor sub-services.

Each service has its own field of responsibility and expertise, but in some areas they are compete fiercely. Presumably, such competition makes the North Korean leaders a bit less restive in their sleep: in a dictatorship, an excessive concentration of intelligence in one agency’s hands is fraught with danger.

Since we have mentioned the KGB, let’s start from North Korea’s closest analogue, the Ministry for Protection of State Security or MPSS. Back in the 1950s, the MPSS’s predecessor grew up absorbing a serious influence from the KGB. Like its Soviet prototype, the MPSS combines the functions of political police, counterintelligence, and political intelligence.

As a political police force, the MPSS runs a huge network of informers, manages the camps for political prisoners, and enforces manifold security regulations. As a counterintelligence agency, it does everything it can to prevent foreign spies from effecting infiltration into North Korea. And, finally, it is engaged in intelligence gathering overseas and, to some extent, in South Korea. A special role of this agency is emphasized by the fact that it is headed not by a regular minister but by Kim Jong Il himself. Yes, the “Dear Leader’’ is also the minister of his own security _ a wise arrangement, perhaps, taking into consideration the tendency of intelligence bosses to become too powerful.

However, the mighty MPSS is not very prominent when it comes to operations in South Korea. A North Korean peculiarity is the existence of the party’s own intelligence branch. The Korean Workers Party’s (KWP)own secret service is euphemistically called the Third Building _ after the number of the building in which the relevant departments are located. The Third Building bureaucracy consists of a few departments and bureaus, each with its peculiar tasks.

The KWP’s secret service has survived from the late 1940s when the party operated in both parts of the country. The Communist underground in the South, and the then powerful guerrilla movement, were managed by special departments of the KWP Central Committee. The South Korean Communist underground was wiped out in the early 1950s, but the related bureaucracy in the North survived and found justification for its existence (once created, bureaucracies are very difficult to kill). Its raison d’etre is the need to promote Juche/Communist ideas in the South, with the resurrection of the Communist movement as a supreme goal; a Communist-led unification is a more distant task. In the course of time, these goals were seen as more and more remote, but were never abandoned completely.

In fact, the Third Building is largely responsible for attempts to influence the South Korean political situation, and for gathering intelligence which makes such influence more efficient. The United Front Department, a part of the Third Building, is also responsible for clandestine operations in other countries where it strives to change the local attitudes in North Korea’s favor.

Since the Third Building should aim at starting local insurrections, many of its staff have undergone commando-style training. The only known political assassination in recent years was conducted by the officers of the Operational Department, which is a part of the Third Building. In 1997 they hunted down and shot dead Yi Han-yong, a relative of Kim Il-sung who had defected to the South and published some highly critical books about the North Korean ruling dynasty.

In addition to the MPSS and the Third Building, North Korea also has a military intelligence service whose operations largely target South Korea. Their major interest is the South Korean military and the USFK, as well as any intelligence which may be of use should a new war erupt on the Korean Peninsula.

Many people still remember the September 1996 incident when a North Korean submarine ran ashore on the eastern coast and was abandoned by the crew whose members became engaged in frequent clashes with the police and army. This was a routine operation of military intelligence that went wrong due to a navigational mistake. The commandos were supposed to survey the military installations on the coast, and then move back to the North, but it did not work as intended.

The efforts of North Korean intelligence services are concentrated on the South. But this does not mean that other countries are immune to their activity. The North Korean spies are especially active in Japan, and this was once again demonstrated by the dramatic events of 2001.