North Korean Economy Watch

UPDATE (2011-5-26): Defectors are not too happy with plans by the South Korean government to get control over remittances to the DPRK.  According to the Korea Herald:

North Korean defectors here are strongly opposing a government plan to require them to gain approval before making remittances to relatives in the cash-strapped state.

They say that the approval process could put them and their loved ones in the North in dangerous situations and make brokers demand more money for delivering funds.

They also say that since their remittances are made through “complicated multi-layered” procedures, it would be difficult to detect those sending money without approval.

On Tuesday, the Unification Ministry put on public notice a revision bill mandating defectors to obtain approval when remitting more than a certain amount of money, with the cut-off figure yet to be set. Officials said the revision is aimed at “securing transparency in inter-Korean exchanges.”

“We have been scrimping on food, clothes and others to send some of the hard-earned money ― at most 1 million won ($917) ― to help our family, not the North Korean regime. The approval system is wrong,” a 43-year-old North Korean defector, who has taken asylum here since 1997, told The Korea Herald, declining to be named.

“Our remittances have been transparently made and we always check whether our relatives have received the money by talking directly to them by cellphone. Through the talks, albeit brief, defectors tell them the truth about Korean society and help enlighten them and bring about change there.”

He also pointed out that the planned system may not be effective.

“All these have so far taken place secretly. Who would ever like to willingly tell the authorities about their remittances at the risk of revealing their identities and those of their relatives in the North? One out of 10 may be willing,” he said.

A Unification Ministry official said that the government will carry out the approval system after taking into account opinions from the defectors and experts.

“There has been controversy over the legitimacy of their remittances, which has stemmed from the absence of government procedures over them. The system is aimed at systemizing their sending of the money to the North,” the official said.

“We will consider various opinions including those regarding the amount of money for which they should secure approval and measures to protect their family in the North.”

North Korean defectors usually send their money through ethnic Chinese people here, who ask their Chinese relatives or acquaintances inside the North or near the North Korea-China border to deliver the money. The brokers are known to take 30 percent of the total remittances.

According to a survey by a private Seoul-based group, which was released early this year, nearly half of North Korean defectors here have sent money to their families in the North.

The survey by the Database Center for North Korean Human Rights found that 49.5 percent said they had sent money to their families in the North, while 46 percent said they had not and 4.5 percent said that they have no family there.

The survey was conducted on 396 North Korean defectors residing in the South, aged 15 or older, from Dec. 14-31 last year.

Seoul officials estimate that North Korean defectors’ annual remittances amount to $10 million.

Some people say the remittances could stimulate North Koreans’ longing for the affluent life south of the heavily fortified border. Others, however, are concerned that the money could get into the wrong hands in the notoriously autocratic regime.

The number of North Korean defectors living here stands at 21,294 as of April. It is expected to rise as food shortages and oppression continue in the reclusive state.

And according to Yonhap:

The Unification Ministry has announced its plans to revise a law that would require defectors to receive government approval before sending money to their families.

The ministry, which handles inter-Korean affairs, said the move is aimed at legalizing the money transfers and increasing their transparency.

Defectors said their families in the North usually receive some 70 percent of their remittances as brokers who arrange the deals take some 30 percent of the money as a fee.

The ministry said it would give some wiggle room for defectors by exempting them from receiving mandatory approval in case they remit a certain amount of money for their families to support them or to help them seek medical treatment.

Details have yet to be arranged. The revision process would take months as other government ministries must screen any changes before the new law’s submission to the legislature for approval.

The new revision is expected to take effect as early as the second half of next year.

The move “is not trying to regulate humanitarian money remittance,” a government official said on condition of anonymity, citing office policy.

Still, the proposed move triggered a backlash from defectors, who fear that the government regulation could complicate the process of money remittance and jeopardize their families in the North.

“I have no choice but to give money to family members in the North as they live on the money I send to them, but I cannot give any information to the government,” a defector said, asking not to be identified, citing security concerns for family members in the North.

ORIGINAL POST (2011-5-23): According to the Korea Herald:

South Koreans who wish to send money to their families in North Korea will be required to get government approval in advance under a revised law, Seoul’s Unification Ministry said Monday.

All remittances between the South and North, including investments or aid to the North from an overseas corporation set up by a South Korean citizen, will require government approval, according to the revised law on inter-Korean exchange and cooperation, aimed at increasing transparency of the cross-border exchanges.

So far, only payments for commercial transactions were subject to obtain government permission in advance, raising concerns that it was hard to track other kinds of cash flow into North Korea.

North Korean defectors who have settled in the South or members of families separated by the border after the 1950-53 Korean War have occasionally remitted money to their kin in the impoverished North through bank accounts in third countries such as China.

But under the new law taking effect in the second half of this year, South Koreans are obliged to get government approval before sending or passing on inheritance to their family in the North. There will be exceptions, however, for remittances of small amounts for basic living costs or medical costs of their kin in the North.

If a corporation established by a South Korean citizen in a third country plans to invest in the North, the South Korean proprietor will now have to report to the Seoul government in advance.

South Koreans planning to send goods purchased in third countries to the North will also have to attain government permission.

A South Korean Christian aid group recently sent flour, bought in China through a Chinese nongovernmental organization called Amity Foundation, to North Korea.

South Korean companies trading with entities in the North will also be required to register, under the new law.

“Between 700 and 800 companies are believed to have records of trade with the North so far, but only 580 have been confirmed so far in a survey conducted after the May 25 regulation (on inter-Korean exchanges) last year,” a ministry official said.

“The others have either stopped doing business in the North or have gone out of contact, making it hard for the government to keep track.”

The ministry plans to set up a state-funded agency to support inter-Korean nongovernmental exchanges at all times.

So far, the ministry has allocated financial aid to support inter-Korean exchange to selected non-profit organizations once or twice a year.

Previous reports indicated that the level of remittances from the ROK to the DPRK can reach USD$10m per year.

Read the full story here:
Seoul tightens rules on cash flow to North Korea
Korea Herald
Kim So-hyun
2011-5-23

According to the Daily NK:

Loan-sharking of both money and food is back to being widespread in North Korea these days, and sources say this is causing problems.

The activity is said to have waned for a time in the face of strict crackdowns during the currency redenomination in 2009; however, according to sources, a lot of those people who were expropriated by the currency redenomination have now started borrowing money from loan sharks in order to begin trading or get access to food, meaning it has spread widely once again.

A source from Hyesan, Yangkang Province explained on the 13th, “Those without funding for trade tend to borrow money at high interest. If they borrow money from an acquaintance, the interest rate is five percent, or they make an agreement with a loan-shark, who they don’t know well, to give ten percent.”

“Some loan-sharks get from 15 to 20 percent interest from smugglers for loans over a single night! Even though it is risky, depending on the regulations, they lend money to smugglers because they can earn large sums of money in just a few days.”

Loan sharks have been the target of crackdowns for years. In August 1997, the Ministry of Public Security (formerly the People’s Safety Ministry) released a decree stating that authorities could go so far as to execute those caught loaning food at high interest rates. Additionally, right before the currency redenomination in September of 2009, the National Security Agency cracked down on loan-sharking, releasing a decree calling on officials to “Map out measures to uproot usury.”

However, given that even agents of the People Safety Ministry use loan-sharking for the trading activities of their families, the crackdowns are doomed to fail.

According to sources from several provinces, the activity is also more common in rural areas than in cities, because in cities people have more survival mechanisms, but rural people do not have many alternative ways to get hold of money or food.

Loans are used in these agricultural areas in order to borrow grain from March to May, and are paid back double in the harvest season. In Yangkang Province, meanwhile, when people borrow one kilogram of rice or flour, they must pay it back in the form of 2.5 or 3 kg of potato starch, since the major product of the province is potatoes.

It is the kind of interest rate that was applied during the March of Tribulation, but people still apply it now.

This is a vicious circle of poverty, another defector pointed out. “Those who suffer loan-sharking each year face another worrying fall because their harvest must be paid to the loan sharks.”

The author of this Daily NK story unfortunately chooses to describe the DPRK’s “informal lenders” as “loan sharks,” making them morally equivalent to thieves and bullies, rather than describing them as lenders in a high-risk market.  This sort of pejorative name-calling is common among those who don’t understand how credit markets work, particularly in a high-risk business environment such as the DPRK.

The reality is that informal and black market lenders in the DPRK are making de jure illegal loans from their own savings.  This means that if the loan is officially discovered, the lender (and probably the borrower) will face criminal charges.  Even if the lender is not arrested, he must pay regular protection money to keep it that way.  Additionally, there is little property in the DPRK which can be credibly used as collateral in a loan, which means that even if the loan is not discovered by the authorities, if the borrower defaults or absconds with the funds there is little the lender can take possession of to recover his capital.  This level of risk requires borrowers to pay much higher interest rates to coax scarce lenders into the market.

In addition to the high interest rates that black market lenders usually charge, they also earn a bad reputation for their resort to “informal” mechanisms to insure and recover these loans.  Some insurance mechanisms, such as lending to family members and close acquaintances, might work well.  Other mechanisms, such as making threats of harm (and following through), are not as widely respected. But these are “technological” adaptations and responses to the DPRK business environment, not purely sadistic behavior.  In other words, these market practices are completely predictable given the institutional environment and not unique to the DPRK.  If the DPRK court system impartially enforced contracts, and collateral could be legally secured, these sorts of technologies would be unnecessary.

I am not claiming that black market lenders are angels, or even pleasant people (in fact some of them may be powerful individuals in the party and security infrastructure), but they are financing the development of the DPRK’s unofficial economy out of nothing more than financial self-interest.  Without their efforts a whole class of informal and black market entrepreneurs would be unable to access capital markets to start new businesses or finance operations.  The unpleasant side of black market lending should not be placed on the market participants themselves, but on the DPRK’s policymakers who have pursued economic policies that have made this sort of behavior necessary.

Read the full Daily NK story here:
Loans Creating Circle of Poverty
Daily NK
Kang Mi Jin
2011-5-16

According to the Donga Ilbo:

Members of the credit rating agency under the Export-Import Bank of China are known to have visited North Korea around the “Day of the Sun” on April 15, otherwise known as the birthday of the Stalinist country`s founder Kim Il Sung.

A source in Beijing said, “Around 10 people from the Export-Import Bank of China made a 10-day trip to North Korea ahead of the Day of the Sun. They not only visited Pyongyang but also other cities.”

The agency provides sovereign credit ratings for countries around the world. Critics say the members visited the North to seek further economic cooperation, adding their trip holds more meaning than attending the holiday event because they also visited other cities.

Another source in Beijing said, “The Chinese government is mulling financial benefits including no-interest loans to Chinese companies investing in the [North’s] city of Rason.”

Beijing seems to be preparing to invest in the Hunchun-Rason area near the Tumen River and Dandong-Sinuiju’s Hwanggeumpyong region near the Yalu River, where Pyongyang-Beijing economic cooperation is vital.

Read the full story here:
China`s Exim Bank delegation visited N. Korea last month
Donga Ilbo
2011-5-9

Andrei Lankov writes in the East Asia Forum:

Until some 10 years ago, defection from North Korea implied that the person’s connections with his or her homeland would be broken for a long time, or perhaps even forever. North Korea was a huge black hole from where almost nothing could get out. But this is not the case anymore.

The number of North Korean defectors in South Korea has increased tremendously. In 2000, there were merely 1,400 North Koreans residing in the ROK. Now, a decade later, their numbers exceed 21,000.

These people are usually described as ‘defectors,’ but this name is misleading since almost none of them were driven by purely political considerations when they decided to leave North Korea. In most cases, they initially move to China, looking for food and better paying jobs. Only later do they usually find ways to move to South Korea, where, as they assume, their lives would be easier and more stable than in China.

To some extent these expectations are proven correct. By South Korean standards, North Korean refugees are not doing too well, their income being roughly half the income of the average South Korean. Nonetheless, even the 1 million won per month, plus subsidised housing and healthcare, are usually seen by refugees as affluence.

However, being Koreans they do not forget about their family members left behind in North Korea. In some cases the refugees save money to pay a professional defection specialist (simply called a broker) to relocate their family members to South Korea. A typical defection costs about 2-3 million won, but in some complex cases (for example, when the family members are old and fragile, very young or live far away from the border), it might cost considerably more.

Not everybody is willing to bring their entire family here and not every North Korean family wants to move to Seoul. Instead, defectors send money to their families back in the North. In recent years these transfers have dramatically increased in scale.

Remittances to the North are, strictly speaking, illegal according to both South and North Korean law. Nonetheless there is no way to stop this activity and, frankly, neither government is really willing to do so.

Last December the Database Centre for North Korean Human Rights conducted a survey of the economic situation of North Korean refugees in South Korea. According to the survey, 49 per cent of refugees regularly send money to their families in the North. The average amount sent by one person is estimated to be about 1 million won per year.

On balance the researchers estimated that about $10 million is sent North by defectors annually. There have been other attempts to estimate the scale of the remittances but those estimates are not much different ― most authorities agree that the annual amount is within the range of $5-$15 million. The $10 million is not a reliable amount for such a poor country as North Korea. After all, the Gaeseong Industrial Complex, often described as a major cash cow for the regime, generates some $20-$35 million a year.

Of course, one cannot make a bank transfer at a Citibank branch somewhere in the North Korean wilderness, and Western Union has yet to open its offices in the North. Remittances are made in cash and handled by the same networks of brokers who also smuggle people, letters and mobile phones to and from North Korea. Usually, money is first paid to a broker or their representative in South Korea and then moved or wired to China. Then the cash is smuggled across the border from China to the North. If the recipient lives near the border, they usually get the money straight from the smuggler. For those who live further south (in Pyongyang for example) the money might be delivered by a courier.

The complexity and risk of such an arrangement implies that service fees are expensive. The transaction fee currently fluctuates at 20-30 per cent of the total, so from the $1,000 sent by a refugee from Seoul, only $700-$800 will reach her relatives. Nonetheless, the system is quite reliable and incidents when the money does not reach its intended destination are rare.

Judging by anecdotal evidence, such money seems to be used for investments by North Korean recipients, most of whom run small businesses or workshops.

Politically, these remittances are important. North Koreans nowadays suspect that South Korea is not the destitute American colony the official propaganda used to criticize. These regular remittances make a difference; they reinforce the understanding that South Korea is a very rich place indeed. In the long run the spread of this knowledge does not bode well for the people who are now in control in Pyongyang.

Read the full story here:
Remittances from North Korean defectors
East Asia Forum
2011-4-21

According to the Choson Ilbo:

North Korea owes South Korea more than W1 trillion in terms of food and other loans, it emerged Tuesday (US$1=W1,092). The North has to start repaying the debt from June next year, but given its economic difficulties and strained inter-Korean relations it is unlikely that Seoul will see a penny.

According to the Unification Ministry, the Kim Dae-jung and Roh Moo-hyun administrations gave the North 2.4 million tons of rice and 200,000 tons of corn from 2000 to 2007 on condition of repayment over a period of 20 years with a 10-year grace period at a 1 percent annual interest. The loans amount to US$720.04 million, with the interest reaching $155.28 million.

The South Korean government also spent W585.2 billion from the Inter-Korean Cooperation Fund to re-link cross-border railways and roads from 2002 to 2008. Of the total, W149.4 billion worth of materials and equipment for construction on the North Korean side are also loans to be repaid on the same conditions.

Besides, Seoul lent the North $80 million worth of raw materials for production of textile, footwear, and soap in 2007 and 2008. At the time, the North paid back 3 percent of the loan with 1,005 tons of zinc ingots worth $2.4 million, leaving a $77.6 million balance.

All told, the principal on these loans amounts to W1.02 trillion and the total debt including interest to over W1.2 trillion.

The first repayment of $5.83 million for the food loans provided between October 2000 and March 2001 is due on June 7 next year.

A ministry official said, “The amount has already been included in next year’s revenue plan, on the assumption that it will be paid back. If the North fails to pay, it will be deemed outstanding balance.”

Aside from the food and economic loans, the South also lent the North W1.37 trillion through the Korean Peninsula Energy Development Organization from 1998 to 2006 for the construction of a light-water nuclear reactor. The money was raised by issuing government bonds. The total amount of all loans adds up to W2.25 trillion, if the accrued interest of W877.2 billion is counted.

But since the KEDO project was scrapped in 2006, there is no way for the South to get the money back. It seems likely that the total amount will be handled as “irredeemable government bonds” that have to be made up for with tax money.

Read the full story here:
Pyongyang Owes Seoul Huge Amounts of Money
Choson Ilbo
2011-4-20

The The UN World Food Prgram’s Rapid Food Security Assessment Mission (RFSA) offered some exchange rate data that I thought was worth pointing out:

Currently the official exchange rate is about USD1=KPW100 yet the market rate is closer to USD1=KPW3000. In other words, the redenomination of the national currency that occurred in November 2009 is all but neutralized. The effects of this policy on ordinary citizens appear to be mixed where people with over KPW 100,000 lost their savings. The purpose of such a policy was to control inflation by reducing money supply and to curb the growth in private enterprise. Worker salaries remained the same, but prices were reduced significantly.

The PDS prices were revised downwards in the wake of the currency revaluation making it even more affordable, at least in principle. For example, PDS prices of rice declined from KPW 44 to KPW 24 per kg and maize declined from KPW 24 to KPW 14. At these low prices the issue is the lack of commodities in the market, rather than consumers lacking money to purchase them.

An average worker makes around KPW 3,000 to KPW 4,000 per month. This translates into a dollar per month which only works in DPRK because everything is heavily subsidized and ordinary citizens do not rely on direct purchases of imported commodities. If PDS were to run out of cereals at the end April, people would not have the means to purchase cereals on the black market, where prices are KPW2000 per kilogram of rice and about KPW 1000 for maize. It is highly doubtful that the barter system which is the backbone of this informal economy will be able to withstand a shock of this magnitude over more than a couple of weeks. A humanitarian crisis is the likely outcome of such a series of events.

India is providing the DPRK with USD$1m in assiatance via the UN World Food Program.  According to the WFP web page:

The United Nations World Food Programme (WFP) today welcomed a generous donation of US$1 million from the Government of India for its operation to reach the most vulnerable children and their mothers in the Democratic People’s Republic of Korea (DPRK).

In an event organised at the Government of India’s Ministry of External Affairs, Honourable Minister of State for External Affairs Mr. E. Ahmed handed over an official pledge letter to WFP India representative Mihoko Tamamura.

“We are delighted to accept this donation from the government on behalf of the people of India,” said Ms. Tamamura. “As the people of DPRK are coming to the end of one of the bitterest winters in living memory – this act of generosity is extremely timely.”

The donation from India is to be used to buy pulses, rich in protein, which is a key missing ingredient in the daily DPRK diet.

Meanwhile the Reserve Bank of India (India’s Central Bank) has issued a warning to Indian banks regarding North Korean funds.  According to the Business Standard:

Fearing possible money laundering and terror-financing risks from Iran and North Korea, the Reserve Bank of India (RBI) has asked banks and other financial entities to be cautious in dealings with entities and funds from these countries.

The RBI warning follows a fresh global caution notice issued by the Financial Action Task Force (FATF) on Iran and Democratic People’s Republic of Korea.

The FATF is an inter-governmental body responsible for making policies at national and international levels to combat money laundering and terror-financing.

The RBI said the FATF has issued a fresh public statement on February 25, 2011, “calling its members and other jurisdictions to apply counter-measures to protect the international financial system from the ongoing and substantial money laundering and terrorist financing (ML/FT) risks emanating from Iran and the Democratic People’s Republic of Korea (DPRK).”

“All banks and all-India financial institutions are accordingly advised to take into account risks arising from the deficiencies in AML/CFT regime of these countries, while entering into business relationships and transactions with persons (including financial institutions) from or in these countries/jurisdictions,” the RBI said in a March 24 circular.

A similar circular could be issued soon by the market regulator Sebi to warn market entities against their dealings with funds and entities related to these two countries.

An FATF public statement in this regard is always followed up by various regulators in India and other member countries asking the entities regulated by them to exercise extra caution in dealings with countries where anti-money laundering and terror-financing regulations have deficiencies.

The RBI and Sebi had last issued such a warning in January about Iran, pursuant to a directive from the FATF.

India became a member of the FATF last year. Following the nation’s accession into the global body, it is required to follow the global standards prescribed by the FATF to check money laundering and terror-financing activities.

As per the FATF warning, all financial institutions have been advised to give special attention to business relationships and transactions with Iran and North Korea, as well as their companies and financial institutions.

The FATF has urged member countries to take into account the risk of money laundering and terror-financing when considering requests by Iranian and North Korean financial institutions to open branches and subsidiaries.

Iran and North Korea have been subjected to various sanctions by the US and some European countries to thwart the flow of funds allegedly used to finance their nuclear weapon ambitions and sponsor terror-related activities.

You can read the full story here:
RBI warns banks against dealings with Iran, N Korea funds
Business Standard
3/27/2011

UPDATE: For the second time in as many weeks, the DPRK’s central bank makes the news.  According to KCNA:

A national meeting of commercial officials took place at the People’s Palace of Culture on Monday.

The meeting reviewed the gains and experience made in the past commercial service and discussed tasks and ways for improving this work.

Present there were Premier Choe Yong Rim, Minister of Light Industry An Jong Su, Minister of Foodstuff and Daily Necessities Industry Jo Yong Chol, Chairman of the State Price Commission Ryang Ui Gyong, President of the Central Bank Paek Ryong Chon and other officials.

According to Yonhap, Paek Ryong Chon is the third son of the late foreign minister Paek nam-sun.

ORIGINAL POST: A big hat tip to Chris Green who translated an interesting article on recent changes to DPRK banking regulations.  The original article in Korean is here.

According to Chris’ translation of the article:

The Chosun Central Bank is said to have raised interest rates by 1.8 times. Customers are also now able to get instant access to their money. As a result, the bank’s total deposits are also said to be growing.

These measures appear to be the bank coming forward to guarantee deposits given that people have been unwilling to put their money there since the 2009 currency redenomination.

North Korea watchers are observing the situation, saying that there is a chance that measures like these could be an indicator of financial sector reform.

Speaking on the 1st, one such source said, “I hear that the number of people putting their money in the bank is growing. The total reserves of the Chosun Central Bank are also growing. The causes of this are that access to withdrawals has recently been freed up and the interest rate has risen steeply.” According to the source, the interest rate offered by the bank was previously 3%, but has recently risen to 5.4%.

The Chosun Central Bank is a government entity under the Cabinet, doing the job of both a central and commercial bank at the same time. It offers savings, loans and insurance services.

North Korean people can deposit money there and earn interest on it; in this, it is much the same as the Post Office, which also takes deposits and gives interest.

In terms of allocation in North Korea, the state does it by force, and there are also cases of deposits being coerced. Indeed, until now it has been hard for North Korean people to recover capital deposited with the bank.

The source explained, “At times when the economic situation has been bad, it has not just been hard to get interest, it has even been common to illegally have to give 20% of the value of the capital to Central Bank management and then take the rest,” but added, “Recently, North Korean people have been able to get hold of their deposits surprisingly easily, and the rumor ‘We can get our money! And the interest has gone up!’ is going around.”

Cho Byung Hyun of the Industrial Bank of Korea’s research institute explained more, saying, “Following the failure of the 2009 currency redenomination, people disliked putting their money in the bank so, for the circulation of money, the bank instituted a policy of allowing instant access to deposits and raising interest rates.”

North Korea suffered serious fallout from the currency redenomination, including rapidly rising prices and the execution of its architect, former Workers’ Party financial planning head Pak Nam Gi.

However, it is also possible in part to interpret the failed redenomination as an opportunity to activate capitalist banking practices.

Cho went on, “We know North Korea has recently been preparing financial reforms. At the moment, banks under existing trade banks etc are controlled by the Central Bank, but this can be seen as propelling reform in the direction of giving independence to each bank.”

Meanwhile, Professor Lee Sang Min of Joongang University economics department pointed out, “This can be seen as helping with the introduction of a capitalist system in North Korea in the long term. It is an opportunity for the North Korean people to learn about a capitalist banking system.”

However, it is as yet too early to see this sort of phenomenon as meaning that the financial system of North Korea is settled. As one defector pointed out, “For this to develop into a system, the North Korean authorities shall have to spend a long time building trust.”

Another North Korea source added, “The dollar tended to be thought of by the North Korean people as the standard currency, but the Yuan is gradually moving to center stage.” This is analyzed by experts as being down to recent economic exchanges between the North and China and the rising value of the Yuan.

Fascinating stuff.  Thanks for posting, Chris.

I am actually looking for information on the DPRK’s monetary system, so if you have any good papers, please send them my way.

UPDATE 3 (2/23/2011): According to Yonhap:

A recent survey of North Korean defectors in South Korea showed Wednesday that a large number of them use part of their resettlement money from the government here to help their families in the North.

In the survey conducted in November by the Organization for One Korea, a group run by unification activists, 71 percent of 350 respondents said they have sent money back to the communist country before. About 66 percent of the cash remitters said that they used part of their money received from the South Korean government.

In an effort to buffer the initial costs of resettlement, the government here provides each defector with a subsidy of 6 million won (US$5,330) and partly finances their housing.

More than 20,000 North Korean defectors have arrived in South Korea since the 1950-53 Korean War ended in a truce. The number does not account for the estimated tens of thousands hiding in China.

According to the survey that had a margin of error of 3.59 percentage points, about half of the cash remitters said brokers took away 30 percent of their money sent to the North as a fee, while only 65 percent believed the remainder was entirely delivered.

North Korean defectors are 17 times likelier to depend on government allowances, according to the Unification Ministry. Over 50 percent of defectors depend on a universal welfare program that pays them about 400,000 won (US$355) a month.

Defections began to accelerate after a massive famine swept through North Korea in the mid-1990s, killing an estimated 2 million people. North Korea considers defectors criminals punishable even by death.

Read previous recent stories about remittances below.
(more…)

UPDATE 4 (2/20/2011): Kim Tong-un (김동은) named Kim Jong-il’s fund manager.  According to Yonhap:

A senior official of North Korea’s ruling party has been named to lead a special party bureau, code-named Office 38, that oversees coffers and raises slush funds for its leader Kim Jong-il and the ruling elites, a source on North Korea said Sunday.

Kim Tong-un, formerly head of Office 39 in the Workers’ Party of Korea, assumed the post in May last year, when North Korea revived Office 38, which was merged with Office 39 in 2009, the source said on condition of anonymity. Office 39 is believed to be another organ that governs a wide network of business operations both legal and illegal.

Both Offices 38 and 39 belong to the Secretariat of the Workers’ Party, which Kim Jong-il chairs, according to a diagram of the North’s power structure released by the Unification Ministry, which handles inter-Korean affairs. Last year, the ministry had only included Office 39 in a similar diagram.

In a meeting with reporters last week, a ministry official said Office 38 has been spun off from Office 39 and is now running on its own again. The official, who would speak only on the condition of anonymity citing the sensitive nature of his comments, described “a stream of information” that has come through since mid-2010.

Office 38 mainly oversees transactions involving foreign currency, hotels and trade, the official said, while Office 39, headed by Jon Il-chun, drives revenue by dealing in narcotics, arms, natural resources and others.

The North’s revival of Office 38 is interpreted as an effort to cover the increasing cost of leader Kim Jong-il’s ceding of power to his youngest son, Jong-un.

The story was also reported in Yonhap.

UPDATE 3: Here are links to the Ministry of Unification‘s English language organization charts of the North Korean leadership in which some of the changes mentioned below are listed (though not all): Workers’ Party, State Organs, Parties and Organizations

UPDATE (2/15/2011): According to the Daily NK:

The number of Special Departments under the Secretariat of the Chosun Workers’ Party has been increased from 18 to 20, a move that includes the revival of the No. 38 Department, which previously served as Kim Jong Il’s private bank vault, and the foundation of a film department.

The Ministry of Unification revealed the news yesterday in its 2011 North Korean Power Structure and Index of Figures, Agencies and Organizations. It incorporates North Korean changes from December, 2009 up to the present day, completed after consultation with relevant agencies and experts.

The revival of the No. 38 Department and founding of a film department

The report states, “The No. 38 Department, which was merged with the No. 39 Department in 2009, was spun off again last year. Kang Neung Su, who was appointed Deputy Prime Minister in June of 2010, was introduced as head of the film department at the same time. The exact foundation date of the film department is unknown; however, it appears to be newly established.”

No. 38 and No. 39 Departments are directly controlled by Kim Jong Il and serve as a private vault for his ruling funds. The No. 38 Department manages hotels, foreign currency stores and restaurants etc, while illegal weapons trading through foreign trade companies, the smuggling of gold, illegal trade in drugs and the distribution of counterfeit dollars, so-called supernotes, are handled by the No. 39 Department.

“They combined two offices which had different functions, and it appears that this did not result in the intended efficiency,” a knowledgeable source commented.

Meanwhile, on the establishment of a film department, the source added, “North Korea’s cultural art is a political means by which to carry out Party policy and a policy tool to implant policy in the North Korean citizens.”

Among the reshuffled special departments, the existing ‘Munitions Industry Department’ has been renamed the ‘Machine Industry Department’, and the ‘Administration and Capital Construction Department’ has been scaled back to simply ‘Administration Department’.

Elsewhere, the existing National Resources Development and Guidance Department under the Ministry of Extractive Industries has been promoted to National Resources Development Council and, as reported, the Joint Investment Guidance Department rose to become the Joint Investment Committee, while the National Price Establishment Department became the National Price Establishment Committee. Again, as reported, the ‘People’s Safety Agency’ under the Cabinet became the People’s Safety Ministry under the National Defense Commission, while the Capital Construction Department was downsized to become the General Bureau of Capital Construction.

The Central Court and Central Prosecutors Office were also renamed the Supreme Court and Supreme Prosecutors Office respectively.

The Ministry of Unification report also notes that North Korea added Nampo City to its list of eleven cities and provinces, increasing the total number to twelve.

The newly designated Nampo City includes five former parts of South Pyongan Province; Gangseo, Daean, Oncheon, Yonggang, and Chollima districts. Previously, Nampo was under the direct control of the central government as part of South Pyongan Province proper.

At the same time, North Korea also transferred the existing Kangnam-gun, Joonghwa-gun, Sangwon-gun, and Seungho-district, all formerly southern sections of Pyongyang City, to North Hwanghae Province.

Military Commission placed under the Central Committee of the Party

The relationship of the Central Committee and Central Military Commission, which was formerly said to be in parallel, has been changed, reflecting the idea that the Military Commission is now under the Central Committee of the Party.

The Ministry of Unification commented, “By revising the Party regulations, the Central Military Commission and Central Committee were marked as parallel in 2009 and 2010. However, after confirming the revised Party regulations at the Chosun Workers’ Party Delegates’ Conference on September 28th last year, this relationship was adjusted, and an election is now held for the Central Military Commission via a plenary session of the Central Committee.”

Also, the ‘Bureau of General Staff’ under the National Defense Commission was judged to be below the Ministry of the People’s Armed Forces, but is now shown to be in a parallel relationship with the Ministry of the People’s Armed Force and ‘General Political Department’.

ORIGINAL POST (2/14/2011): According to Yonhap:

North Korea has revived a special party bureau, codenamed Office 38, that oversees coffers and raises slush funds for its leader Kim Jong-il and the ruling elites, South Korea said Monday in its annual assessment of the power structure in the communist country.

In 2009, the bureau had been merged with Office 39, another organ that governs a wide network of business operations both legal and illegal, according to the Unification Ministry in Seoul.

In a meeting with reporters, however, a ministry official said Office 38 has been spun off from Office 39 and is now running on its own again. The official, who would speak only on the condition of anonymity citing the intelligence nature of his comments, cited “a stream of information” that has come through since mid-2010.

The official would not elaborate on how the information has been obtained, only saying the ministry works closely with “related government bodies” to outline the North’s power structure.

Office 38, whose chief remains unknown, mainly oversees transactions involving foreign currency, hotels and trade, the official said, while Office 39, headed by Jon Il-chun, drives revenue by dealing in narcotics, arms, natural resources and others.

A source privy to North Korea matters said the spin-off suggests that North Korea has been experiencing difficulties in earning foreign currency since merging the two offices.

“Efficiency was probably compromised after the two, which have different functions, were combined,” the source said, declining to be identified citing the speculative nature of the topic. “More importantly, it seems related to the current state of foreign currency stocks. The North is apparently trying to address those difficulties.”

In August last year, the United States blacklisted Office 39 as one of several North Korean entities to newly come under sanctions for involvement in illegal deeds such as currency counterfeiting.

North Korea is also believed to have been hit hard financially after South Korea imposed a series of economic penalties last year on Pyongyang when the sinking of a warship was blamed on it.

Both Offices 38 and 39 belong to the Secretariat of the Workers’ Party, which Kim Jong-il chairs, according to a diagram of the North’s power structure released by the Unification Ministry. Last year, the ministry had only included Office 39 in a similar diagram.

Both offices have often been referred to as Kim Jong-il’s “personal safes” for their role in raising and managing secret funds and procuring luxury goods for the aging leader.

Read the full story here:
North Korea Splits No. 38 and 39 Departments Up Again
Daily NK
Kim So Yeol
2/15/2011

N. Korea revives ‘Office 38’ managing Kim Jong-il’s funds: ministry
Yonhap
Sam Kim
2/14/2011