North Korean Economy Watch

FDI Magazine
Stephen Timewell
12/12/2005

On my journey to Pyongyang a Beijing receptionist remarked that the Democratic People’s Republic of Korea (DPRK) is very much like China was 25 years ago. And as the motorcade of China’s president Hu Jintao passed thousands of flower-waving North Koreans on his visit to the world’s most secretive and politically isolated country at the end of October, he may well have agreed.

Visiting Pyongyang is like going back decades in a time machine, to a land with no advertising, no Nokia, Microsoft or McDonald’s billboards and almost no cars. Impressive grand avenues and massive public monuments dominate the landscape but there is no new construction or shops.

The streets are scrubbed clean by hand and are full of hundreds of orderly people wearing their ‘Great Leader’ badges and walking everywhere. Curiously, bicycles are discouraged because of bad accidents and the government encourages power walking for good health, or so I am told. In a country said to spend 30% of its GDP on defence, there is no visual military presence (or overt police presence) in the capital at all.

The ‘traffic ladies’ standing at major intersections are a welcome replacement for traffic lights but there are precious few cars to direct.

Questions greatly outnumber answers in this capital where visitors are duly dazzled by the spectacular grand mass gymnastics and artistic performance (called Arirang) by almost 70,000 children in the massive 150,000-seat May Day Stadium. But visitors are also aware of serious food shortages and cannot ignore the capital’s tallest building, a magnificent 105-floor pyramid tower with a crane on top, left unfinished many years ago, I was informed, due to financial problems.

Winds of change

Whether the DPRK is seen as the last Stalinist communist state or as a Confucian nationalist monarchy or even, as it describes itself, as a “powerful socialist nation”, visitors can feel the winds of change, particularly on the economic front. For more than 50 years the iconic stature of the late ‘Great Leader’ Kim Il Sung and that of his successor son Kim Jong Il have dominated the political landscape; the question going forward is how the country’s dire economic circumstances can be improved and whether the regime has the capability to create the new structures needed.

Pyongyang was playing host not only to Mr Hu but also to an increasing number of foreign delegations and journalists, all keen to understand the trends taking place in probably the last country to have massive pictures of Marx and Lenin hanging outside its Ministry of Trade. For many, however, the current focus is progress in the Six-Party Talks on the nuclear weapons programmes of the DPRK.

In the fourth round of talks in September between the two Koreas, China, Japan, Russia and the US a landmark agreement appeared to have been reached. “All six parties emphasised that to realise the inspectable non-nuclearisation of the Korean Peninsula is the target of the Six-Party Talks,” a joint statement said. “The DPRK promised to drop all nuclear weapons and current nuclear programmes and to get back to the non-proliferation treaty as soon as possible and to accept inspections from the International Atomic Energy Agency.”

At the time of going to press in November a fifth round of talks was expected to move a final agreement closer but detailed negotiations over implementation of the above agreement were not expected to be easy or to be concluded quickly. The DPRK, unsurprisingly, wants some payback, be it light-water reactors from the US or other economic incentives.

The core issue is that the DPRK’s publicly acknowledged plutonium programme, believed to provide enough radioactive material for about six bombs, is probably also the country’s key card in trying to rebuild the economy. Kim Jong Il needs to gain maximum advantage from giving up his nuclear threat, but even then, what does his economy have to offer?

Information hollow

For a financial journalist the DPRK represents a serious challenge. Understanding the economy and the banking sector of a country is never easy, but when no data is published by the government or the central bank it becomes significantly more difficult. I knew information was scarce but believed that the two very agreeable government minders, assigned to monitor my every move in my four-day visit, would be able to help me extract a simple list of banks operating in the country. No such luck. Although my visit was welcomed, the central bank (which acts as both the issuing bank and as a fully operational commercial bank in the traditional socialist model) failed to provide the list (or anything else), despite numerous requests.

Although the consensus after several interviews was that around 20 banks of various types exist, I can only vouch for the handful listed here. Clearly the Foreign Trade Bank (FTB) represents a pivotal bank in the financial system and Ko Chol Man, director of the FTB, was keen to explain the peculiarities of the DPRK banking system. “The domestic and foreign exchange settlement systems are completely separate. The central bank deals with the domestic market and money issuance and it also has a commercial banking role; the FTB has complete control over foreign exchange matters and trade and also holds the country’s foreign exchange reserves.”

Unlike other banking systems, the FTB in the DPRK acts as a clearing house for the foreign exchange activities of the banks in the country. It does not report to the central bank but, like all banks, reports to the State Fiscal and Financial Committee (SFFC), the overall banking regulator.

Mr Ko was pleased to note that the FTB had around 500 correspondent banks worldwide and, along with its 600 staff (including 11 branches) in North Korea, had six representative offices outside the country (including offices in Austria, Russia and China) and planned to establish a UK representative office in London. However, when asked for details of FTB’s banking activities he replied bluntly that no banking institution had published its figures in terms of activities or balance sheet. “We cannot give figures about the size of our assets because it is a regulation of the state. If the situation becomes better we can make them public but up to now it is impossible.”

Economic estimates

Despite the absence of official economic and banking data, various estimates help make the picture a little less murky. A recent Standard Chartered Bank report places North Korea’s nominal GDP at the end of 2004 at $22bn or $957 in GDP per capita terms for the country’s 23 million population; by comparison, South Korea’s nominal GDP is put at $680bn or $14,167 per capita for its 48 million population. While the unification of the two Koreas is seen as an important political objective, especially in Pyongyang, the startling economic gap between the two states could mean that the North becomes a huge burden on the South, and Seoul well recognises the economic problems that emerged from the reunification of Germany in the 1990s.

Meanwhile, Jong Msong Pil, of the Institute of Economy at the Academy of Social Science, explained how the economy had declined dramatically from a GDP per capita of $2500 in the mid-1980s to $480 per capita in 2000.

“The big drop was caused by the disappearance of the socialist market worldwide in the early 1990s; the collapse of our socialist barter trade system led to the failure of many enterprises and a decline in living standards,” he said.

Dr Jong noted that, following the hard times of the mid-1990s, the first target of the national economy has been self-reliance. He added that no economic data had been published since 2000. He believed, however, that 10% economic growth occurred in 2004 and, responding to reports from the World Food Programme (WFP) that a third of the population were malnourished, he said the food situation was improving. “In our country, all people have a job so for this reason no one has died of starvation or hunger. Our country is a socialist planned economy so the government takes care of people’s living.”

Acknowledging shortages in the past, Dr Jong said that in October the government had normalised the public food distribution system, which indicated the government was now supplying sufficient food.

Is the DPRK’s food crisis over? Driving around Pyongyang’s spacious avenues (with two minders) there was no visual evidence of malnutrition – but the capital is likely to be much better served than elsewhere. A supermarket was shown but the goods were only available for foreign currency, hardly food for the masses. Cha Yong Sik, deputy director general at the Ministry of Foreign Trade, said the government had not imported food on a commercial basis in 2005, unlike previous years, but neighbouring countries are still providing significant food aid. Richard Ragan, country director of the WFP, said food production in 2005 was up 10%, with cereals up 6.6%. But while the food situation may have improved, the DPRK is said to be still dependent on food aid.

Trade predictions

So what are the DPRK’s prospects? Much depends on the outcome of the nuclear negotiations but estimates from the Seoul-based Korea Trade-Investment Promotion Agency (KOTRA) say the DPRK’s trade volume in 2005 is expected to pass $3bn for the first time since the fall of the Soviet Union with the figure likely to reach $4bn if inter-Korean trade is included. Trade with China, the DPRK’s largest trading partner, grew by more than 40% in the first half of 2005, indicating Pyongyang’s growing dependency on Beijing.

Upbeat on trade prospects, Mr Cha explained that the recently opened Tae-an Friendship Glass Factory, built with a $32m donation from the Chinese government, would export 40% of its 300-ton capacity, mainly to Siberia. Also Pyongyang’s first autumn international trade exhibition in October included companies from six European countries, the focus being on the country’s mineral potential rather than its manufacturing abilities, which are a long way off.

As for banks, the group of up to 15 joint venture banks are helping to finance the country’s 150 or so international companies. But do not expect miracles. The latest, Koryo Global Credit Bank, set up in June, is a joint venture between the UK-based Global Group, headed by Hong Kong businessman Johnny Hon, with 70%, and the state-owned Koryo Bank with 30%. Established with a paid-up capital of e10m, KGC Bank is ambitious in its plans to engage the DPRK in trade and commercial relations with the rest of the world, especially Asia, the Middle East and Europe.

KGCB’s first correspondent banking relationship in Europe is with Germany’s Helababank. The bank, the first product of cooperation in the finance field between the DPRK and the UK, has a staff of five and is also interested in investing in property. It was also able to produce, at the instigation of US authorities, a comprehensive anti-money laundering file.

Another local venture is North East Asia Bank (NEAB), which was set up by ING Group in 1995 but is now wholly owned by the Korean BOHOM Group. Amazingly, Kim Hyon Il, NEAB’s president, produced a balance sheet showing total assets of e79m at the end of 2004 and a paid-up capital of e25m. He also showed me the bank’s newest product, a chip-based cash/debit card, the first in the DPRK. The card demonstrates perhaps that the country is slowly joining the real world – but with only 100 issued and only 13 outlets available, the service has a long way to go.

Political effects
 
At Daedong Credit Bank, chief executive Nigel Cowie explained how international politics can have a dramatic impact on banking even in the isolated DPRK. In September, just before the conclusion of the fourth round of the Six-Party Talks, the US Treasury accused Banco Delta Asia (BDA), a Macao-based bank, of aiding the DPRK in a series of ‘money laundering’ cases. The Wall Street Journal had said the Macao crackdown was Washington’s method of cutting off Pyongyang’s financial sources for its nuclear weapons programme.

Mr Cowie, a former HSBC banker, explained that all DPRK banks had accounts with BDA for the purposes of remitting funds and, as a result, the accounts were suspended pending an inquiry in mid-November. While Stanley Au, chairman of BDA’s parent, denied the US allegations and BDA’s involvement in any illegal business relations with DPRK banks, the damage is done. “It affects our customers because it affects people’s ability to remit money to and from the country. I imagine that this will cause people doing legitimate business to give up,” says Mr Cowie.

The nuclear negotiations remain critical to the country’s future and the Chinese, in particular, want them to succeed. But that is just a start. There is evidence that the DPRK is opening up and changing with reports that there are 300 open markets operating across the country, 30 in Pyongyang. But whether the DPRK follows the China model of 25 years ago and can restructure its ‘powerful socialist nation’ doctrine remains doubtful under the current leadership.

Asia Times
Michael Rank
12/3/2005

From psychiatrist to international banker and gambling tycoon is an unusual career path, but Hong Kong-born Dr Johnny Hon says it makes quite a lot of sense. “Wealthy clients need a psychiatrist more than they need a banker,” he quipped. “Training in psychiatry makes you understand clients better. Most of them are elderly. They are concerned about their health and how to plan for passing their wealth down to their children.”

Hon, 34, was awarded a PhD in psychiatry from Cambridge University in 1998, but left medicine for finance after being recruited by the Dutch bank ABN AMRO as a private banker in Hong Kong. He didn’t stay with the Amsterdam-based bank long, however, and now has his own business empire, Global Group (Europe) plc, stretching from a joint venture bank in North Korea to a stake in a lottery in China, not to mention another bank in the Comoro Islands off Madagascar and an online gambling company in London.

Hon’s business ventures tend towards the exotic, but in an interview at his headquarters in London’s Docklands financial district he came across as measured and affable – even if I never did quite understand how he switched from a dissertation on the association between Down’s Sydrome and Alzheimer’s disease to international finance.

This has been a big year for Hon, who in June opened the Koryo Global Credit Bank in Pyongyang and in July announced the signing of a contract to co-manage the state sports lottery in the southwestern Chinese province of Guizhou.

Under the deal with Guizhou, Hon’s UK company, Betex, became the first non-Chinese company to become involved in gambling operations in mainland China (although numerous overseas gaming firms are involved in the Macau SAR). Gambling is illegal in China, with the big and fast-growing exception of state-sponsored lotteries, currently worth US$4.8 billion a year, although illegal gaming expenditures are estimated at 10 to 15 times as much, according to a recent Deutsche Bank report.

The Chinese government is aiming to cash in on the huge illegal gaming market through a vast network of video lottery terminals, and Deutsche Bank says “these measures will help lottery capture 40-50% of the illegal gambling market over the next three years”. Hon said his company had invested about 1.75 million British pounds ($3.05 million) in Guizhou, where there were currently 780 lottery sales points. These will be upgraded to give results in real time rather than be downloaded twice a day.

“So far we are involved only in Guizhou,” one of China’s poorest provinces, he said. “But we will hopefully speak to more provinces. Gaming in China has a lot of potential.” Underlining this potential, Deutsche Bank has cited the Peking University Center for Lottery Research as valuing illegal gambling activities in China – including underground casinos, slot machines, black market sports betting, and illicit lotteries – at around $75 billion. State lotteries are supposed to hand a proportion of their profits to charity and to sports development bodies, but corruption is said to be rife.

Hon said he was “taking a cautious approach” with his bank in North Korea, in which Global Group has a 70% stake and state-owned Koryo Bank has 30%. Stalinist North Korea is notoriously closed and secretive, but Hon said up to 200 foreign business people lived in Pyongyang and the country was gradually developing a market economy. He said he was “very bullish” about the future of North-South Korean economic cooperation, and stressed the potential of the Kaesong industrial zone, where a large number of South Korean companies have opened factories.

Hon noted that China’s economic reforms had been greatly boosted by overseas Chinese entrepreneurs from Hong Kong and Taiwan, who have cultural, linguistic and family ties with the mainland, and South Koreans and overseas Koreans could make a similar contribution to North Korea’s economic development.

“I keep telling my North Korean friends to make use of the huge resources and capital from South Korea,” Hon said. “Labor costs are even cheaper than China … People are well educated and have good discipline. They need the right economic policies.” Regarding North Korea’s relations with the West, Hon said: “There have been a lot of misunderstandings on both sides … There is a big gap in how they read the West and how we read them.”

Hon noted that Macau billionaire, Stanley Ho, had a casino in Pyongyang, and said that “maybe I will talk to him a bit about banking arrangements”. But he denied that he had any involvement with North Korea’s reported online lottery venture, which is aimed mainly at South Koreans. North Korea is highly puritanical and its citizens are barred from the Pyongyang casino, whose main customers are Chinese entrepreneurs and tourists.

Hon said he was motivated not simply by money, but also wanted to “make positive contributions” to impoverished Third World countries. “I came to the conclusion that you can do more good to help more people by making money first,” he added.

This was part of the reason why he founded a bank on the tiny, impoverished island of Anjouan in the Comoros in 2002. The Comoros, in which Anjouan has autonomous status, have endured 19 coups or attempted coups since gaining independence from France in 1975, and Hon wryly admitted that “at the moment the bank has caused me more problems than it is worth”. He founded the bank after he was “asked to help” by the president of Anjouan to assist in drafting new financial laws and setting up an offshore banking industry on the Indian Ocean island.

Global says it is the only company authorized by the government of Anjouan to market financial and banking licenses. But the company says some websites allege that this is not the case and that Global is challenging this in the courts.

Hon, a British citizen, was educated in Britain from the age of 13 and says on his website that in just six years he “has built up a mini conglomerate, with interests in banking, property development, gaming, finance and leisure and from which the combined turnover in 2005 is expected to reach well in excess of 1 billion British pounds. Even more remarkable is that whilst building the Global Group of Companies from scratch, he has managed to pursue so many other interests both charitable and political.”

On the charitable side, Hon was part of a team that provided North Korea with 120 wheelchairs after a large explosion on a railway line last year in which 169 people died. There was speculation, strongly denied by the North Korean government, that the explosion was a failed assassination attempt against the country’s all-powerful leader, Kim Jong-il.

On the political side, Hon is a business supporter of Britain’s governing Labour Party, and a signed photograph of Prime Minister Tony Blair “to Johnny and all at Global” is on prominent display in the company’s boardroom. In Britain, his gaming company, Betex, is seeking a listing on the Alternative Investment Market, which has a more flexible regime than the main stock exchange, while Hon is also actively seeking business partners for tourism ventures in the Caribbean. Hon said he employs 115 people worldwide, mainly in Britain but including about 10 in China and seven in North Korea.

His other interests include helping Chinese companies get a stock market listing in London. These companies span a wide range of sectors, from biotechnology to education and tourism. On his website he lists some 30 companies of which he is founder or director, and states that Global Group “is growing at a rapid rate, employing more and more staff and operating in more diverse areas than ever before. Under Johnny’s chairmanship the group is certain to go onwards and upwards.”

Hon definitely seems like a man to watch, and you never know in which exotic corner of the world he is going to turn up next.

The Banker and FDI magazine
12/1/2005

[excerpt]
Information hollow

For a financial journalist the DPRK represents a serious challenge. Understanding the economy and the banking sector of a country is never easy, but when no data is published by the government or the central bank it becomes significantly more difficult. I knew information was scarce but believed that the two very agreeable government minders, assigned to monitor my every move in my four-day visit, would be able to help me extract a simple list of banks operating in the country. No such luck. Although my visit was welcomed, the central bank (which acts as both the issuing bank and as a fully operational commercial bank in the traditional socialist model) failed to provide the list (or anything else), despite numerous requests.

Although the consensus after several interviews was that around 20 banks of various types exist, I can only vouch for the handful listed here. Clearly the Foreign Trade Bank (FTB) represents a pivotal bank in the financial system and Ko Chol Man, director of the FTB, was keen to explain the peculiarities of the DPRK banking system. “The domestic and foreign exchange settlement systems are completely separate. The central bank deals with the domestic market and money issuance and it also has a commercial banking role; the FTB has complete control over foreign exchange matters and trade and also holds the country’s foreign exchange reserves.”

Unlike other banking systems, the FTB in the DPRK acts as a clearing house for the foreign exchange activities of the banks in the country. It does not report to the central bank but, like all banks, reports to the State Fiscal and Financial Committee (SFFC), the overall banking regulator.

Mr Ko was pleased to note that the FTB had around 500 correspondent banks worldwide and, along with its 600 staff (including 11 branches) in North Korea, had six representative offices outside the country (including offices in Austria, Russia and China) and planned to establish a UK representative office in London. However, when asked for details of FTB’s banking activities he replied bluntly that no banking institution had published its figures in terms of activities or balance sheet. “We cannot give figures about the size of our assets because it is a regulation of the state. If the situation becomes better we can make them public but up to now it is impossible.”
Economic estimates

Despite the absence of official economic and banking data, various estimates help make the picture a little less murky. A recent Standard Chartered Bank report places North Korea’s nominal GDP at the end of 2004 at $22bn or $957 in GDP per capita terms for the country’s 23 million population; by comparison, South Korea’s nominal GDP is put at $680bn or $14,167 per capita for its 48 million population. While the unification of the two Koreas is seen as an important political objective, especially in Pyongyang, the startling economic gap between the two states could mean that the North becomes a huge burden on the South, and Seoul well recognises the economic problems that emerged from the reunification of Germany in the 1990s.

Meanwhile, Jong Msong Pil, of the Institute of Economy at the Academy of Social Science, explained how the economy had declined dramatically from a GDP per capita of $2500 in the mid-1980s to $480 per capita in 2000.

“The big drop was caused by the disappearance of the socialist market worldwide in the early 1990s; the collapse of our socialist barter trade system led to the failure of many enterprises and a decline in living standards,” he said.

Dr Jong noted that, following the hard times of the mid-1990s, the first target of the national economy has been self-reliance. He added that no economic data had been published since 2000. He believed, however, that 10% economic growth occurred in 2004 and, responding to reports from the World Food Programme (WFP) that a third of the population were malnourished, he said the food situation was improving. “In our country, all people have a job so for this reason no one has died of starvation or hunger. Our country is a socialist planned economy so the government takes care of people’s living.”

Acknowledging shortages in the past, Dr Jong said that in October the government had normalised the public food distribution system, which indicated the government was now supplying sufficient food.

Is the DPRK’s food crisis over? Driving around Pyongyang’s spacious avenues (with two minders) there was no visual evidence of malnutrition – but the capital is likely to be much better served than elsewhere. A supermarket was shown but the goods were only available for foreign currency, hardly food for the masses. Cha Yong Sik, deputy director general at the Ministry of Foreign Trade, said the government had not imported food on a commercial basis in 2005, unlike previous years, but neighbouring countries are still providing significant food aid. Richard Ragan, country director of the WFP, said food production in 2005 was up 10%, with cereals up 6.6%. But while the food situation may have improved, the DPRK is said to be still dependent on food aid.
Trade predictions

So what are the DPRK’s prospects? Much depends on the outcome of the nuclear negotiations but estimates from the Seoul-based Korea Trade-Investment Promotion Agency (KOTRA) say the DPRK’s trade volume in 2005 is expected to pass $3bn for the first time since the fall of the Soviet Union with the figure likely to reach $4bn if inter-Korean trade is included. Trade with China, the DPRK’s largest trading partner, grew by more than 40% in the first half of 2005, indicating Pyongyang’s growing dependency on Beijing.

Upbeat on trade prospects, Mr Cha explained that the recently opened Tae-an Friendship Glass Factory, built with a $32m donation from the Chinese government, would export 40% of its 300-ton capacity, mainly to Siberia. Also Pyongyang’s first autumn international trade exhibition in October included companies from six European countries, the focus being on the country’s mineral potential rather than its manufacturing abilities, which are a long way off.

As for banks, the group of up to 15 joint venture banks are helping to finance the country’s 150 or so international companies. But do not expect miracles. The latest, Koryo Global Credit Bank, set up in June, is a joint venture between the UK-based Global Group, headed by Hong Kong businessman Johnny Hon, with 70%, and the state-owned Koryo Bank with 30%. Established with a paid-up capital of e10m, KGC Bank is ambitious in its plans to engage the DPRK in trade and commercial relations with the rest of the world, especially Asia, the Middle East and Europe.

KGCB’s first correspondent banking relationship in Europe is with Germany’s Helababank. The bank, the first product of cooperation in the finance field between the DPRK and the UK, has a staff of five and is also interested in investing in property. It was also able to produce, at the instigation of US authorities, a comprehensive anti-money laundering file.

Another local venture is North East Asia Bank (NEAB), which was set up by ING Group in 1995 but is now wholly owned by the Korean BOHOM Group. Amazingly, Kim Hyon Il, NEAB’s president, produced a balance sheet showing total assets of e79m at the end of 2004 and a paid-up capital of e25m. He also showed me the bank’s newest product, a chip-based cash/debit card, the first in the DPRK. The card demonstrates perhaps that the country is slowly joining the real world – but with only 100 issued and only 13 outlets available, the service has a long way to go.

Political effects

At Daedong Credit Bank, chief executive Nigel Cowie explained how international politics can have a dramatic impact on banking even in the isolated DPRK. In September, just before the conclusion of the fourth round of the Six-Party Talks, the US Treasury accused Banco Delta Asia (BDA), a Macao-based bank, of aiding the DPRK in a series of ‘money laundering’ cases. The Wall Street Journal had said the Macao crackdown was Washington’s method of cutting off Pyongyang’s financial sources for its nuclear weapons programme.

Mr Cowie, a former HSBC banker, explained that all DPRK banks had accounts with BDA for the purposes of remitting funds and, as a result, the accounts were suspended pending an inquiry in mid-November. While Stanley Au, chairman of BDA’s parent, denied the US allegations and BDA’s involvement in any illegal business relations with DPRK banks, the damage is done. “It affects our customers because it affects people’s ability to remit money to and from the country. I imagine that this will cause people doing legitimate business to give up,” says Mr Cowie.

The nuclear negotiations remain critical to the country’s future and the Chinese, in particular, want them to succeed. But that is just a start. There is evidence that the DPRK is opening up and changing with reports that there are 300 open markets operating across the country, 30 in Pyongyang. But whether the DPRK follows the China model of 25 years ago and can restructure its ‘powerful socialist nation’ doctrine remains doubtful under the current leadership.

From the Friederick Naumann Foundation:

During their 12-day visit to Germany, the DPRK delegation consolidated their technical knowledge on market economy which they gained while participating at the seminars organized by FNF in North Korea, so far. Apart from theoretical knowledge on budgeting, expenditure, monetary and fiscal policy, the North Korean economic and financial experts gained also practical insights into the organization of the German financial institutions as well as into methods of tax collection.

The North Korean delegation visited the Bundestag (German Lower House), the Ministry of Foreign Affairs, the Federal Ministry of Economics and Labour, the Federal Ministry of Finance as well as the German Institute for Economic Research (DIW), the German Federal Central Bank and the European Central Bank. The programme included also meetings in the Federal Statistical Office, the State Ministry of Rhineland-Palatinate, the tax office of Mainz as well as the Institute of Finance at the University of Mainz. In many of these institutions the North Korean delegation was the first visiting group from DPRK ever.

Korea Times
Na Jeong-ju
6/9/2005

South Korean companies setting up operations in the Kaesong industrial complex face difficulties due to a North Korean obligation that they must purchase insurance policies from a North Korean state-run firm.

North Korea demands that South Korean firms have insurance against accidents with a North Korean state-run firm, but they question whether it is financially stable enough to cover all possible accidents.

According to related regulations set up by North Korea last November, South Korean firms in the Kaesong industrial complex must buy insurance policies from North Korean firms. If South Korean companies didn’t follow the rule, they had to pay $10,000 in fines.

South Korean firms regard this rule as unfair.

“We have to buy insurance from a North Korean company despite its inability to cover possible accidents,’’ said an official of a company in the Kaesong complex.

“We have asked the South Korean government to correct this problem because we don’t trust North Korean companies.’’

According to sources, the Unification Ministry, the Financial Supervisory Commission and the Korea Non-Life Insurance Association (KNIA) will hold a meeting today to discuss the matter. The South Korean government has been aware of the problem faced by South Korean companies, but it has delayed notifying the issue to North Korea, the sources said.

“South Korea should have a consultation with North Korea to address insurance matters,’’ a source said. “North Korea may be active in correcting the problem, but it may demand something in return.’’

Currently, a total of 15 South Korean companies have signed contracts with Hyundai Asan, a North Korean business arm of Hyundai Group, to set up a factory in the Kaesong complex. Hyundai Asan has the exclusive rights to develop the Mt. Kumgang tourism complex and the Kaesong complex under agreements signed in 2000.

“South Korean companies have asked the government to check the financial status of the North Korean insurance firm, but they have received no answer,’’ a KNIA official said. “In case of accidents, insurance firms must conduct investigations and check the financial status of policyholders. In this sense, we believe North Korean insurance companies are not capable.’’

North Korea has only one insurance company run by the government, but South Korean companies have little information about it.

AFP
4/13/2005

In the last global outpost of hardline Communism, North Korea’s athletes have begun competing in an event they seem destined to lose under their current manager — the race for international sponsorship.

After being shut out for decades from the lucrative spin-offs of capitalist economics, officials in North Korea say dictator Kim Jong-Il is now urging sports chiefs to find major global brands to bankroll their national teams.

“We want to do what all the countries around the world are doing. We want to find sponsors,” the chief executive officer of North Korea’s Sports Marketing Group, Jon Chol-Ho, told an AFP journalist in Pyongyang.

The government set up the Sports Marketing Group in 2000 to find sponsors ahead of the Sydney Olympics but Jon said, after some initial success, global brands had shown very little interest.

“I have sent messages to many people around the world but there is no answer, no reply,” Jon said.

North Korea’s initial ventures began well when they secured Italian sports apparel company FILA to sponsor their national teams.

But when FILA was sold to a US company in 2003, Jon said the days of the partnership were numbered and the sports firm did not renew the contract when it expired last year.

Other brands, such as Adidas, Mizuno and Asics, have taken a minor interest and helped teams for the Athens Olympics and other major events, but Jon said the deals were generally only for uniforms and equipment, not big cash.

“For Athens, we did that very much the hard way… this is not so good,” he said. “I want to make one big contract with one big company. The problem is just to find one company.”

Jon said Kim, who has opened up tiny sections of North Korea’s stagnant economy over recent years despite his virulent anti-Western ideologies, was behind the push for international sports sponsors.

“It is very important for people to know this. Our great General Kim Jong-Il is very interested in developing our sports,” he said to emphasise that foreign companies would be welcomed onto North Korea’s sporting fields.

“He is very interested to give us everything we need. That’s why I’m confident if a company asks if anything is possible, I can answer yes, as long as it is not against any law.”

However two sports marketing executives with extensive experience in North Asia said that simply having Kim’s blessing was not nearly enough to entice major brands into investing in such a poor nation with a closed economy.

“There are virtually no commercial activities in North Korea so it means there’s almost no chance for a company to generate income there through sponsorship,” a senior executive with a global sports marketing firm in South Korea told AFP by phone from Seoul.

“If there’s no profit for them in that domestic market, companies will continue to stay away.”

Richard Avory, who was one of the pioneers of sports marketing in China and a former senior executive with global industry giant IMG, agreed that one of the biggest obstacles for North Korea was that almost no-one there could buy the goods of potential sponsors.

“The basic problem lies with the fact they don’t have much of a market… there is no consumer demand,” Avory, who is now president of China Sports and Entertainment Group, said by telephone from Beijing.

However Avory said there was some hope for North Korea simply because they have some world class sports teams and athletes.

The men’s football team is one of eight left in Asia still in the race for next year’s World Cup, although they have lost their first three matches in the final qualifying round and their odds of getting through are slim.

Their female counterparts are also one of the best teams in Asia and four North Koreans won silver medals at the Athens Olympics, including Hyang Mi-Kim in the women’s table tennis and featherweight boxer Kim Song-Guk.

“Being good at sports is very important… obviously any firm that sponsors a team wants that team to be good,” Avory said, adding companies would be willing to back North Korean athletes if they had a stronger international presence.

“If they (the men’s football team) could qualify for the World Cup, that would be a huge boost to them from the viewpoint of companies wanting to be involved.”

The Seoul-based marketing chief, who did not want to be named, said another potential sponsorship avenue was through South Korean firms looking to boost their domestic image by helping out their “brothers” in the north.

“Some companies already supply some products from a humanitarian standpoint… that may create good PR in South Korea and help their sales domestically,” he said.

The Seoul executive said North Korea’s reputation in the West as an “axis of evil” and an “outpost of tyranny”, as US leaders have described the nation, has played only a minor role in keeping international sponsors away.

“It’s more an economic issue. It could create some bad PR (for Western firms) but politics and the business of sponsorship are generally different issues.”

Asia Times
Andrei Lankov
12/4/2004

A creeping revolution, both social and economic, is under way in North Korea and it seems there’s no turning back. For decades, the country served as the closest possible approximation of an ideal Stalinist state. But the changes in its economy that have taken place after 1990 have transformed the country completely and, perhaps, irreversibly.

For decades, Pyongyang propaganda presented North Korea as an embodiment of economic self-sufficiency, completely independent from any other country. This image sold well, especially in the more credulous part of the Third World and among the ever-credulous leftist academics. The secret of its supposed self-sufficiency was simple: the country received large amounts of direct and indirect aid from the Soviet Union and China, but never admitted this in public. Though frequently annoyed by such “ingratitude”, neither Moscow nor Beijing made much noise since both communist giants wanted to maintain, at least superficially, friendly relations with their small, capricious ally.

But collapse of the Soviet Union made clear that claims of self-sufficiency were unfounded. From 1991, the North Korean economy went into free fall. Throughout 1991-99, the gross national product (GNP) of the Democratic People’s Republic of Korea (DPRK) nearly halved. The situation became unbearable in 1996, when the country was struck by a famine that took, by the best available estimates, about 600,000 lives. The famine could have been prevented by a Chinese-style agricultural reform, but this option was politically impossible: such a reform would undermine the government’s ability to control the populace.

The control on daily lives was lost anyway. What we have seen in North Korea over the past 10 years can be best described as collapse of what used to be rigid Stalinism from below. In the Soviet Union of the late 1950s and in China of the late 1970s, Stalinism-Maoism was dismantled from above, through a chain of deliberate reforms planned and implemented by the government. In North Korea the same thing happened, but the system disintegrated from below, despite weak and ineffectual attempts to keep it intact.

In the 1960s, North Korea was unique in being the only nation in the world where markets were outlawed. The retail trade in a strict sense almost ceased to exist since virtually everything, from socks to apples, was distributed through an elaborate public distribution system with money payments being rather symbolic. The rations depended on a person’s position in the intricate social hierarchy, which eventually became semi-hereditary. In Kim Il-sung’s North Korea, there was almost nothing that could be sold on market since production outside the state economy was almost non-existent.

Unlike governments of other communist countries, until the late 1980s the North Korean government did not even allow its farmers to cultivate kitchen gardens – the individual plot was limited to merely 20-30 square meters, hardly enough to grow enough chili pepper. This was done on purpose. In many other communist countries, farmers had bigger plots and made their living from them, ignoring their work obligations to the state-run cooperative farms. Without their own plots, farmers would work more for the state – or so believed the North Korean government. In the utopia constructed by Kim Il-sung, every single man or woman was supposed to work for the state, and was rewarded for his and her efforts with officially approved rations and salaries.

In 1969, Kim himself admitted that the anti-market policy had been a failure. Thus private markets were gradually legalized, but remained small and strictly controlled. However, as late as late 1980s, markets were still considered inappropriate for a “socialist paradise”. They were something to be ashamed of, so they were pushed to the margins of the city. Until the early 1990s, most markets were in places more or less hidden from view, inside residential blocks and behind high concrete walls. In Pyongyang, the main city market was set up under a huge viaduct at the easternmost part of the North Korean capital, as far from the city center as possible.

However, the economic disaster of 1991-95, and especially the subsequent famine, changed the situation. Markets began to spread across the country with amazing speed. From 1995-97, nearly all plants and factories ceased to operate. The rations were not issued anymore: in most areas people still received ration coupons but these could not be exchanged for food or other rationed goods. Only in Pyongyang and some other politically important areas did food continue to be distributed. But even there, the norms were dramatically watered down. In such a situation, the ability and willingness to engage in some private business became the major guarantee of physical survival.

The government also relaxed the restrictions on domestic travel. Since around 1960, every North Korean who ventured outside his native county was required to have a special “travel permit” (an exception was made for one-day travel to neighboring counties). However, in the mid-1990s, the authorities began to turn a blind eye to unauthorized travel. It is not clear whether it was a deliberate relaxation or just inability to enforce regulations when the state bureaucracy was demoralized. After all, a bribe of some US$5 would buy such a permit from a police officer.

The tidal wave of small trade flooded the country, which once came very close to creating a non-money-based economy. People left their native places in huge numbers. Many sought places where food was more available while others enthusiastically took up the barter trade, including smuggling of goods to and from China. Women were especially prominent in the new small businesses. Many North Korean women were housewives or held less-demanding jobs than men. Their husbands continued to go to their factories, which had come to a standstill. The males received rationing coupons that were hardly worth the paper on which they were printed. But North Korean men still saw the situation as temporary and were afraid to lose the trappings of a proper state-sponsored job that for decades had been a condition for survival in their society. While men were waiting for resumption of “normal life”, whiling away their time in idle plants, the women embarked on frenetic business activity. Soon some of these women began to make sums that far exceeded their husbands’ wages.

The booming markets are not the only place for retail trade. A new service industry has risen from the ashes: private canteens, food stalls and inns operate near the markets. Even prostitution, completely eradicated around 1950, made a powerful comeback as desperate women were eager to sell sexual services to the newly rich merchants. Since no banking institution would serve private commercial operations, illegal money lenders appeared. In the late 1990s they would charge their borrowers monthly interests of 30-40%. This reflected very high risks: these lenders had virtually no protection against the state, criminals and, above all, bad debtors.

In North Korea, which for decades was so different, this meant a revolution. The new situation undermined the government’s ability to control the populace. People involved in the new market activities are independent from (or inured to) subtle government pressures that had ensured compliance for decades. One cannot promote or demote a vendor, transfer him or her to a better or worse job, nor determine his or her type of residence (though admittedly, most people still live in the houses they received when the old system was still operating).

The growth of new markets also undermined some pillars of old North Korean hierarchy. Of course, many people who became affluent in the new system came from the old hierarchy – as was the case in most post-communist countries. Officials or managers of state-run enterprises found manifold ways to make an extra won. These managers often sold their factories’ products on the market. But many hitherto discriminated-against groups managed to rise to prominence during this decade. The access to foreign currency was very important, and in North Korea there were three major groups who had access to some investment capital: the Japanese-Koreans, Chinese-Koreans and Korean-Chinese.

The Japanese-Koreans moved into the country in the 1960s (there were some 95,000 of them – with family members, children and grandchildren, their current number can be estimated at 200,000-250,000). These people have relatives in Japan who are willing to send them money. Traditionally, the authorities looked at Japanese-Koreans with suspicion. At the same time, since money transfers from Japan have been a major source of hard currency for Pyongyang, their activities were often tolerated. This particular group even enjoyed some special rights, being privileged and discriminated against at the same time. When the old system of state control and distribution collapsed, Japanese-Koreans began to invest their money into a multitude of trade adventures. It did not hurt that many of them still had the first-hand experience of living in a capitalist society.

Another group were people with relatives in China. The economic growth of China meant that the relatives could also help their poor relatives in North Korea. In most cases, this was not in the form of money transfers, but assistance in business and trade. The local ethnic Chinese were in an even better position to exploit the new opportunities. For decades, they have constituted the only group of the country’s inhabitants who could travel overseas as private citizens more or less at their will. Even in earlier times, the ethnic Chinese used this unique position to earn extra money by small-scale and part-time smuggling. In the 1990s, they switched to large operations. There is an irony in the sudden economic advance of these groups. For decades, their overseas connections have made them suspect and led to systematic discrimination against them. In the 1990s, however, the same connections became the source of their prosperity.

Until recently, the government did not try to lead, but simply followed the events. The much-trumpeted reforms of 2002 by and large were hardly anything more than the admission of the situation that had been existing for a few years by then. The official abolition (or near-abolition) of the public distribution system did not count for much, since this system ceased to operate outside Pyongyang around 1995.

But the North Korean economy has indeed come a long way from its Stalinist ways. Now the government has neither money nor support nor the political will to revive the Stalinist-style central economy. There is no way back, only forward. Stalinism is dead. Welcome to capitalism, comrades!

From KCNA:

Regulations of Insurance in Kaesong Industrial Zone Adopted

Pyongyang, October 11 (KCNA) — Decision No. 35 of the Presidium of the DPRK Supreme People’s Assembly “On the Adoption of the Regulations of Insurance in the Kaesong Industrial Zone” dated September 21, Juche 93 (2004) has been published. The decision says the regulations were adopted and the Cabinet and organs concerned of the DPRK are to take working measures for their implementation. 

The regulations consist of 28 articles.

The mission of the regulations is to strictly establish the system and order in the work of insurance in the Kaesong industrial zone so as to help toward stabilizing the business activities and life of those who reside and stay there.

The regulations are applied to the enterprises, branches and offices established in the Kaesong industrial zone.

They are applied also to the south Koreans, overseas Koreans and foreigners who stay and reside in the industrial zone.

Atlantic Monthly
B. R. Myers
9/1/2004

You’ve just finished your life’s work, a bold new history of the Watergate burglary in which you manage to prove that the White House was out of the loop, but the ink is hardly dry when an eighteen-minute tape surfaces in a Yorba Linda thrift shop, and soon the whole country is listening to Nixon gangsta-rap about how he personally jimmied the door open. It’s every revisionist’s nightmare, but Bruce Cumings, a history professor at the University of Chicago, has come closest to living it. In a book concluded in 1990 he argued that the Korean War started as “a local affair,” and that the conventional notion of a Soviet-sponsored invasion of the South was just so much Cold War paranoia. In 1991 Russian authorities started declassifying the Soviet archives, which soon revealed that Kim Il Sung had sent dozens of telegrams begging Stalin for a green light to invade, and that the two met in Moscow repeatedly to plan the event. Initially hailed as “magisterial,” The Origins of the Korean War soon gathered up its robes and retired to chambers. The book was such a valuable source of information on Korea in the 1940s, however, that many hoped the author would find a way to fix things and put it back into print.

Instead Cumings went on to write an account of postwar Korea that instances the North’s “miracle rice,” “autarkic” economy, and prescient energy policy (an “unqualified success”) to refute what he calls the “basket-case” view of the country. With even worse timing than its predecessor, Korea’s Place in the Sun (1997) went on sale just as the world was learning of a devastating famine wrought by Pyongyang’s misrule. The author must have wondered if he was snakebit. But now we have a new book, in which Cumings likens North Korea to Thomas More’s Utopia, and this time the wrongheadedness seems downright willful; it’s as if he were so tired of being made to look silly by forces beyond his control that he decided to do the job himself. At one point in North Korea: Another Country (2004) we are even informed that the regime’s gulags aren’t as bad as they’re made out to be, because Kim Jong Il is thoughtful enough to lock up whole families at a time.

The mixture of naiveté and callousness will remind readers of the Moscow travelogues of the 1930s, but Cumings is more a hater of U.S. foreign policy than a wide-eyed supporter of totalitarianism. The book’s apparent message is that North Korea’s present condition can justify neither our last “police action” on the peninsula nor any new one that may be in the offing. It is perhaps a point worth arguing, particularly in view of the mess in Iraq, but Cumings is too emotional to get the job done. His compulsion to prove conservative opinion wrong on every point inspires him to say things unworthy of any serious historian—that there was no crime in North Korea for decades, for example—and to waste space refuting long-forgotten canards and misconceptions. Half a page is given over to deriding American reporters who once mistook Kim Il Sung’s neck growth for a brain tumor—talk about a dead issue.

Cumings is even harder to take when he’s in a good mood. By the time he has noted a vague resemblance between Kim Jong Il and Paul Anka, sniggered about “horny” Korean housewives, and mocked both a tour guide’s English and an African man’s surname (“I dissolved in hysterics”), most readers, with no photograph of the author to go on, will find themselves mentally exchanging his professorial tweeds for a very loud leisure suit. Most offensive of all is the book’s message that we shouldn’t be too hard on the dictatorship in Pyongyang, because human rights aren’t as important to Koreans as to the rest of us.

Does this system promote human freedom? Not from any liberal’s standpoint. But from a Korean standpoint, where freedom is also defined as an independent stance against foreign predators—freedom for the Korean nation—here, the vitriolic judgments do not flow so easily. This is a cardinal virtue among a people that has preserved its integrity and continuity in the same place since the early Christian era … After all, there is one undeniable freedom in North Korea, and that is the freedom to be Korean.

It seems to have slipped the professor’s notice that many countries manage to stay independent without dragging children off to gulags, and that North Korea is a place where a lot of characteristically Korean behavior—speaking bluntly, for example—is punishable by execution. The only significant part of the culture that can be freely indulged under Kim is its ethnocentric streak, which is what Cumings all but reduces it to; confusing cause and effect, he sees propaganda as the reflection of the popular soul instead of (to use Stalin’s metaphor) the engineer of it. The Korean people have always been more outward-looking than their insecure leaders, and for centuries this was especially true of those in the northern part of the peninsula. Even in the months after our disgraceful bombing campaign during the war—a campaign that Cumings rightly calls a holocaust—diplomats in Pyongyang noted no signs of indiscriminate xenophobia.

This was soon to change. Throughout the 1950s the regime resorted to crude racism in its anti-American propaganda, often treating inset eyes, big noses, and other Caucasian features as the manifestation of villainy. To the consternation of the diplomatic community, little effort was made to enlighten people about the existence of friendly big-noses, even though—as this spring’s Cold War International History Project bulletin makes clear—North Korea’s cities were rebuilt and its people fed and cared for with enormous amounts of assistance from Eastern Europe. “They expect foreign countries,” one Hungarian diplomat noted, “to give them everything.” Reading the CWIHP bulletin has the odd effect of making one realize what a relatively sensible bunch of people the Soviets were. In the mid-1950s they opposed Kim Il Sung’s brutal collectivization of agriculture; Kim brushed off their advice, only to demand food aid when a murderous famine ensued.

The more the regime evinced its incompetence by relying on foreigners, the more it needed to restrict the people’s contact with them. By the 1960s the party line had taken a turn that reminded a Soviet diplomat of Nazi Germany, as citizens who married Europeans were banished to the provinces for “crimes against the Korean race.” A diplomatic report translated in the CWIHP bulletin shows how the masses finally got into the spirit of things. In March of 1965 the Cuban ambassador was driving his family and some Cuban doctors around Pyongyang when they stopped to take pictures. Hundreds of adults and children quickly swarmed the diplomatic limousine, pounding it with their fists, tearing the flag off, and ordering the occupants to get out. Their rage and insults, directed mainly at the ambassador “as a black man,” abated only when a security force arrived to beat back the mob with rifle butts. (Not for nothing did Eldridge Cleaver say that the North Korean police made him miss the Oakland police.)

“The level of training of the masses is extremely low,” a party official later admitted to the ambassador. “They cannot differentiate between friends and foes.” In other words, everything was going as planned. The regime went on to blur the distinction further by excising all mention of outside assistance from the history books, even as it continued to squeeze billions of dollars from its cash-strapped allies. For decades a foreign proletariat toiling in dingy factories from Vladivostok to Karl-Marx-Stadt helped bankroll Pyongyang’s transformation into a proud monument to ethnic self-reliance, so that someday a Bruce Cumings could boast that it is anything but the ugly Communist capital one might expect. Well into the 1980s Kim was telling leaders of aid-donating states that he was having trouble meeting the basic needs of his people. If South Korea’s dictatorships were America’s running dogs, then North Korea was the Eastern bloc’s house cat: intractable, convinced of its superiority, and to some observers a more independent creature, but never much good at feeding itself—even after the can openers started falling silent in 1989.

The question of where Europe ends and Asia begins has troubled many people over the years, but here’s a rule of thumb: if someone can pose as an expert on the country in question without knowledge of the relevant language, it’s part of Asia. Europeans hoping to lay claim to North Korea should therefore brace themselves, because Bradley Martin’s publisher is touting Under the Loving Care of the Fatherly Leader (2004) as the definitive work on its subject, though it belongs squarely in the “a puzzled look crossed the faces of my guide and interpreter” tradition of monoglot scholarship. Although hardly definitive, it is still an excellent book, well researched and lucidly written. It is especially refreshing to find someone showing serious interest in North Korean propaganda instead of merely hooting at it.

The problem is that the official translations on which Martin was forced to rely do not always reflect the original. Kim Il Sung’s title Eobeoi Suryeong means not “Fatherly Leader”—a common rendering that encourages Martin to exaggerate the influence of Confucianism on the personality cult—but “Parent Leader,” the most feminine title the regime could get away with. As the country’s visual arts make clear, Kim was more a mother to his people than a stern Confucian patriarch: he is still shown as soft-cheeked and solicitous, holding weeping adults to his expansive bosom, bending down to tie a young soldier’s bootlaces, or letting giddy children clamber over him. The tradition continues under Kim Jong Il, who has been called “more of a mother than all the mothers in the world.” His military-first policy may come with the title of general, but reports of his endless tour of army bases focus squarely on his fussy concern for the troops’ health and comfort. The international ridicule of his appearance is thus as unfair as it is tedious. Anyone who has seen a crowd of Korean mothers waiting outside an examination hall will have no difficulty recognizing Kim’s drab parka and drooping shoulders, or the long-suffering face under the pillow-swept perm: this is a mother with no time to think of herself. When it comes to the Workers’ Party, the symbolism is even more explicit, as in this recent propaganda poem:

Ah, Korean Workers’ Party, at whose
breast only
My life begins and ends
Be I buried in the ground or strewn
to the wind
I remain your son, and again return to
your breast!
Entrusting my body to your
affectionate gaze,
Your loving outstretched hand,
I cry out forever in the voice of a child,
Mother! I can’t live without Mother!

It’s easy to imagine what Carl Jung would have made of all this, and he would have been right. Whereas Father Stalin set out to instill revolutionary consciousness into the masses (to make them grow up, in other words), North Korea’s Mother Regime appeals to the emotions of a systematically infantilized people. Although the propaganda may seem absurd at a remove, it speaks more forcefully to the psyche than anything European communism could come up with. As a result, North Korea’s political culture has weathered the economic collapse so well that even refugees remain loyal to the memory of Kim Il Sung.

The Yangs, for example, are former Party members who recently defected to the South with their two boys. As part of a campaign to prevent the formation of a refugee ghetto in Seoul, the family was resettled in Mungyeong, a charmless sprawl of apartment blocks and love hotels a few hours to the southeast. I visited them there in May. As we sat on the floor of their tiny living room, I told them how a young refugee once shrank from my approach because—as she later explained—I looked like the stick-nosed Yankee effigies she used to run knives into after school. “Yes, you do have …” the mother shouted over the general laughter, but she caught herself in time. Turning to the older boy, who is sixteen, I asked what wisdom he could remember from the Parent Leader. “Man is the master of his own destiny,” he said shyly, his voice trailing off. What about his parents? “We didn’t memorize sentences,” the mother said, embarrassed, so I asked her to explain Kim Il Sung’s ideology of Juche for me in her own words. “The main thing is, man is the master of his destiny,” she said briskly. “And?” I asked. Silence. “Well,” I said, “if people are the masters of their destiny, why do they need a leader?” The younger boy came to his mother’s aid: “It was something about flowers needing the sun to grow.” Everyone frowned at my pen scratching away; they were letting the Parent Leader down. “It wasn’t so much what Kim Il Sung said,” the father blurted out at last.

This is of course true. Expanses of tautological prose have been ghostwritten to fatten the spines of the two Kims’ collected works, but few people ever read them. North Korea is a unique socialist country in that its ruling ideology is conveyed through what is written about its leaders, not by them, and the message could hardly be simpler: Foreigners bad, Koreans good, Leader best. “The most important thing to us was that Kim Il Sung suffered for the people; he fought for us,” the boys’ mother said. With a start I realized that this elegant fortyish woman, who now sells American cosmetics for a living, had tears in her eyes. “The Leader would sit on the ground with farmers, just like we’re sitting here now. And if he shook someone’s hand, that person would be happy forever. Of course, Kim Jong Il is not like that.” Conversation turned to the railway explosion in the North at the end of April, and to the regime’s immediate focus on the material damage. “It’s because Kim Jong Il never suffered,” the father said bitterly. “What does he know about the common people?”

It would appear that Kim knows just enough. The border with China remains so porous that even children often sneak back and forth, and yet no more than three or four percent of the population has chosen to flee for good. The regime obviously did the smart thing by publicly acknowledging the food shortage and then blaming it on American sanctions, instead of pretending there was no food shortage at all, as Stalin used to do. The Dear Leader has also deftly exploited the tradition according to which Koreans care for their parents in old age: the masses are told that it is their job to feed him, not the other way around, and his famed diet of “whatever the troops are eating” is routinely invoked to shame everyone into working harder. Never has a dictator been such an object of pity to his people, or such a powerful source of guilt. In 2003 North Korean cheerleaders, living it up on a rare visit to a sports event in the South, responded to a rain-soaked picture of Kim by bursting into a hysterical lament that baffled their hosts.

To concede the effectiveness of the personality cult is not to agree with Selig S. Harrison’s startling assertion, in Korean Endgame (2002), that Koreans have a “built-in readiness … to accept as truth what is dispensed from higher authority.” No regime ever needed to subject its citizens to a lifetime of brainwashing in order to make them follow their natural inclinations. What must be acknowledged is that Kim Jong Il has evinced a genius for propaganda ever since managing the efflorescence of his father’s cult in the 1960s. Even so, he cannot cover his lack of charisma completely; it’s as if Hitler died and left the Third Reich to Goebbels.

Kim must also be aware that the infantilization of the people has come at a price. Away from Pyongyang’s carefully monitored tourist sites, North Korea is a much more raucous place than any dictator could be comfortable with. “One surprising thing,” Michael Breen writes in Kim Jong Il: North Korea’s Dear Leader (2004), “surprising because you expect robots, is … how frequently fights break out.” According to refugees, even women fight out their differences, and young female teachers are said to hit children the hardest. This lack of restraint is a problem for many North Koreans trying to adjust to life in the South. Social workers complain that the refugees pick fights with strangers, and storm off jobs on the first day. “I’d have thought they’d be better at controlling themselves, coming from a socialist system,” is a common lament.

In short, the conventional Western view of North Korea’s official culture as a stodgy combination of Confucianism and Stalinism—two ideologies that prize intellectual self-discipline above all else—could not be further from the truth. Fortuitously enough, this view has so far encouraged Americans to stay cool in the face of Kim Jong Il’s missile-rattling. But misperceptions of hostile regimes are inherently dangerous, especially when Uncle Sam is doing the misperceiving, and this one has as much potential to excite tensions as to reduce them. On August 18, 1976, a detail of U.S. and South Korean soldiers at the DMZ were pruning a tree when People’s Army soldiers demanded that they stop. The Americans refused, prompting the North Koreans to wrest away their tools. In the ensuing clash two American officers were killed. Unable to conceive that Communist troops could act out of spontaneous rage, Washington assumed that Kim Il Sung had ordered the incident. Troops were set on high alert, and nuclear-capable B-52s dispatched to skirt North Korean airspace. Luckily for everyone, the Parent Leader issued an apology for his children on August 21. As the Americans saw it, of course, Kim had “backed down.”

Perhaps the most unsettling thing about the nuclear accord brokered by Jimmy Carter in 1994 is the decade of crowing it set off in North Korea. A high-school textbook remembers, “The Great Leader dragged the Americans, who had fallen into a state of extreme terror and unease, to the negotiating table … All problems discussed during the talks between America and Korea were resolved to Korea’s advantage, and the intense nuclear standoff ended in our victory.” This is evidently sincerely believed; if it weren’t, the North Koreans would not still be so enamored of Carter and Robert Gallucci, the chief U.S. negotiator back then. Both men—and this must thrill them no end—are praised in propaganda literature as fervent admirers of Kim Il Sung.

It is reassuring, then, to read in Harrison’s book that the agreement actually represented a victory of high-ranking North Korean “doves” over their hardline colleagues. I just wish he had explained why even the most hawkish propagandists remember it so fondly. What bothers me more is the author’s insistence on interpreting the two Kims’ every act as part of a rational pursuit of national security. We are told, for example, that the deployment of atomic weapons in South Korea in 1958 frightened Pyongyang into starting its own nuclear program. As the CWIHP bulletin makes clear, however, Eastern European diplomats in the early 1960s were aghast at the North Koreans’ assertions that a nuclear confrontation was nothing to be afraid of, and that the time had come for another invasion of the South. It is by no means certain that this sort of adventurist thinking has been abandoned. In a propaganda novel set in 1993, Kim Jong Il and his generals regard a likely American air strike on the Yongbyeon nuclear facility as the perfect opportunity for a “sacred war” (seongjeon) of reunification. Harrison ignores such things, which may well be better than overreacting to them; but to approach North Korea as if it were the détente-era Soviet Union is asking for trouble. When he gets his next update on the hawk-dove struggle from officials in Pyongyang, a city where most foreigners count themselves lucky to learn their tour guide’s name, he should perhaps keep in mind that North Korea has always viewed the existence of similar factions in Washington as the manifestation of a ludicrous disunity. No one under Kim Jong Il would describe his government in such terms to a Yankee visitor unless the goal were to extract more concessions from the outside world.

Considering that for decades the North Koreans refused to listen to their own allies, it seems naive for the author of Korean Endgame to assume that what Washington does “will largely determine what the North … will do.” The Juche regime has received substantial U.S. aid since the famine, but the dominant slogans of anti-American prop-aganda remain “A hundred thousand times revenge” and “A jackal can never become a lamb.” In other words, even as the regime tells the outside world it wants nothing but better relations with Washington, it tells its own people that better relations are neither desirable nor conceivable. In January of 2003 Pyongyang issued a taunting poster of a missile attack on the Capitol.Later that year, with the six-party talks in progress, an old tale of murderous missionaries was reprinted in four North Korean magazines, complete with racist caricatures.

Still, the thrust of Harrison’s book is valid.

The goal of the United States should be to disengage its forces gradually … over a period not longer than ten years, whether or not this can be done as part of a negotiated arms-control process … The stage would then be cleared, as it were, with the initiative left to Seoul and Pyongyang. Washington would have its hopes and its advice but would recede into an unaccustomed posture of detachment, ready to let the two actors make their own mistakes.

This is excellent counsel. Far from being a stabilizing factor on the peninsula, the U.S. presence serves only to rally the North Koreans around their military-first government. As Harrison makes clear, this is no time to get sentimental about our old ally. Seoul asks that U.S. troops stay, but at the same time it poses as a neutral mediator of the resulting tensions, often playing down the nuclear threat just as Pyongyang seems bent on playing it up; a disastrous miscommunication among the three parties seems all but preordained. It is a shame that Harrison does not place greater stress on the need to extricate our troops even if the arms-control process fails, because it’s hard to see how it can succeed. Kim Jong Il refused to let South Korean doctors tend to blinded children after the North’s railway explosion last spring; such a pathologically secretive man must be expected to balk at an early stage in the verification of nuclear dismantlement, no matter what agreement he has signed. Washington will then renege on its part of the bargain, prompting Seoul to voice regret over American “intransigence.” This, in turn, will embolden the North to demand a re-negotiation of the point in question, and we will all be right back where we started, albeit with even more nukes to worry about.

In the meantime, anything can happen. Having predicted the speedy downfall of the regime back in 1994, Pyongyang-watchers now predict that it will be around forever, but North Korea is already well into a precarious post-totalitarian phase. Thousands of citizens in border regions chat with refugees by smuggled cell phone, and millions more enjoy illegal access to television broadcasts from outside the country. The majority of the population has bought and sold things at open-air markets, and many young people in rural areas have simply stopped attending school and political meetings. The personality cult will find it hard to adjust to this kind of change without routine recourse to anti-American alarmism, and if there are no grounds for confrontation, Kim Jong Il can be expected to create them. All the more reason, then, for America to heed Harrison’s advice and pull out. But will we do so? Our patriotic dash into the Iraqi quagmire hardly inspires confidence that we wouldn’t follow our own Dear Leader into a new conflict in North Korea, especially since the WMD really do look like a “slam dunk” this time.

The only comfort to be had from the new batch of Korea books is provided by Breen’s biography of Kim Jong Il, which details a hedonistic streak as wide as the DMZ. Apparently the dictator lives in a huge palace stocked with Paradis cognac, and every summer a fresh “Joy Brigade” of high school beauties gets to admire the ceiling. Breen waxes indignant about this, but would he rather Kim were sharing a tent with a mountain goat and a well-thumbed Koran? We can all breathe a little easier knowing that our most formidable adversary wants his virgins in the here and now.

KIEP has published the North Korea Development Report 2003/04 (follow the link to download all several hundred pages!)

Summary: As a result of North Korea’s isolation from the outside world, international
communities know little about the status of the North Korean economy and its
management mechanisms. Although a few recent changes in North Korea’s economic system have attracted international interests, much confusion remains as to the characteristics of North Korea’s recent policy changes and its future direction
due to the lack of information. Therefore, in order to increase the understanding of readers in South Korea and abroad, KIEP is releasing The North Korea Development Report in both Korean and English. The motivation behind this report stemmed from the need for a comprehensive and systematic investigation into North Korea’s socio-economic conditions, while presenting the current status of its industrial sectors and inter-Korean economic cooperation. The publishing of this second volume is important because it not only supplements the findings of the first edition, but also updates the recent changes in the North Korean economy. The topics in this report include macroeconomics and finance, industry and infrastructure, foreign economic relations and inter-Korean economic cooperation, social welfare and science & technology.

This report also covers the ‘July 1 Economic Reform’ launched two years ago and
subsequent changes in the economic management system. The North Korea
Development Report helps to improve the understanding of the contemporary North
Korean economy.
Table of Contents  
 
Part I Macroeconomic Status and Finance
Chapter 1 Current Status of the North Korean Economy and Its Prospects
Chapter 2 National Financial Revenue and Expenditure
Chapter 3 Banking and Price Management

Part II Industrial Management and Problems
Chapter 4 The Industrial Sector
Chapter 5 The Agricultural Sector
Chapter 6 Social Overhead Capital
Chapter 7 Commerce and Distribution Sector
Chapter 8 The Defense Industry

Part III International Economic Activities
Chapter 9 Foreign Economic Relations
Chapter 10 Special Economic Zones
Chapter 11 Inter-Korean Economic Relations

Part IV Social Security and Technology Development
Chapter 12 Social Security and Social Services
Chapter 13 Science and Technology Sector

Part V The Recent Economic Policy Changes
Chapter 14 The Contents and Background for the Recent Policy Changes
Chapter 15 The Features and Problems of the Recent Economic Policy Changes
Chapter 16 Prospects and Future Tasks of the July 1 Economic Reform