North Korean Economy Watch

Excerpt from the Choson Ilbo:

Asan said Thursday it paid US$675,250 to North Korea to cover costs accrued by 10,380 South Korean tourists who visited the mountain resort on July 1-11, until the tours halted after a South Korean tourist was shot and killed by a North Korean soldier at Mt. Kumgang.

Asan sends the payment at the end of each month, at the rate of $30 per person for a one day tour, $48 for two days or $80 for three days. Later this month, Asan will pay a further $928,560 to the North to cover the cost of trips to another tourist destination, Kaesong City. The cumulative payments Asan made to the North for the first six months of the year amounts to $10.7 million for the Mt. Kumgang tour, and $5.1 million for the Kaesong tour.

Read the full story here:
Asan Pays N.Korea for July Tours
Choson Ilbo
08/08/08

Institute for Far Eastern Studies (IFES)
(NK Brief No. 08-8-5-1)
8/5/2008

The latest edition (2008, no. 2) of North Korea’s quarterly economic publication “Economic Research” urged for further regulation of public finance in order to ensure that the public finances necessary for the construction of an ‘Economically Powerful State’ are available.

The journal, which was brought into South Korea on July 29, contained an article titled, “Further Strengthening of Public Finance Regulations at the Present Time [will serve as] Important Collateral to Completely Guarantee the Capital Necessary for Socialist Economic Construction.” In the article, it stressed, “Public finance regulation is one form of state regulation through the monetary sector,” and, “Public financial security for the construction of an economically powerful state varies considerably according to how regulation and distribution functions are carried out.

North Korea has set the goal of construction of a ‘Strong and Prosperous State (Ideologically, Militarily, and Economically Powerful State) by 2012, the 100th anniversary of the birth of the country’s founder, Kim Il Sung. In light of that goal, Pyongyang has prioritized economic prosperity for this year, the 60th anniversary of the DPRK government, calling for a ‘full-scale offensive’ by all the people of the North.

“Economic Research” stresses the following three points for strengthening public finance: 1) further strengthening the coordination of the state’s guidance for economic enterprises, 2) ensuring the utility of economic enterprises, and, most importantly, 3) strictly establishing public finance regulations.

In particular, the establishment of public finance regulations was defined as, “guaranteeing efficient use of capital through the protection and endless expansion of the country’s public financial resources, as well as the complete protection of the capital necessary for state and business operations and efficient elimination of all current misappropriation.” This type of statement makes it appear as if diversion and misappropriation of North Korean finances are regular occurrences.

The journal called for strengthening of management and organization for the financial offices of public finance centers, businesses, and organizations in order to effectively enforce public finance regulations, and for the creation of auditing committees at enterprises and organizations to ensure this takes place.

“North Korean Market Vendors: The Rise of Grassroots Capitalists in a Post-Stalinist Society”
Andrei Lankov and Kim Seok-hyang
Pacific Affairs, Vol. 81 Iss.1 
(subscription required)

Abstract:
The article deals with the social changes that have taken place in North Korea [from 1994-2002], when the collapse of the centrally planned economy led to the growth of private commercial activity.  This activity remains technically illegal, but the relevant bans and restrictions have rarely been enforced due to endemic corruption and disorganization of the state bureaucracy.  The article is largely based on in-depth interviews with North Korean black market operators [who have defected to South Korea].  It traces their origins, the type and scale of their business, and changes in their mode of operation.

The article demonstrates that the “second economy” came to dominate North Korean economic life by the late 1990s, since authorities’ attempts to limit its scale were largely ineffective.  The growth of the “second economy” produced new grassroots capitalists who sometimes came from underpriveledged social groups, but more typically represented people with good official connections.  It is also remarkable that foreign connections (usually with China) played a major role: to a large extent, merchandise sold at the North Korean markets either came from overseas or was exported overseas eventually, and in many cases the merchants’ initial capital was also provided by relatives residing overseas.

Some highlights:
1. Changsa is the North Korean word for “dealings in the marketplace.” Tonju is the word for money changers/lenders meaning “master of money”. 
2. Public Distribution System (PDS) rations were cut for the first time in 1973.
3. The DPRK system restricted market activity primarily through three mechanisms: limited size of family farming plots, inminban surveillance system, and travel permits.
4. Before the arduous march, North Koreans were not inclined to resort to market trade.  These transactions were seen as ethically suspect.  Once the famine hit, people took up market trading remarkably quickly.
5. Before the arduous march, bribery was rare, even though patronage and indirect forms of corruption were rampant.  Mid-level bureaucrats had to vie for preferred access to poor-quality consumer goods, better schools, and study trips abroad.
6. At the height of the arduous march (1997), production was at 46% of capacity.
7.  North Korean traders seldom if ever have to deal with the protection racket.  When asked directly, respondents did not mention threats from mobsters as one of their security concerns (I wonder if this is still the case).
8. Pyongsong market is reputed to be the largest in the country.  It is just outside Pyongyang, making it accessible to citizens inside the capital as well as those who cannot get permits to enter the city (Pictured below with Google Earth coordinates).

9. Financial services such as money-changers and private loan sharks offer loans at 5%-30%/month.
10. Most North Korean merchants know South Korea is a rich country.  They also avoid surveillance since these activities are done at state-owned enterprises and study sessions.

Institute for far East Studies (IFES)
NK Brief No. 08-7-4-1
7/4/2008

It appears that the number of people involved in handmade goods manufacturing, trading, and other small-scale, individual businesses is steadily increasing among North Korean citizens.

According to a source inside North Korea on June 30, ever since North Korean authorities announced the ‘Market Stimulation Measure’ in March 2003, the number of small-scale private businesses employing between 1~8 people has continued to grow as citizens in the North have taken to markets aggressively in order to earn money,

As the North’s economic woes continue to stretch over time and the government is unable to provide basic living necessities, the people are looking for other ways to support themselves.

In March of 2003, North Korea expanded farmers’ markets into general markets, allowing not only the sale of agricultural goods, but of manufactured goods as well. At the same time, the state introduced ‘market use fees’ for vendors wishing to rent space to hock their wares, thus bringing about a tax-like ‘state payment’.

Small-scale commercial and industrial businesses took on the form of family manufacturing or collaboration between factories, enterprises and engineers working together, but ‘Chinese-model’ small enterprises hiring just one or two workers also appeared.

In-home food preparation or handmade goods manufacturing, restaurants, bus services, repair work and other service-related industries grew. There also appeared examples of those leasing import rights from organizations or enterprises and making a living through trade.

Authorities have given these businesses tacit permission to operate, recognizing their role in increasing public revenue and supplying the people with daily necessities, but at the same time, they have laid down some restrictions, criticizing those “bitten by the capitalist bug, working only to make money for themselves.”

Small-scale private commerce and industry has the positive benefit of expanding the provision of daily necessities and absorbing unemployed labor in the North, but on the other hand, anti-socialist side effects such as the increasing gap between the rich and the poor and mammonism are also on the rise.

UPDATE 3:  Executive Order: Continuing Certain Restrictions with Respect to North Korea and North Korean Nationals

By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.) (NEA), and section 301 of title 3, United States Code,

I, GEORGE W. BUSH, President of the United States of America, find that the current existence and risk of the proliferation of weapons-usable fissile material on the Korean Peninsula constitute an unusual and extraordinary threat to the national security and foreign policy of the United States, and I hereby declare a national emergency to deal with that threat. I further find that, as we deal with that threat through multilateral diplomacy, it is necessary to continue certain restrictions with respect to North Korea that would otherwise be lifted pursuant to a forthcoming proclamation that will terminate the exercise of authorities under the Trading With the Enemy Act (50 U.S.C. App. 1 et seq.) (TWEA) with respect to North Korea.

Accordingly, I hereby order:

Section 1. Except to the extent provided in statutes or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the date of this order, the following are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in:

all property and interests in property of North Korea or a North Korean national that, pursuant to the President’s authorities under the TWEA, the exercise of which has been continued in accordance with section 101(b) of Public Law 95-223 (91 Stat. 1625; 50 U.S.C. App. 5(b) note), were blocked as of June 16, 2000, and remained blocked immediately prior to the date of this order.

Sec. 2. Except to the extent provided in statutes or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or any license or permit granted prior to the date of this order, United States persons may not register a vessel in North Korea, obtain authorization for a vessel to fly the North Korean flag, or own, lease, operate, or insure any vessel flagged by North Korea.

Sec. 3. (a) Any transaction by a United States person or within the United States that evades or avoids, has the purpose of evading or avoiding, or attempts to violate any of the prohibitions set forth in this order is prohibited.

(b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.

Sec. 4. For the purposes of this order:

(a) the term “person” means an individual or entity;

(b) the term “entity” means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization; and

(c) the term “United States person” means any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.

Sec. 5. The Secretary of the Treasury, after consultation with the Secretary of State, is hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA as may be necessary to carry out the purposes of this order. The Secretary of the Treasury may redelegate any of these functions to other officers and agencies of the United States Government consistent with applicable law. All agencies of the United States Government are hereby directed to take all appropriate measures within their authority to carry out the provisions of this order.

Sec. 6. The Secretary of the Treasury, after consultation with the Secretary of State, is hereby authorized to submit the recurring and final reports to the Congress on the national emergency declared in this order, consistent with section 401(c) of the NEA (50 U.S.C. 1641(c)) and section 204(c) of IEEPA (50 U.S.C. 1703(c)).

Sec. 7. This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, instrumentalities, or entities, its officers or employees, or any other person.

GEORGE W. BUSH

THE WHITE HOUSE,

June 26, 2008.

UPDATE 2: How much plutonium does the DPRK have?

From the Daily Times (Pakistan):

But there may be problems ahead with the declaration. Japan’s Asahi Shimbun newspaper reported an informed source as saying the North declared it produced around 30 kg (66 lbs) of plutonium, while US officials have said they think it is closer to 50 kg. Sung Kim, a State Department envoy who witnessed the cooling tower blast, told reporters in Seoul on Saturday that there might not be enough time to complete the North’s denuclearisation before President George W Bush leaves office in January 2009.

‘Emotionally attached’: Kim said North Koreans engineers appeared to have formed an “emotional attachment” to their atomic programme that has become apparent during international efforts to dismantle it. Kim told reporters that he saw emotion in Ri Yong-ho, head of the Yongbyon nuclear reactor, and his colleagues when they all witnessed Friday’s demolition of the plant’s cooling tower. “I think I detected a sense of sadness when the tower came down but I thought he put it well when he was asked what this all meant for him and he said that he just hoped this would contribute to peace and stability,” said Ri.  

UPDATE 1:
“US Treasury says N.Korea sanctions remain in place”
Reuters via Guardian
David Lawder
6/26/2008

U.S. Treasury financial sanctions aimed at ending North Korean money laundering, illicit financing activities and weapons proliferation remain in effect despite the easing of other sanctions against Pyongyang, a Treasury spokesman said on Thursday.

The move by the Bush administration to lift some sanctions after North Korea delivered a long-delayed account of its nuclear activities will not restore the country’s access to the international banking system, Treasury spokesman John Rankin said.

North Korea was largely cut off from the international banking system in 2005 when the Treasury named Banco Delta Asia, a small bank in the Chinese gambling enclave of Macau, as a primary money laundering concern.

The Treasury accused the bank of circulating counterfeit U.S. currency produced by North Korea, and of knowingly handling transactions by North Korean entities involved in illicit activities, including the narcotics trade and sales of counterfeit cigarettes and other goods.

Both North Korea and Banco Delta Asia have denied the Treasury’s allegations.

Although about $25 million in frozen North Korean funds in Banco Delta Asia was released last year, the sanctions against the bank, which prohibit transactions with U.S. banks, remain in effect, Rankin said. International banks have largely shunned Banco Delta Asia as well.

As recently as April, Treasury officials said so called “supernotes” — high quality counterfeit $100 bills produced by North Korea, were still surfacing.

“The lifting of sanctions associated with the Trading with the Enemy Act, and removing North Korea from the list of state sponsors of terrorism does not represent North Korea’s re-integration into the international financial system,” he said.

Sanctions that prohibit U.S. companies from owning, leasing, operating, insuring North Korean-flagged shipping vessels, as well as registering vessels in North Korea, remain in place. 

ORIGINAL POST: Today North Korean made the nuclear declaration required by the February 2007 six-party agreement.  This web site does not focus on the nuclear issue, but this turn of events represents a significant US policy shift with economic implications for the DPRK.  The coverage has been overwhelming, so below are media excerpts that cover most of the angles:

“Pyongyang Submits Nuclear Declaration”
Wall Street Journal
Evan Ramstad
6/26/2008

After keeping the U.S. and other countries waiting for 15 months, North Korea delivered a description of its efforts to develop nuclear weapons, setting up the next – and more difficult – stage in an international effort to disarm and reshape the isolated, authoritarian country.

North Korean diplomats gave a declaration of its nuclear-weapons program to Chinese counterparts in Beijing who have been coordinating the six-nation talks. In return, U.S. President George W. Bush announced the lifting of some trade sanctions and beginning of the process of removing North Korea from its list of state sponsors of terror. (Read the text of the White House statement here).

Under the February 2007 deal, North Korea also agreed to disable a nuclear plant that provided fuel for its nuclear weapons, a step that’s also nearly complete. On Friday, it plans to blow up the cooling tower at the nuclear plant and invited TV crews from several countries, including the U.S. and South Korea, to record the event.

The contents of North Korea’s declaration weren’t immediately disclosed. In recent weeks, U.S. diplomats have said they didn’t expect it to include a key piece of data – how many nuclear weapons the country has built. The document also is believed to be limited to North Korea’s efforts to develop plutonium as a nuclear fuel, but doesn’t mention suspected research into highly-enriched uranium as a fuel nor its suspected proliferation efforts to Syria.

“North Korea removed from US ‘axis of evil’”
London Times
Jeremy Page and Richard Lloyd Parry
6/26/008

The US move, which will also see a lifting of long-running sanctions, would mark the most significant thaw in relations between Washington and Pyongyang since the 1950-53 Korean War. Mr Bush said that it was intended to reward and encourage North Korean co-operation and accelerate the tangled negotiations on the country’s nuclear disarmament.

In the first instance, America will exempt North Korea from sanctions under the Trading with the Enemy Act, a piece of First World War legislation that was employed during the Korean War, and which restricts trade with Pyongyang by US companies and citizens. The only other country subject to its provisions is Cuba.

It also gave notice that it would start the 45-day process of removing North Korea from its list of state sponsors of terrorism, where it stands alongside Cuba, Iran, Sudan and Syria. Sanctions against them include a ban on arms sales, economic assistance, and an obligation on the US Government to oppose loans to listed countries by such international institutions as the World Bank.

“Diplomacy Is Working on North Korea”
Wall Street Journal
Condoleeza Rice
6/26/2008; Page A15

In its declaration, North Korea will state how much plutonium it possesses. We will not accept that statement on faith. We will insist on verification. North Korea has already turned over nearly 19,000 pages of production records from its Yongbyon reactor and associated facilities. With additional information we expect to receive – access to other documents, relevant sites, key personnel and the reactor itself – these records will help to verify the accuracy and completeness of Pyongyang’s declaration. North Korea’s plutonium program has been by far its largest nuclear effort over many decades, and we believe our policy could verifiably get the regime out of the plutonium-making business.

Getting a handle on North Korea’s uranium-enrichment program is harder, because we simply do not know its full scale or what it yielded. And yet, because of our current policy, we now know more about North Korea’s uranium-enrichment efforts than before, and we are learning more still – much of it troubling. North Korea acknowledges our concerns about its uranium-enrichment program, and we will insist on getting to the bottom of this issue.

Similarly, we know that North Korea proliferated nuclear technology to Syria, but we do not know whether that is the end of the story. Rather than just trying to address this threat unilaterally, we will be more effective in learning about North Korean proliferation and preventing its continuation through a cooperative effort with Japan, South Korea, China and Russia.

And in return for these steps, what have we given thus far? No significant economic assistance. No trade or investment cooperation. No security guarantees or normalized relations. And our many sanctions on North Korea, both bilateral and multilateral, remain in place.

“‘Good start’ to UN’s Syria probe”
BBC
6/25/2008

The head of a UN team investigating allegations that Syria has been working on a secret nuclear weapons programme says their work is off to a good start.

The IAEA official, Olli Heinonen, said inspectors had taken samples at the al-Kibar site in the Syrian desert.

“It was a good start, but there’s still work that remains to be done,” he said.

“For this trip we did what we agreed to. We achieved what we wanted on this first trip. We took samples which we wanted to take. Now it’s time to analyse them.”

Mr Heinonen also said he was generally satisfied with the level of co-operation by Syria.

Additional information: 

To read a hawk perspective, see Josh’s post at One Free Korea.  Also, the Telegraph (UK) reports that Vice President Cheney tried to block the deal.

David Kang spoke to NPR’s Market Place.

US move reduces Japan’s negotiation leverage over DPRK.

North Korea’s anti-corruption campaigns have been thoroughly covered by North Korean Economy Watch (see here).  It is possible that these campaigns are simply efforts to stem financial leakages within the complex North Korean bureaucracy–making sure money continues to roll up hill.  It is more likely, however, that there is a political motivation behind them. 

In the past, we have speculated that these anti-corruption campaigns could be setting the stage for a purge, which is necessary before any serious policy change can occur within North Korea’s socialist system.  We have also speculated that these campaigns are related to the succession issue (who will take over after Kim Jong il).  Kim Jong il’s family members are disproportionately represented in party and government organizations, not the military.  After years of songun politics, in which the military was in ascention, it is now time to reign in their business operations and bring them under the scrutiny/control of the party and government (Kim’s family). 

Three weeks ago, we learned that Jang Song Taek (Kim Jong il’s brother-in-law) was running the campaign from Sinuiju.  Today, the Daily NK reports that Kim Jong il’s son, Kim Jong Chol (the Eric Clapton fan), has been running a parallel campaign in North Hamgyong Province.  Jang and Kim III have been mentioned as possible successors to Kim Jong il, and the fact that both of them are competing so directly leads the Daily NK to speculate that Kim Jong il is watching to see who is more adept at these tasks.

According to the Daily NK, Kim’s son is not doing well.  His anti-corruption campaign merely stoked local resentment, so he and his team were pulled before anybody knew Kim III was in charge.  Jang’s efforts in Sinuiju, however, seem to have been greeted with admiration.  If this is the case, things are looking up for Jang at the moment.

Details and the full story can be found here:
Kim Jong Cheol Left off the Inspection Due to Absence of Leadership
Daily NK
Moon Sung Hwee
6/9/2008

UPDATE 2:

The U.N.’s North Korea Chutzpah
Wall Street Journal, Page A17
Melanie Kirkpatrick
6/12/2008 

UPDATE 1:
Cash for Kim
Wall Street Journal, page A20
6/3/2008

(Excerpt) You have to read to page 347 of yesterday’s report on the United Nations Development Program’s antics in North Korea before reaching the recommendation that is likely to cause a panic in Turtle Bay: Give member states access to the internal audits, now secret, of UNDP programs.

That simple principle – let the funders see how their money is spent – is anathema in the international aid community and was at the heart of the U.S. exposé last year of the UNDP’s slipshod operations in North Korea. If the U.S. hadn’t blown the whistle, it would be business as usual. This latest report – by three experts appointed by the UNDP – is a wake-up call for more accountability throughout the U.N.

In yesterday’s report, the auditors write that they “are unable to confirm the total size” of the UNDP program in North Korea between 1997 and 2007 – an amazing indictment of UNDP financial practices. They calculate total expenditures between $57.1 million and $72.3 million, which roughly accords with what the U.S. had estimated and far exceeds the UNDP’s guess.

Where did all this money go? The auditors conclude that 38% of disbursements were to “government agencies.” Its review of “selected” projects finds that the documentation for 77 projects – or 74% – was so poor that they could not determine “whether the ultimate beneficiary is consistent with the payee name indicated in the financial system.” That is, nobody knows where the money went – except perhaps Kim Jong Il.

Also notable is the report’s findings on dual-use technology. Of the 151 pieces of equipment reviewed by the auditors, 95 were on the U.S. Commerce Department’s control list and required an export license. Many were “controlled by the U.S. for national security and anti-terrorism reasons . . . and were of heightened concern.” The UNDP hadn’t obtained the required licenses. The auditors add that when the UNDP pulled out of North Korea in March 2007, it left this equipment behind. The UNDP failed to obtain the required “retransfer authorization,” the report dryly notes. Translation: Retrieval was impossible because the North already had the stuff.

ORIGINAL POST: A three-member UN investigative committee, led by Miklos Nemeth, a former Hungarian prime minister, issued a report claiming allegations that North Korea diverted aid money from the United Nations Development Program are not supported by the evidence.

From the New York Times:

There was no sign that millions of dollars were mismanaged, diverted elsewhere or unaccounted for, the report said, countering accusations made in early 2007 by the United States Mission to the United Nations. Although the report acknowledged that some information the panel had sought was unavailable, the review’s conclusion was that the money had been “used for the purposes of the projects.”

The controversy surrounding the accusations led the development program to suspend its operations in North Korea in March 2007. They have remained suspended because of differences over whether the government should choose local employees who work for the agency.

The report, which surveyed the disbursement of more than $23 million between 1999 and 2007, recommended that the development program pay closer attention when it adapts its general guidelines to “a challenging environment” like North Korea. The dense 353-page report appeared to concur with what the program had maintained all along, that the American allegations were baseless. But it recognized some sloppy practices, like tossing $3,500 in defaced counterfeit $100 bills into the bottom of its safe in Pyongyang and forgetting about them for more than a decade.

Here is the report (hat tip DPRK Studies)

Here is some background information from the UNDP.

Here is the Washington Post coverage.

Here are the initial findings from a US Senate report (detailing the accusations).  Here is the initial UNDP response (preceding the above report).

Read the full NY Times article here:
North Korea Didn’t Dupe U.N. Office, Report Says
New York Times
Neil MacFarquhar
6/3/2008

UPDATE: 
The Daily NK brings us up-to-date on the DPRK’s  anti-corruption drive.  The Daily NK analysis, however, gives the impression that Kim Jong Il is clamping down on the military, which again raises speculation that this policy is driven by concerns greater than financial leakage:

A source from Shinuiju reported in a telephone interview with Daily NK on May 14th that, “Director Jang Sung Taek has been staying at the Yalu River Hotel in Shinuiju since March, and has been directing inspections at Shinuiju Customs covering imports and exports made by rail, foreign currency-making activity organizations, and trade companies belonging to the army.”

“This inspection is decidedly different in scale and scope from previous inspections which are usually carried out every spring at Shinuiju Customs and various trading companies. The inspection usually targets simple private corruption as well as all fields related to business with China,” said the source.

The inspection group reportedly consists of some 100 agents dispatched from the Ministry of Administration, the Central Prosecutor’s Office, the National Security Agency, the People’s Safety Agency, and the Imports & Exports Guidance Bureau of the State External Economic Affairs Commission. Some 50 other agents were sent as reinforcements in late April.

…

The inspection group withdrew all trade certificates with exception of those certificates belonging to the families of anti-Japanese guerilla fighters, and those certificates issued by the Ministry of Finance or the Shinuiju Municipal Administrative Committee.  Therefore, presently at Shinuiju Customs, all import items without trade certificates issued by the above mentioned three groups have to be sent back to China.

The whole article is worth reading here.  If any readers have a thoughtful take on these events, please share them.

ORIGINAL POST:
North Korean Economy Watch has thoroughly covered news of the DPRK’s anti-corruption drive (here, here, here, here, and here).  We have speculated as to whether this campaign is motivated by primarily fiscal concerns or whether it is a broader realignment of state, party, and military portfolios necessary for a policy/personnel change within North Korea’s socialist system.

Hideko Takayama at Bloomberg highlights the fiscal aspect of the anti-corruption campaign and is the first to announce the Kim Jong Il’s brother-in-law is leading it:

Jang, 62, was sent to Beijing and the Chinese city of Dandong near the border with North Korea in February to root out corruption at North Korean corporations operating in China, the businessmen and officials said.

Jang, who was dismissed from Kim Jong Il’s power circle in 2004, was rehabilitated in December 2005 and appointed to be Director of Administration of the Workers’ party last October, an official at Chosensoren, a North Korean organization in Japan which acts as a de facto embassy, said, requesting anonymity.

The leader’s brother-in-law is also responsible for the State Security Department, the People’s Security Ministry and the Central Prosecutor’s Office, according to the Chosensoren official. In addition, Jang runs a campaign against what the government calls anti-socialist activities.

Jang’s mission was to find and punish people who were diverting profits that were supposed to be repatriated to the North Korean capital, Pyongyang.

“Jang is familiar with how the business is done outside the country and knows all about money and corrupt ways of making money,” Lee Young Hwa, professor of developing economies at Osaka’s Kansai University, said. “His assignment is like sending a thief to catch a thief.”

Read the full stories here:
Kim’s Brother-in-Law Heads North Korea Anti-Corruption Campaign
Bloomberg
Hideko Takayama
5/2/2008

Shinuiju Inspectors Investigate Corruption
Daily NK
Jung Kwon Ho, Park In Ho
5/16/2008

The Daily NK, reports on a interesting claim by Kim Kwang Jin, senior fellow at the Institute for National Security Strategy:

In his article “The Dollarization of North Korean Economy and Dependence on Foreign Currency by the Residents,” [Kim Kwang Jin] analyzed “dollarization of North Korean economy is a result of the disintegration of the official economy and the subsequent spread of foreign currency rather than the government’s foreign currency policy.”

The total amount of U.S. dollars circulated and amassed by North Korean people was estimated 500 to 600 million dollars (100 per each household), [Kim Kwang Jin] suggested.

Kim’s further specification is as follows: “In the China-Korean border region, the Yuan is particularly popular, while in Wonsan (a seaport on the East Sea)[where the Mangyongbong 92 docks], the Japanese yen is attractive.”

According to Kim’s article, the North Korean people fully realize impossibility of withdrawing North Korean won from their bank accounts and the depreciation rate is too fast. Kim’s estimate was that “each North Korean household is secretly holding 100 dollars in average.”

Methodologically, I am not sure how valuable we should find the claim that the North Korean economy is dollarized to the tune of $100 per household (max of 6,000,000 households).  Averages do not tell us much in large populations because they do not address distribution questions (which are fairly significant).  For instance, a few individuals might have lots of cash, while most have relatively little.  What is the median distribution of dollars, and what is the mode? This data would tell us much more about grass-roots financial conditions in the DPRK, but this information is not available.

Also, Mr. Kim claims that North Korea has “foreign currency areas” along the Chinese border (Yuan) and around Wonsan (Yen).  This claim at least seems plausible for obvious reasons: These are areas where lots of trade and exchange take place.  So where is the dollar currency area?  With no major trading relations, why would there be one (outside of Pyongyang)? Where would all these $USD come from?

Finally, it seems that in the last couple of decades the Yuan and the Yen would be a superior mechanism than the dollar for protecting one’s savings in North Korea.  These currencies are used by the DPRK’s major (current and former) trading partners; these currencies have experienced low inflation in the last couple of decades (the Yen obviously doing a better job); and North Koreans could probably better explain to any curious officials why they have them if they were under scrutiny.

All of these topics might have been addressed in the paper, but I have been unable to find a copy in English.

UPDATE: Yonhap reports that the food shortage was also discussed at the cabinet meeting:

North Korea has recently convened a Cabinet meeting to discuss food shortages, China’s Xinhua News Agency said Sunday, as international concerns grow over the North’s economic woes.

The North’s Cabinet recently held an enlarged session and decided to address the chronic shortages of food and consumer goods, the news agency said, citing a recent edition of the cabinet daily Minju Joson.

DPRK budget expenditures grow 2.5% this year
Institute for Far Eastern Studies (IFES)
NK Brief No. 08-4-16-1
4/16/2008

On May 9, the sixth round of North Korea’s 11th Supreme People’s Assembly opened, at which this year’s budget expenditures were announced to be 2.5% greater than last year. It was also reported at the assembly that the Cabinet would pursue a new 5-year plan to develop the nation’s science and technology sector by 2012.

Despite officially holding a seat on the Assembly, General Secretary Kim Jong Il did not attend this year’s assembly meeting. In addition, there was no mention during the assembly of inter-Korean, U.S.-DPRK or other foreign relations.

Cabinet Deputy Prime Minister Roh Doo-chul announced this year’s budget, stating that “this year, in order to strengthen national defense, and while building strength, to decisively advance the people’s economy and existing industry as well as improve the lives of the people, the national budget expenditure plan will be expanded to 102.5% of last year.”

According to this statement, this year’s budget is estimated to be 451.5 trillion won (3.2 billion USD). An estimated 15.8%, or 71.3 billion won (510 million USD), is slated for national defense. Last year’s national defense budget was 15.7%, or 69.2 billion won (490 million USD), of the national budget.

North Korea has also decided to increase budget allocations for energy, coal, and metal industries as well as the railway sector by 49.8% as compared to 2007, and will focus investments on staple industries. In the past, the North had stressed the importance of the ‘four main sectors’ of improvement in the people’s economy, including energy, but this year the government will actually focus investment on these sectors.

Cabinet Prime Minister Kim Young-il stated, “From this year until 2012, we will proceed forward with a new 5-year plan for the development of national science and technology…As we systematically increase national investment in this sector, we will raise the sense of responsibility and the role of technicians and raise the level of science and technology development as quickly as possible.”

In 2012, North Korea will celebrate the 100th anniversary of the birth of national founder Kim Il-sung, and has set a goal of constructing an economically powerful nation by that year.

Read the Yonhap story here:
N.K. discusses food shortage in Cabinet meeting
Yonhap
4/20/2008