North Korean Economy Watch

Korea Herald
Chris Gelken
6/20/2006

North Korea is open for business and for the past four or five years has consistently shown that it wants to go forward by welcoming international investment. That is the bullish opinion of Roger Barrett, managing director of Beijing-based Korea Business Consultants.

Barrett was in Seoul to meet with executives of the newly formed Chosun Development and Investment Fund, which recently won regulatory approval from Britain’s Financial Services Authority to begin approaching potential investors.

“Being first into a market isn’t always the best thing to do unless you really understand the risk and rewards. I believe those who are involved in setting up this fund have substantial experience in emerging and developing markets, so I feel very positive,” Barrett told The Korea Herald.

The emergence of this fund came as no surprise to Barrett, despite recent and ongoing political tensions with the North.

“It has been talked about for some time. We have been in touch with investors who have been seeking ways to expand their portfolio of projects in a managed way, and the approval of the fund by the British Financial Services Authority is a big green light to move forward.

“It presents investors with an exciting new opportunity in a market that is little understood,” Barrett said.

The financial sanctions imposed on North Korea last September may have frightened off some potential investors, but not Barrett or his company’s senior investment manager, Adrian Cortez.

“This fund represents one of the first times that North Korea will be exposed to international financial standards,” Cortez said. “I mean even Gaeseong is still more of an agreement between South and North Korea. But now for the first time you have a group of international investors that are going to apply international standards of due diligence. Of course there are going to be problems going into it, but we don’t see them as insurmountable.”

Barrett added that the recent difficulties of moving investments into the North and moving profits out, has eased.

“The bank we work with is the Daedong Credit Bank. As you would expect, they have a diverse range of correspondent banks,” Barrett said.

“Although things were shut down in Macau by what are easily referred to as U.S. sanctions, we have many clients and partners operating from Asia and Europe who are not directly affected.”

Some international investors may also be deterred by recent claims of exploitation of North Korean workers in foreign-invested firms, in particular at the Gaeseong Industrial Park just north of the heavily fortified border.

“You have the quotes that make great soundbites, you have this huge disparity in wages, but with proper monitoring – which the North is reluctant to do but is still being talked about – we may find that the fair wage is $4 a day,” Cortez said. He added that even at that rate some critics may not be satisfied, “but that may actually be a good livable wage for them considering many of their other expenses are cared for.”

Barrett pointed out that many of the workers’ expenses are actually covered by the government.

“In a communist society like the DPRK they get free medical care and education. They actually get quite a lot from the government including housing,” he said, drawing a comparison between the North today and where China and Vietnam were 20 or 10 years ago.

And Barrett believes the North can emulate the success stories of China and Vietnam.

“I am very confident because I believe a market of 23 million people, the same size as Taiwan or Malaysia, presents a lot of opportunity for business combined with the fact that there are a lot of resources of interest to overseas investors.

“All of those factors I think will drive business, trade and investment in a way that everybody can benefit. And I think that is the way forward,” Barrett said.

from the Joong Ang Daily:

After North Korea began a capitalist experiment by adopting economic reform measures in 2002, incentive payments have become common at communal farms, following the lead of factories in urban areas. After the North Koreans quickly grasped the essence of capitalism ― the more they work, the more they earn ― productivity at North Korean farms has increased, and some workers have become the rich in a famine-stricken country.

Paek Kun-su, a 72-year-old farmer at the Chilgol Farm near Pyongyang, met with the JoongAng Ilbo on May 14, during a trip to the North by a team from the newspaper, which was allowed to tour a large number of economic sites last month.

Chilgol Farm is one of North Korea’s representative state-run farms, the authorities there said. After Mr. Paek developed a new variety of rice that yields more with less fertilizer, he was given 15 million North Korean won ($100,000) as a bonus. That was an extravagantly large sum in the North, where a public servant with 30 years of service receives a monthly salary of 6,000 won. A North Korean worker at the Kaesong Industrial Complex receives about $60 a month, and even that is higher than the average salary in the North, so Mr. Paek’s windfall was worth about 160 times that figure.

Mr. Paek said his rice variety, called only “Number Six” in a bow to socialist realism, yielded more than 4 tons per acre in last year’s crop. He also stressed that the new rice variety requires less fertilizer than the ones it replaced and is resistant to attacks by insects. “It can be planted where the temperature is low,”Mr. Paek said. “It can be planted anywhere on the west coast of Korea and anywhere south of Kilju, North Hamgyong province, on the east coast.”

Those claims, however, may require some caution in accepting. For example, the average rice yield in the United States is estimated at about 3.5 tons per acre; the figure in Korea is 2.2 tons.

Mr. Paek said he introduced the new rice variety at a national science and technology fair on May 5. He was selected from more than 50,000 participants as the grand prize winner.

He said he was once a director at North Korea’s rice research institute, a part of the Academy of Science for Agriculture. During his career as a scientist, he said, he won six awards, including medals and a television set, but never a cash prize.

“I am very happy to contribute to increasing crop production in our country and helping resolve food shortages here,” he said, adding that he began developing the new strain of rice in the mid-1990s, after seeing large number of his countrymen dying of hunger.

Mr. Paek’s windfall is out of reach for almost all North Koreans, but many farmers do seem to enjoy better living conditions after the incentive payment system was established. At the Chongsan Cooperative Farm in South Pyongan province, Ko Myong-hee, a 46-year-old manager, said farmers there are living in stable conditions. The JoongAng Ilbo toured the farm on May 14.

Ms. Ko said the farm’s 600 workers produced 8,000 tons of rice in addition to other crops, vegetables and fruits. The farm has about 1,470 acres of rice paddies and 980 acres of fields and orchards. (The difference between that farm’s rice output and Mr. Paek’s claimed yields is startling.)

North Korean farms usually complete their harvest in October, and the government purchases the crops. Milled grains are purchased at 40 won per kilogram, and raw grain at 20 won per kilogram.

Ms. Ko said the Chongsan Cooperative Farm’s workers each received an average of 500,000 won in cash last year in addition to the food they consumed. The incentive payment translates to about 40,000 won per month, about eight times higher than the salary of a Pyongyang office worker. A factory worker in the North with high skills can earn as much as 20,000 won per month, including incentive payments.

“During the famine of the mid-1990s, production went down sharply, but we managed to survive,”Ms. Ko said. “Recently, we improved our crop varieties and the quality of farming land, and production went up after that.”

An official at the National Reconciliation Council, which arranged the visit, said farm villages had suffered relatively less from the severe famines of a decade ago. “Those who had relatives in farming villages received a lot of help from them back then,” he said.

With slowly improving farming conditions, North Korea began last month a revived campaign to mobilize the nation’s workers for agriculture. Another National Reconciliation Council official said a similar campaign last year was successful; “Students older than 12 years and other laborers were mobilized to support farms in this rice planting season,” he said.

North Korea has been living on foreign food aid for more than a decade, and the country is struggling to end its perennial food crisis. “We have high pride, and you can imagine how bad the situation used to be when we asked the international community to help us,” the National Reconciliation Council official said. “But we cannot live on foreign aid forever.”

The country focused on building irrigation waterways to improve farming conditions, officials said. During the JoongAng Ilbo’s visit to the Academy of Agricultural Science, it saw 2,600 researchers working to develop more productive and hardier seeds and more effective fertilizers. The seed improvement project largely focuses on rice and potatoes, the academy said.

“We aim to reach 8 million tons of annual food production by 2007,” a researcher at the academy said.

Ri Il-sop, the science exchange director at the academy, said rice farming in the North used to employ “dense planting” methods until recently, but a test of “thin planting” has been conducted with new varieties of seeds. “The test has been successful so far,” Mr. Ri said. “We can farm easily and save seed with the new methods.”

Another senior researcher at the academy, Pak Sok-ju, said providing information about land conditions and weather is also an important project of the academy. He said other necessary data include things such as the length of the planting season around the nation and the effects of fertilizer usage. “We are developing the program to find a new way of farming in the information age,” Mr. Pak said.

While the North Korean government has called such efforts “an agricultural war,” experts in South Korea said the famine-stricken country still had other crucial tasks at hand. An energy crisis and a shortage of farming tools and fertilizer are crushing burdens, they said, adding that mobilizing manpower and improving seed quality cannot alone resolve the underlying problems in keeping North Korea from being able to feed itself.

Korea Times
Seo Dong-shin
6/19/2006

Chang Sun-sup, who has been on the forefront of the multinational project to build two light water reactors (LWRs) in North Korea for the past decade, Monday resigned as administrator of the Office of Planning for the Light Water Reactor (LWR) Project at South Korea’s Unification Ministry.

His resignation follows the official termination of the decade-long Korean Peninsula Energy Development Organization (KEDO) project and an agreement to liquidate it by South Korea, the United States, Japan, and the European Union (EU) earlier this month.

Allegations of North Korea’s covert pursuit of highly enriched uranium in 2002 put the KEDO project on repeated suspensions before its official termination three weeks ago.

Chang, 71, was the oldest public servant in the South Korean government. He began his career in 1963 at the Ministry of Foreign Affairs and Trade, and was ambassador to Denmark and France before heading the LWR project in 1996.

Highly respected for his language and diplomatic skills, Chang reached retirement age in 1999, but retained his Unification Ministry post.

Joong Ang Daily

The government said yesterday it would give loan guarantees of up to 10 billion won ($10.5 million) to companies operating in the Kaesong Industrial Complex in North Korea.

The guarantees, offered as a means of encouraging more manufacturing activity there, will be available beginning late this year.

The Korea Credit Guarantee Fund, a government-owned fund, will guarantee loans extended by banks and other financial institutions. The guarantees will be limited to seven years, and will carry a price tag of a maximum of 3 percent of the loan amount.

The decision was made at a meeting presided over by Han Duck-soo, the economic deputy prime minister.

Finance Ministry officials said such guarantees are limited to 3 billion won for small and medium businesses operating domestically. Those “ordinary” guarantees are also available to exporters and trading companies who want to open or expand domestic facilities.

Companies operating in Kaesong are also eligible for direct loans of up to 5 billion won from official inter-Korean economic cooperation funds.

North Korea has grumbled about the slow pace of building up the Kaesong complex; part of the problem, the ministry said, is that there is some hesitation by companies and difficulty in obtaining loans because of the perceived political risk and the difficulty in using assets located in North Korea as collateral for loans in the South. Those questions, coupled with what the ministry hopes will be a surge in interest in manufacturing at the complex, were the spurs for the new guarantee program, finance officials said.

Seoul is pushing its trade partners to treat goods made in Kaesong as domestic Korean products, a request accepted by some but rejected by others, including the United States. Some trade experts also worry that the new guarantee program could be seen as government subsidies to manufacturers, which could be illegal under international trade rules.

Fifteen companies are operating at the complex now; another 23 are preparing to start.

From the Daily NK:

North Korean prices are continuing to rise.

At Sunam Jangmadang of Chongjin City, the price of rice is 1,200W/1kg, corn 300W, bottle of oil 2,000W, pork 2,500W and pants made from China 20,000W.

As it is spring, not only is it a time where the overall price of Jangmadang rice rises, but because the country is not distributing rations, the majority of people depend on the rice at Jangmadang. Also, rice sellers are watching this opening and are raising prices.

Lee who entered South Korea in 2003 says she has already sent money to her family by various means. The money sent through earnings from part-time jobs and resettlement money from the South Korean government, is becoming a lifeline for her family. Her families in North Korea depend on her to send money to live and get great relief from their daughters who live in South Korea.

Chinese 100yuan is 34,000won at Jangmadangi

Lee’s family who support their living by selling goods made from China, ceased trade because of soaring prices and control of Jangmadang by authorities.

Lee added, as it became harvest season and authorities restrained Jangmadang operations, there was even an incident last May at Chongjin where a lot of children were hospitalized after eating sweets and medicines made from China, and instruction was made in regards to strengthening the regulation of Chinese goods.

However, Chinese goods are in the majority and controlling Chinese commodities in North Korea is ‘shading the sun with the palm of your hand.’ Lee conveyed that to regulate the problem, police officers confiscate Chinese goods such as alcohol and cigarettes, and that oppression is worsening.

According to Lee, at present in Chongjin, Chinese 100yuan is 34,000 won for North Korean money. If this is converted to dollars, $1 calculates approximately 2,750won.

In March, the exchange rate at Musan Jangmadang was 100yuan to 37,125 won North Korean currency, in dollars $1 for 2,970won. The exchange rate for Yuan has decreased since March from roughly 100yuan to about 3,000won.

Local factory workers, majority mobilized to the village

The local industrial factory Lee’s brother works for in Chongjin, has recently closed factory doors and sends workers to the village. Compared to reports of North Korean publicity and media of central businesses in production at Pyongyang, standards of local industries are extremely inferior.

The reason, local industries could not extricate the aftereffects of acute shortages in equipment and materials following the economic breakdown in the mid-90’s.

According to defector of Chongjin, person ‘A’ laments “Recovery in factories is difficult as electric machines and electric lines are stolen and sold. Factories themselves want restoration but money is required, and isn’t it that there is no where money can appear.”

The most urgent is the problem of electricity. Most recently, as it is the farming season, all the electricity is mobilized for the water meter operations, with electricity servicing the villages approximately 10hours daily. However, as electricity is supplied to the villages, meanwhile the city is locked in darkness.

Daily NK
Yang Jung A
6/9/2006

On the 5th of last, U.S Department of State announced the ‘2006 Slave Trade Report’ including the issue of North Korean foreign worker’s human rights. On this, international human rights organization asserted that if basic human rights of them is not secured in Czech Republic, then their foreign employment should be blocked.

North Korea is sending low wage workers for foreign currency earning to various parts of the world such as Russia, China, Eastern Europe, Africa and it has become known that currently there are more than 300 laborer’s dispatched in the Czech Republic.

Voice of America(VOA) of the U.S pleaded with human rights organizations on the 7th and reported that “The major fundamental difference for North Korean laborer’s is not only that they have no freedom, but the excessive working hours, and that wages are not received by workers but go to the North Korean government.”

On this day, Igor Blazevic of a Czech Republic human rights organization People in Need Foundation said in an interview with VOA “These people under watch and control work for very low wages” and that “only times have changed yet these people are no different to a modern day slave.”

The Czech Republic’s human rights NGOs asserted that if it does not ultimately improve working conditions, then permission to employ North Korean laborers should not be granted. In addition, they asserted that this issue should come up for the subject with other issues related to North Korea in the conference of the Human Rights Council of the U.N on the 19th.

Czech Republic Human Rights Organization Said, “North Korean Workers Are Modern Day Slave”

In an interview under evading the eyes of North Korean watch, which was taken by Czech Republic writer Maria Jelinkova and a L.A. Times reporter, a North Korean worker said, “I do not enjoy working in Czech Republican factories and want to return home.”

Kim Tae San (entered Korea 2002), president for the past 2 years for ‘Czech-North Korean Footwear Co-operation’, attested that “For 3 years North Korean women work indiscriminately with Czech Republican workers, and equally receive wages, however of the $50, 70~80% is possessed by the North Korean government, leaving $10~$13 per month to live with.”

However, Kim Tae San said “even though they (from the view of Western European Associations) are violating human rights, the conditions are far better than within North Korea” and “the reason they live is so that they can earn even one extra penny to feed and revive their families in North Korea.”

Kim indicated that without drastic changes to the North Korean system, simply approaching the issue of human rights will not help solve the problem.

From the Daily NK:

In June, the highest peak of rice-planting season, North Korean authorities station security guards to be at the crossroads of Jangmadang(a type of black market) and get undercover police officers to wander the streets and regulate people with focused control who are trading. During the rice-planting ‘period of full mobilization’ goods that are sold secretly are all collected.

Also, it has become known that rice in the Onsung region is trading for 1,200won ($0.4).

North Korean citizen, Lee Hyun Sook (32 years, born in Onsung) who to obtain food passed Tumen River revealed while meeting a reporter on the 5th near Yanji City, China that “The people are driving the whole rice-planting battle.”

Lee who came to China bringing a 5 year old child after losing her husband barely ran a business in Jangmadang, and continues her living as a common homemaker. After authorities shutdown Jangmadang in spring, Lee says she was driven to the village, thus crossed the Tumen River as otherwise her child would die of hunger.

Following Is Questions and Answers with Ms. Lee

– It’s said Jangmadang was shutdown?

The security office controlled and did not permit morning Jangmadang. Security guards stationed the road that intersects with Jangmadang, whilst common police officers roamed the street controlling people trading. Goods that are secretly in trade during ‘the period of full mobilization’ are all collected.

– How will you live if Jangmadang is shutdown?

From 6 o’clock in the evening Jangmadang doors are open. People like me who earn a daily income and live off their daily income are about to die.

– When is the period of full mobilization until?

Every year when it is farming season, full mobilization is set up. There is no designated date, but is terminated when rice-planting and weeding is complete.

– What type of people are targeted for full mobilization?

After morning, it is quiet and there are no people in the city. Factories, companies, people on the street, students, no differently anyone who holds a spoon all leave. Even the people from far distances (long distance trading) are supervised on the street.

– It’s said that even traveling permission have been reinforced…

The security office does not even issue traveling permissions. People that must go take a citizen warrant, but security guards and police officers come stop their cars on the street regulating people and even collect goods. In particular, people from other provinces are especially made to do a lot of work.

– How much, how long are you made to work?

Supervised people are only sent away when a rice seedbed, 9m long and 1.6m wide is pulled by hand. Those assigned rice-planting pair-up together and only send people away at night, when all the seeds have been planted

According to Lee, when the “Rice-planting full mobilization group” is organized, executive officers go to each farm to manage the people’s Jangmadang and direct the people’s village mobilization. On one hand, she says “When it is morning the broadcasting car roams the streets announcing ‘You have to farm well, to win the fight with Americans’ ‘You have to farm well, to realize the general’s worrying thoughts of the people’s hunger problem.’

Price Increase in the Period of Full Mobilization

It appears that during the period of village mobilization, the price of good rises due to operation restrictions. People wanting to buy rice wander trying to find rice sellers and people that secretly sell and buy in the alleyways are disciplined and carried off to the security office.

The price in Onsung Jangmadang is 1,200won ($0.4) per 1kg of rice and 250won ($0.083) for corn. Fresh pork is 1,800 won ($0.6) per 1kg, as it can spoil easily in the warming weather, but can be bought for 1,600won ($0.53) towards the end of day. It is of course unreasonably expensive compared to a laborer’s monthly income of 5,000won ($1.67).

In a way, on commencement of trade, the people cannot even spread open their goods at Jangmadang but sell to people secretly. Lee said “Food is given, a lunch meal per day for people mobilized to the village.”

After the Resumption of Rationing, There is No News for a Long Time in Onsung

Lee says that it has been a long time since distribution in the Onsung has stopped.

After being questioned “How much rationing have you seen?” Lee said that “No rationing was received since 1994.” Lee comments that last year October, she knew of the truth that rationing had been resumed, but as a non-laborer with no husband, there wasn’t a time she received the classified rations.

Last year October, North Korean authorities instructed the distribution of rations according to districts, but smaller districts were given rice only for a few months before being exhausted. The distributions to the people from factories are 15day rations to last a few days, but Lee and other similar housewives respond to the distributions as completely unfamiliar terms.

People like Lee who earn a daily income and live off their daily income, become suffocated in the reality of their lives when mobilized to the villages. For this reason, there is an actual increase of North Korean people crossing the Tumen River to do suitcase business and earn money.

From the Korea Times:

South Korea’s chief delegate for the inter-Korean economic talks yesterday reaffirmed the North will not be getting any new economic support unless it pushes ahead with the railways test-run.

In a radio interview, Vice Finance Minister Bahk Byong-won said, “We created a structure in which the additional economic cooperation is only possible after the railways test-run.”

The two Koreas closed their 12th Economic Cooperation and Promotion Committee meeting in Jeju on Tuesday with a nine-article agreement on support for light industries, natural resources development and others.

The two sides concurred such agreements will only be implemented when “conditions are met,” which they verbally confirmed referred to the cancelled cross-border test-runs.

North Korea abruptly cancelled the scheduled testing last month, prompting an angry response from the South.

The South, remaining steadfast to its policy of engaging more economically with its communist neighbor, believes staunch military authorities to be behind the cancellation.

“(The North’s) military authorities are closely connected with the procedures of implementing many of the inter-Korean agreements. And the (preconditioning) clause refers to just that,” Bahk said, emphasizing that the North Korean military must take visible measures such as preparing a military guarantee for the railways operation.

The two railways, on the east and west of the Korean Peninsula, run through heavily fortified borders. It would be the first time in over five decades that the trains run.

“Although we said ‘conditions’ in the agreement, both sides made clear when we read out the agreement that the conditions referred to the railways test to avoid any conflicting interpretations in the future,” Bahk said.

(angiely@heraldm.com)

By Lee Joo-hee

Nautilus Institute
Alexander V. Vorontsov
6/8/2006

The “Songun Chongch’i” or military-first politics mantra adopted by North Korean leader Kim Jong-il as a guideline for domestic governance and foreign policy has elicited mostly negative responses from Korea-watchers. Many view songun as the final phase in the deterioration of North Korea and a serious threat to neighboring states saying that an impoverished country of 24 million inhabitants supporting a military of more than 1 million soldiers is incapable of modernization and economic reform. They argue that greater military participation in politics creates a dual-pronged threat: the army may appropriate a greater share of already-dwindling state funds to increase its readiness and effectiveness; and the generals, supposedly the most militant sector of the policy-making structure, will have a louder voice in foreign policy formulation, which could lead to hostile rhetoric towards South Korea.

A less alarmist interpretation of military-first politics is that Kim Jong-il is trying to maintain the existing order, to strengthen his regime based on personal authority, and consolidate control of military forces with the goal of preventing an overthrow of the state.

So, is military authority a curse or a blessing? The lessons from history are ambiguous, as states ruled by the military have experienced both prosperity and hardship. But some argue that South Korea represents a relatively positive example in which it has experienced a national revival because of a period of military rule.

In 1961, Park Chung-hee, a colonel in the ROK army, seized authority South Korea in a bloodless coup and established a rigid dictatorship with his military comrades. Though politics became more repressive, the national economy grew exponentially and General Park is remembered by many as the “father of the South Korean economic miracle.” Few dispute that this economic growth planted the seeds for the ensuing process of democratization. So it is hardly accidental that, in recent years, Kim Jong-il has started to speak favorably of General Park and his role in the modernization of the Republic of Korea.

The implementation of songun in the mid-1990s increased the role of the Korean People’s Army (KPA) in daily life. The army began to participate even more in social and economic decision-making, from large-scale infrastructure development to providing its own food. While military personnel are required to serve for ten years, they spend most of their service participating in different areas of the country’s socio-economic life. Thus, the army is now not as heavy economic burden, and is serves as an important resource and catalyst for developing the national economy.

The movement to the military-first policy has accompanied a gradual transformation of North Korea’s planned economy to the direction of a mixed economy. The result may eventually be a network of large, less state-controlled corporations that share close ties with government agencies, similar to the “chaebol” that Park Chung-hee created in South Korea. Because of this, the North Korean military is now involved in different spheres of economic activity, including foreign economic ties and trade operations, and will likely play a key role in this ongoing process of privatization.

With songun also come changes in ideology. This change and its underlying goal of building a powerful and prosperous state – “kangsong taeguk,” are justified by flexible and creative interpretations of the bedrock ideal of self-reliance – “juche,” a nationalist ideology developed by revolutionary leader Kim Il-sung. The songun concept replaces the proletariat and the vanguard Communist Party with the army as the driving force in society. This innovation is significant because the army is typically a less ideological and more pragmatic institution than the Party.

The army’s role in society is not the only example of Kim Jong-il’s liberation from orthodox ideologies. Since the early 1990s, North Korea has shifted its emphasis from socialist ideals to historical and spiritual values. This is reflected in the use of Confucian norms in public policy and everyday life, and legitimizing the state through reference ancient Korean kingdoms. Again, the parallels with Park Chung-hee are very strong. Kim Jong-il has also sought to reduce the prevalence of the personality cult. From early 2004, for example, there could be only one portrait of Kim Il-sung in public places. Similarly, Kim Jong-il is to be described only by his official positions, rather than the use of laudatory epithets such as “Dear Leader.”

Songun should not be automatically dismissed as an ideological dead-end. As the experience of South Korea under Park Chung-hee demonstrates, military rule can have positive effects on society under certain conditions.

From the Joong Ang Daily:

South Korean delegates at the inter-Korean economic talks here won a victory of sorts early yesterday morning; North Korea agreed to Seoul’s linkage of the completion of test runs of the newly reconnected railroads across the Demilitarized Zone to its offer of raw materials for the North’s light industries.

But in what apparently was a face-saving gesture to the North, the linkage was not made explicit in the joint announcement of the results of the four-day meeting. South Korea agreed to supply a package of raw materials for the North’s shoe, soap and textile industries worth $80 million, which will be delivered “when necessary conditions are met.” The agreement said nothing more about the conditions, but the rail tests, most recently cancelled by North Korea the day before they were to be conducted last month, were clearly the point at issue. Kim Chun-sig, the Seoul delegation’s spokesman, made that explicit. “The trial train runs are linked with the supply of raw materials, and the agreed announcement was issued with that understanding by the North.” He said agreement to the linkage was not easily won from the North; Seoul’s delegates stressed the uproar that would break out here if that condition were not attached.

The aid will be in the form of a loan to be repaid in kind ― North Korean natural resources ― over a 15-year period with an interest rate of 1 percent. The two delegations met the press to announce the agreement, saying they had signed a nine-point agreement and a 10-point supplemental document dealing with the aid package.

In the agreement, the aid is to be delivered in August. Mr. Kim said that meant that the necessary military-to-military agreement on safeguards required before travelers cross the Demilitarized Zone must be in place and the rails tests completed.

The strings attached to the aid package are something of a departure for the Roh administration, which has been tolerant ― far too tolerant, critics in the South contend ― of North Korea’s penchant for accepting aid donations while failing to keep promises it had made in return. Pyongyang’s cancellation of the railroad tests in late May was, apparently, too much for Seoul to stomach politically. The tests were cancelled the day before they were to take place, and the North blamed “political instability” in the South and the lack of a military safeguards agreement that the North itself has blocked.

A Seoul delegate said proudly, “Unlike in the past, we focused on enforcement of the agreement and secured some leverage over North Korea.” The two sides made some modest progress on other issues. They agreed to conduct negotiations on a joint project to mine gravel from the mouth of the Han River inside the Demilitarized Zone. They agreed that military-to-military agreements would be necessary for safety and security reasons. The project had been suggested by Seoul in April, and reflects the dwindling supply of such material here because of South Korea’s 30-year construction boom.

Other agreed meetings will address administrative procedures at the Kaesong Industrial Complex, flood control on cross-DMZ rivers and exchanges of weather data, especially on the yellow dust storms that originate in China’s Gobi Desert.