North Korean Economy Watch

The 2008 Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal covers 162 countries across 10 specific freedoms such as trade freedom, business freedom, investment freedom, and property rights. Unlike the Freedom House rankings, this is an index, meaning there is a first place winner (who should be rewarded with lots of investment and business creation) and a last place “winner” (who should be shamed into moving up the list for the same prizes)

The bottom ten countries:
148. Venezuela
149. Bangladesh
150. Belarus
151. Iran
152. Turkmenistan
153. Burma (Myanmar)
154. Libya
155. Zimbabwe
156. Cuba
157. North Korea  (unchanged)

Institute for Far Eastern Studies (IFES)
Nk Brief No. 08-1-3-2
1/3/2008

North Korea has announced the winners of its sixth drawing for payouts of ‘People’s Life Bonds’, through which it provides ticket buyers with not only payment of principal, but also additional lottery winnings. From July to November of 2003, North Korea sold 10-year bonds worth 500, 1000, and 5000 won, and since then has held drawings once or twice per year repaying the bonds and lottery winnings as a way to pull in idle cash from the people.

(North) Korean Central TV reported that the 6th People’s Life Bond drawing had taken place and provided some numbers regarding the payments. In the latest drawing, thirteen 5000 won, eight 1000 won, and ten 500 won tickets were drawn. The television announcement explained that winners could report to the appropriate bank during the first quarter of 2008 to collect their winnings. It was also reported that during the latest fourth-quarter drawing, one first-prize, ten second-prizes, and fifteen third-prizes had been chosen, but provided no concrete details regarding the amount of the prize winnings. North Korean bonds do not pay interest to the investors, but rather, provide prize winnings greater than the amount of interest that would have been paid to winners each quarter.

The fifth round of drawings took place in January 2006 in Sariwon, North Hwanghae Province, when thirty tickets were drawn. North Korea’s savings and bond lottery system appears to be an attempt at improving financial difficulties faced due to the government’s collection of idle hard currency from each family.

Daily NK
Jung Kwon Ho
12/3/2007

The North Korean authorities are intensifying efforts to crack down corruption and embezzlement prevalent among party cadres.

Lim Sang Il (pseudonym, 43), a native of Pyongyang, said, “The state excommunicated and dismissed both the chief secretary of the Party in the Daedonggang district and the head of the foreign currency-making activity organization. They were found to have embezzled money earned from cocoon business for the past ten years.” Mr. Lim, currently staying in Dangdong, China visiting relatives, said, “Words are circulating around that they extorted over 10 million dollars.”

Mr. Lim said, “The factory manager of the Sangwon Cement Complex located near Pyongyang took his life when he heard the news that he was suspected of corruption and the state inspection group against anti-socialist trends was about to come down to see him for inspection.”

“This manager was notorious for corruption. For years, he had extorted money from the factory and used it for his own use,” Mr. Lim said. “It was widely gossiped that this man killed himself because he knew that his would receive capital punishment considering the severity of his corruption.”

A source from Sinuiju in North Pyongan said in a phone conversation with DailyNK on the 28th of November, “The chief secretary of the local Party in Woonjeon, North Pyongan Province, was expulsed from the party and fired from his job after he was found to have extorted money allocated for public construction works.”

“There are constructions going on in Woonjeon, tearing down old houses and building new ones,” the source said, “However, no one has ever asked people’s permission for constructions in the first place and provided temporary housing for people until the completion of construction works, and that, of course, angered many people.”

“All of a sudden, those without money ended up being homeless whereas those with money became able to purchase two to three houses at affordable price,” said the source.

“Expressing their anger aggregated over time, the local people led by the old directly sent a written protest to the central Party and filed a complaint,” the source said. “After all, the inspection group had to come down to Woonjeun and dismissed the chief secretary of the local Party and head prosecutor.”

“The inspection group discovered that these men were hiding a significant amount of money in their houses,” the source said. “It was so much that the inspectors couldn’t count the money and had to weigh stacks of bills in the scales.”

“Conspiring with the construction manager, the chief secretary accumulated money by overpricing construction materials and selling newly constructed houses,” said the source. “The head prosecutor accepted huge bribe on condition that he should turn down pouring complaints and contesting reports from the locals.”

In regard to the recent incident where some machinery from the Suncheon Vinylon Complex was smuggled to China, the state has dismissed many high-ranking officials implicated in the smuggling such as the chief secretary of South Pyongan Province, the chief secretary of the local Party in Suncheon, the city’s public prosecutor, and director of safety agency and foreign-currency making organization of the city.

Yonhap
11/18/2007

A North Korean delegation is visiting Wall Street to meet financiers and attend a seminar that could help the isolated communist country gain access to the international financial system, sources here said on Sunday.

The six-member delegation led by Ki Kwang-ho, a director at the North Korean Finance Ministry, arrived here on Thursday for the two-day-long session, which starts Monday. The U.S. side is to be represented by Deputy Assistant Treasury Secretary Daniel Glaser and other officials involved in ending Pyongyang’s suspected illicit activities.

The visit by the North’s delegation, the first of its kind, comes about one year after the release of some US$25 million in North Korean funds that were frozen at a Macau bank over their alleged connection to money laundering and other illegal activities.

Although the assets were released in a one-time transaction through the international financial system, the North has said it wants full access to the system without financial sanctions from the U.S., which has considerable influence over the global market.

The delegation’s visit also coincides with recent progress in the multilateral negotiations for North Korea’s nuclear disarmament, in which Washington is negotiating with Pyongyang on the removal of the North from its list of state sponsors of terrorism and the termination of the application of its Trading with the Enemy Act.

Washington, one of major shareholders in the International Monetary Fund and other lending institutions, is obliged by law to oppose any loans to countries on the list.

The North Korean financial officials met with financiers at the heart of global finance here Saturday to discuss international financing for the isolated communist state, informed sources said.

Donald Gregg, chairman of the New York-based Korea Society, quoted the North Koreans as saying Friday that they came to learn about ways to get access to the international financial system.

While attending a seminar sponsored by the National Committee on American Foreign Policy, the North Koreans asked about know how to join the IMF and other international financial institutions, the former U.S. ambassador to South Korea said.

Another North Korea expert, however, predicted a long and bumpy road ahead for the North, saying the isolated, impoverished communist state needs a lot of manpower, experience and technologies before joining the international financial system.

Bradley Martin
Bloomberg
11/15/2007

U.S. Treasury Department measures targeting Iran, similar to those used against North Korea, are having a significant effect in financially isolating the country, Stuart Levey, undersecretary for terrorism and financial intelligence, said in Tokyo.

Financial institutions around the world have cut ties with Iran, leading to “a dramatic pullback in business,” Levey said on a trip through East Asia to build support for the measures.

This followed the Treasury department’s identification of state-owned banks and other entities it said were financing weapons proliferation and terrorism. The department asked U.S. banks not to deal with those institutions.

Foreign banks are cutting financial ties with Iran generally, not just with the individually targeted entities, Levy said, going “beyond legal requirements” that govern banks involved in the U.S. financial system.

“Major financial institutions around the world have decided as a matter of risk assessment that they don’t want to do business with this regime,” he said.

The United Nations and the U.S. want Iran to halt uranium enrichment that the West suspects is aimed at developing nuclear weapons.

Iran is “turning itself into a financial pariah” through deceptive financial practices that obscure the line between legitimate and illicit transactions, Levey said.

North Korean Example

Financial pariah status befell North Korea’s banking and financial system after the Treasury in 2005 accused Macau’s Banco Delta Asia S.A.R.L. of aiding North Korean money laundering and weapons proliferation.

Macau authorities froze some $24 million in North Korea- related deposits in the blacklisted bank, bankers worldwide refused to handle North Korean transactions and Kim Jong Il withdrew from negotiations on the future of his country’s nuclear weapons program.

This year the U.S. agreed to the release of the BDA funds. While that compromise brought Kim’s negotiators back to the table, it didn’t cure the country’s financial isolation, according to Felix Abt, president of Pyongyang’s European Business Association.

“It is still difficult because some international banks are reluctant to handle payments to and from any banks in the DPRK, either state or foreign-owned, fearing that they could become targets of restrictive measures in the same way that Banco Delta Asia was,” Abt said, using the initials of North Korea’s formal name, Democratic People’s Republic of Korea.

Investment Prospects

Such fears affect the prospects for investment in the country, according to consultant Tony Michell of EABC Ltd. in Seoul. “There remains a reluctance by mainstream financial players to get involved,” he said, “in case of further action by the U.S. Treasury.”

A North Korean delegation is traveling to New York next week to hear more on how the country can extricate itself from that situation. U.S. and North Korean officials will hold financial talks Nov. 19 and 20 in New York, at North Korea’s request, State Department spokesman Sean McCormack told reporters in Washington Nov. 14. The U.S. delegation will be led by Daniel Glaser, the Treasury Department’s deputy assistant secretary for terrorist financing.

Levey, when asked in Tokyo today what would be discussed at the talks, said U.S. officials would “lay out for the government of North Korea the types of conduct that are inconsistent with international standards.”

Asked three times whether North Korea was still involved in the sort of illicit conduct that his department had alleged in 2005, Levey avoided a direct answer, saying only: “The North Koreans have engaged in a variety of conduct that has made it difficult for them to integrate in the international financial system.”

Korea Times
11/14/2007

U.S. and North Korean officials will meet in New York early next week to reopen talks on addressing Pyongyang’s alleged illicit financial activities, sources here said Tuesday.

Daniel Glaser, assistant treasury secretary in charge of terrorism financing, will lead the U.S. delegation to the talks scheduled Monday to Tuesday, according to the sources. It was not yet clear who will represent North Korea at the meeting. Previous sessions were led by O Kwang-chol, president of the Foreign Trade Bank of Korea.

The meeting is the first since the two countries resolved a banking issue that for over a year delayed North Korean denuclearization negotiations. The U.S. Treasury in September 2005 sanctioned Banco Delta Asia (BDA), a Macanese bank, for abetting North Korea’s laundering of money acquired through smuggling, counterfeiting and arms proliferation. The bank froze all North Korea-related accounts, and Pyongyang boycotted the denuclearization talks in protest.

The issue was settled with the release of some $25 million in North Korean money at the BDA early this year.

Sources said next week’s meeting will address North Korea’s suspected illicit activities that led to the Treasury’s sanctions, including Pyongyang’s counterfeiting of American currency.

North Korea has been accused of producing and circulating fake$100 bills, known as “supernotes” because of their near-authenticity, and smuggling contraband goods.

Bloomberg
Bomi Lim
11/13/2007

North Korea’s Daepung Investment Group will set up a $10 billion fund with China Development Bank to help Chinese firms operating in North Korea, Yonhap News reported, citing the company’s vice president.

The fund will be used to help Chinese companies build roads, railways and ports in North Korea, Daepung Vice President Bae Kyeong Hwan was quoted as saying. Bae didn’t say how much each country will contribute the fund.

Daepung also plans to set up a bank to attract investment from overseas, the report said.

China is North Korea’s biggest trading partner and an important provider of food and fuel. North Korea is isolated from most of the rest of the world and has received virtually no foreign investment.

Bloomberg
Bradley Martin
11/2/2007

Fabien Pictet & Partners Ltd., a British money manager that specializes in emerging markets, plans to establish a fund focused on joint ventures in North Korea.

Fabien Pictet has applied to North Korea’s embassy in London for permission to visit Pyongyang to explore opportunities, Chief Executive Officer Richard Yarlott said in an interview. The closely held firm initially would buy into South Korean companies doing business in the north, he said.

“It would be very difficult to put more than $50 million directly into North Korea,” said Yarlott, 47, who helps manage $750 million of bonds and equities. “But it would be very easy to put $500 million into listed South Korean companies and then later, as we see specific private equity opportunities, go with them.” He declined to give further details.

A North-South agreement on economic cooperation, signed Oct. 4, may foster cross-border projects in industries such as mining and shipbuilding. Still, that prospect isn’t enough to lure billionaire investor Warren Buffett to a northern plunge.

“Things would have to change a whole lot before we can make investments,” said Buffett, chairman and CEO of Berkshire Hathaway Inc., during a visit to South Korea last week.

Buffett, who owns shares of South Korea’s Posco, Asia’s biggest steelmaker by market value, rates the nation’s stocks as “modestly cheaper” than most around the world. The benchmark Kospi index’s price-to-earnings multiple of 15.4 for current year estimated earnings is the lowest in Asia-Pacific after Thailand.

London-based Fabien Pictet, set up in 1998, invests in countries from Brazil to the Ukraine.

It started a South Korean equity fund, Three Kingdoms Korea Fund Inc., in 2004 partly to be ready for a northern push, Yarlott said.

LG Corp., Hyundai

South Korean companies — including units of LG Corp., the country’s fourth-largest industrial group, and Hyundai Corp. — have $2 billion to invest over the northern border, he said.

Three Kingdoms Korea has had a total return of 88.5 percent from April 30, 2004, to Sept. 28 this year. South Korea’s Kospi has risen 126 percent in the same period.

Foreign investment in North Korea has been legal since 1984 and repatriation of profits since 1992. The country doesn’t permit private ownership of assets and hasn’t established a stock exchange.

South Korea’s closely held Hyundai Asan Corp., which started a northern tourism business in 1998, has been reported to be struggling to avoid or reduce operating losses.

London-based Anglo-Sino Capital Partners Ltd., which in 2005 created Chosun Development and Investment Fund to focus on direct investment in North Korea, last month doubled its investment target, citing strong interest.

“We have raised the fund from $50 million to $100 million,” Colin McAskill, chairman in London of Koryo Asia Ltd., the Chosun fund adviser, said in an interview.

The fund will concentrate on direct transactions with North Korean companies that have been active internationally and have track records as foreign currency earners, he said.

Some investors say it’s too early to call North Korea an emerging market.

“I’m 77 years old and the thought that the day would come in my time — it’s very flattering but it’s a long way off,” said Buffett, also known as the “Sage of Omaha.”

Yarlott said the country was changing. “North Korea, like China, will develop a stock market,” he said.

“At this rate, even the sage will get a look-in.”

The most authoritative map of North Korea on Google Earth
North Korea Uncovered: Version 6
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the sixth version.

Additions to the newest version of North Korea Uncovered include: Alleged Syrian nuclear site (before and after bombing), Majon beach resort, electricity grid expansion, Runga Island in Pyongyang, Mt. Ryongak, Yongbyon historical fort walls, Suyang Fort walls and waterfall in Haeju, Kaechon-Lake Taesong water project, Paekma-Cholsan waterway, Yachts (3), and Hyesan Youth Copper Mine.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.

Bloomberg (via DPRK studies)
Bradley Martin
11/2/2007

Fabien Pictet & Partners Ltd., a British money manager that specializes in emerging markets, plans to establish a fund focused on joint ventures in North Korea.

Fabien Pictet has applied to North Korea’s embassy in London for permission to visit Pyongyang to explore opportunities, Chief Executive Officer Richard Yarlott said in an interview. The closely held firm initially would buy into South Korean companies doing business in the north, he said.

“It would be very difficult to put more than $50 million directly into North Korea,” said Yarlott, 47, who helps manage $750 million of bonds and equities. “But it would be very easy to put $500 million into listed South Korean companies and then later, as we see specific private equity opportunities, go with them.” He declined to give further details.

A North-South agreement on economic cooperation, signed Oct. 4, may foster cross-border projects in industries such as mining and shipbuilding. Still, that prospect isn’t enough to lure billionaire investor Warren Buffett to a northern plunge.

“Things would have to change a whole lot before we can make investments,” said Buffett, chairman and CEO of Berkshire Hathaway Inc., during a visit to South Korea last week.

Buffett, who owns shares of South Korea’s Posco, Asia’s biggest steelmaker by market value, rates the nation’s stocks as “modestly cheaper” than most around the world. The benchmark Kospi index’s price-to-earnings multiple of 15.4 for current year estimated earnings is the lowest in Asia-Pacific after Thailand.

London-based Fabien Pictet, set up in 1998, invests in countries from Brazil to the Ukraine.

It started a South Korean equity fund, Three Kingdoms Korea Fund Inc., in 2004 partly to be ready for a northern push, Yarlott said.

LG Corp., Hyundai

South Korean companies — including units of LG Corp., the country’s fourth-largest industrial group, and Hyundai Corp. — have $2 billion to invest over the northern border, he said.

Three Kingdoms Korea has had a total return of 88.5 percent from April 30, 2004, to Sept. 28 this year. South Korea’s Kospi has risen 126 percent in the same period.

Foreign investment in North Korea has been legal since 1984 and repatriation of profits since 1992. The country doesn’t permit private ownership of assets and hasn’t established a stock exchange.

South Korea’s closely held Hyundai Asan Corp., which started a northern tourism business in 1998, has been reported to be struggling to avoid or reduce operating losses.

London-based Anglo-Sino Capital Partners Ltd., which in 2005 created Chosun Development and Investment Fund to focus on direct investment in North Korea, last month doubled its investment target, citing strong interest.

“We have raised the fund from $50 million to $100 million,” Colin McAskill, chairman in London of Koryo Asia Ltd., the Chosun fund adviser, said in an interview.

The fund will concentrate on direct transactions with North Korean companies that have been active internationally and have track records as foreign currency earners, he said.

Some investors say it’s too early to call North Korea an emerging market.

“I’m 77 years old and the thought that the day would come in my time — it’s very flattering but it’s a long way off,” said Buffett, also known as the “Sage of Omaha.”

Yarlott said the country was changing. “North Korea, like China, will develop a stock market,” he said.

“At this rate, even the sage will get a look-in.”