North Korean Economy Watch

Wall Street Journal
Marcus Noland
4/12/2010

North Korea likes to project an image of strength to the world. But back home, there is a serious economic crisis playing out that could have long-term repercussions. Historians may look back and see this as a tipping point.

The crisis originated in November, when the government sprang upon the public a confiscatory currency reform that wiped out household saving and the working capital of traders and entrepreneurs. The value of the North Korean won predictably plunged as people abandoned it for foreign currencies and even physical goods—anything that could preserve value. The second shoe dropped a month later when the state extended its war on privately held capital, banning the use of foreign currencies.

The government’s intent was to reconstitute orthodox communism. Earlier in August, North Korean leader Kim Jong-il’s sister, Kim Kyong Hui, telegraphed the move in an essay extolling the superiority of central planning over the decentralized market—even trashing the notion of giving enterprise managers greater autonomy in the context of a socialist economy. The regime’s basic motive—to crush the market and strengthen direct state control—was confirmed by central bank statements immediately after the reform.

But the policy, which was supposed to constitute the political coming out of expected heir Kim Jong-un, Kim Jong-il’s third and youngest son, unleashed extraordinary, though sporadic, protests. The government backtracked, allowed markets to reopen and in February issued an unprecedented apology. Park Nam-ki, a 77-year-old technocrat who upon becoming the Party’s economics chief allegedly vowed to end the “capitalist fantasy,” was scapegoated and reportedly executed.

Once broken, the economy may prove difficult to repair. Prices for goods such as rice, corn, and the dollar rose 6,000 percent or more after the reform. And while prices have come down from their peak as the government has relaxed some of its strictures, they are currently still 600 percent or more above their prereform levels—in spite of the money-supply contraction.

The United Nations’ Food and Agriculture Organization reports that the country is more than one million metric tons short of grain. This estimate is likely exaggerated due to faulty methodology, but anecdotal reports of hunger are emerging from returning visitors and refugee networks. It appears the government persuaded farmers in cooperatives to accept cash in lieu of half of their annual in-kind grain allotment—then rendered the bonus worthless via the currency reform. Farmers are now hoarding grain however they can: The United Nations Development Program reports that post-harvest losses amount to 30 percent. The farm economy has been severely disrupted. But unlike the 1990s famine, which was largely an urban phenomenon and killed perhaps a million people, hunger is now reported in the countryside.

The state’s response to these developments has not been reassuring. After Mr. Park was executed, he was replaced by an octogenarian, Yun Gi Jeong, known primarily as a confidante of North Korea’s founder, Kim Il-sung. The political police have been bureaucratically elevated and placed directly under the National Defense Commission, from where Kim Jong-il runs the state. This is not the behavior of a confident or competent government.

The recent missteps are particularly damaging because they are so obviously self-inflicted and nakedly incompatible with the regime’s narrative that ascribes all the nation’s challenges to hostile foreign forces. A survey of 300 North Korean refugees conducted in November 2008 by Stephan Haggard of the University of California San Diego found that respondents were increasingly accessing foreign sources of news and disinclined to accept the government’s explanations, instead holding it responsible for their plight. The currency fiasco will accelerate these trends.

Widespread disillusion, even dissent, does not guarantee mobilization, however. The same survey found that the population remains atomized and mostly fearful of communicating these views, even to friends and family. But the state can justify its hatred of the market in one respect: People participating in market activities are significantly more likely to communicate their dissent to their peers.

There is no reason to expect that this attempt to revive orthodox communism will succeed. But an influx of aid, which would allow the state to keep goods on the shelves and satisfy key constituencies, would make it easier. It is rumored that Kim Jong-il will visit China later this month and that the Chinese will extract a commitment by the North Koreans to rejoin the stalled Six Party Talks over its nuclear program.

If North Korea does agree, economic distress and the opportunity to wheedle more aid out of China and the United States may explain this change of heart. China has effectively taken up the mantle of the previous South Korean government’s “sunshine policy,” and within the US government there are already discussions of another “food for talks” swap to bring the North Koreans back to the table.

North Korea’s retrograde moves are wrecking its economy and propagating discontent among the masses. But the country is bereft of civil society institutions capable of channeling that discontent into constructive political action. Aid and repression may permit the regime to pursue anachronistic communism for some time, but the next leader will inherit an ultimately untenable situation.

According to the Wall Street Journal:

As severe hunger looms, the question for donors is whether to resume food aid to North Korea and, if so, how to ensure the assistance reaches the people most in need and is not diverted to the military. Proper monitoring is essential. Some critics think it would be impossible to monitor food deliveries, as the North Korean government would simply reject such a condition, fearing foreigners would learn too much about the world’s most secretive state.

But there is some precedent for meaningful, if not optimal, monitoring of food aid. For instance, the United Nations’ World Food Program conducted an average of 388 monitoring visits a month in 2005, and 440 a month in 2004. For much of these two years, U.N. employees had access to 160 of the country’s 203 counties and districts. More than half of the World Food Program’s international staff, numbering 32 at the end of 2005, were directly engaged in food aid monitoring during the year, and some of them spoke Korean. Such monitoring meant at least some of the young children, the elderly, the disabled, and pregnant and nursing women received food aid.

The North Korean government can hardly afford another period of severe nation-wide hunger. The country’s leaders know that at some point a social explosion is possible as people become desperate. During the years of the famine in the 1990s, North Koreans were still so brainwashed by government propaganda that they died in massive numbers at home, waiting for rations that never came, not letting go of their faith in Pyongyang to save them. North Koreans are now better informed about the outside world, and know whom to blame for their hunger. The survivors have learned that it is foolish, even dangerous, to blindly depend on the government to deliver food.

This means renewed massive hunger could pose a risk to the continuity of the North Korean government. As the Dear Leader, Kim Jong Il, works to ensure another leadership succession to his youngest son, Kim Jong Un, he should consider that North Koreans may not endure another epoch of massive hunger as quietly as they did the last one.

That political imperative may force Pyongyang to act sooner, rather than later. Given that, the foreign-aid community can—and should—insist that aid workers be allowed to properly monitor aid distribution according to standard international protocols for transparency and accountability. The North Korean government must also pledge to end discrimination in government distribution of food in favor of ruling party officials, the military, the intelligence services and the police—and against the “hostile” classes deemed politically disloyal to the government. Otherwise, most donors will remain reluctant to give food aid to North Korea. And that would be a tragedy, on a truly massive scale.

The DPRK  has yet to ask for assistance. 

Read the full story here:
Handling the Next North Korean Famine
Wall Street Journal
Kay Seok
4/13/2010

According to the AFP:

A South Korean aid group said Tuesday it would send 300 tons of flour and other supplies to needy North Koreans this week amid reports that dire food shortages are worsening.

A ship carrying 60 containers of food, daily supplies and educational needs such as pencils will leave the western port of Incheon Saturday, said the Join Together Society.

“The shipment will benefit some 12,000 marginalised people at 50 orphanages and other institutions across the country,” society spokesman Seo Dong-Woo told AFP.

It includes 300 tons of wheat flour, 360,000 packs of soy milk and other foodstuffs, enough to feed 12,000 people for three months, he said, declining to disclose the cost.

South Korean officials and aid groups say the already severe food shortages are expected to worsen this year after a poor grain harvest in 2009.

A bungled currency revaluation last November has reportedly played havoc with distribution networks, aggravating food shortages and sparking inflation.

North Korea has relied on foreign aid to feed its people since a devastating famine in the 1990s killed hundreds of thousands.

Overseas donations for programmes run by the UN’s World Food Programme and others have fallen sharply because of the standoff over the North’s nuclear and missile programmes. Pyongyang has also rejected some aid.

South Korea’s government has since 2008 suspended annual shipments of fertiliser and food to the North amid rising tensions, but private aid groups continue to send shipments.

Read the full story here:
S.Korean aid group to send food to North
Associated Free Press
4/6/2010

According to Itar-Tass:

The Altai Territory will supply a test batch of flour to North Korea weighing 2,000 tons. The concern Altaiskiye Melnitsy (Altai Mills) signed a corresponding contract with the foreign trade state amalgamation of North Korea, ITAR-TASS learnt at the enterprise on Tuesday.

“Further increasing of volumes of supplies will mainly depend on the export price of flour,” general director Sergei Klinov said. The currently in force railway tariff from the Altai Territory to the border with North Korea, and this is about 3,600 roubles per ton, exceeds half the cost of flour in the export price structure. In such a situation, the issue of quality may become secondary for North Korea, and it will continue buying flour in China.”

Read the full stoy here:
Altai to begin supplying flour to North Korea
Itar-Tass
3/16/2010

According to Yonhap (3/9/2010):

South Korea’s Red Cross said it will send 20 tons of powdered skim milk to North Korea on Wednesday as part of humanitarian aid to the impoverished neighbor.

The aid worth 156 million won (US$137,000) will be delivered on two 11-ton trucks across the inter-Korean border and unloaded in the border town of Kaesong, the Red Cross said in a release.

In January, North Korea accepted a proposal by the South to provide powdered milk along with other types of aid as humanitarian assistance.

Photo in the Hankyoreh.

According to Yonhap:

South Korea’s planned shipment of its first food aid to North Korea in years has hit a snag due to sourcing difficulties, an official said Saturday.

The South has been preparing to send 10,000 tons of corn to the impoverished neighbor since mid-January, right after Pyongyang accepted its aid offer made months earlier. The shipment would mark Seoul’s first food assistance to the North since President Lee Myung-bak took office in early 2008.

The government has since approved a 4 billion won (US$3.5 million) budget to fund the assistance and notified the North of a shipping route, based on a plan to buy corn in China and ship it directly to the North from there.

“Considering shipping costs, it would make the most sense to send Chinese corn” to the North, a government official said on customary condition of anonymity.

The official said, however, that the plan has faltered because of China’s “grain export quota,” which places restrictions on food exports in order to meet the country’s rising domestic demand.

The delay has raised concern that the planned aid may not be delivered by the time the North needs it the most — usually between March and May when food shortages in the country worsen — because it usually takes at least a month after the purchase is made for such to be delivered.

But the government official said that he believes the problem will be resolved soon, though he did not elaborate.

Read the full article here:
South Korea’s planned food aid for North Korea hits snag
Yonhap
3/6/2010

According to the Associated Press (via the Washington Post):

North Koreans are getting better medical treatment as the result of a joint program between the two Koreas that has trained thousands of doctors, provided modern equipment and renovated hospitals, the World Health Organization said Thursday.

Maternal mortality has declined by over 20 percent since 2005, and diarrhea cases and deaths in operations have also dropped, said Dr. Eric Laroche.

The World Health Organization has helped in the wide-ranging program, which started in 2006 and is funded by South Korea. It has cost a total of $30.2 million so far.

The program has trained more than 6,000 doctors and nurses in emergency obstetric care, newborn care and child illnesses, said Laroche, who assessed its progress in a four-day visit to North Korea.

The specialization marks a change in health strategy in North Korea, which has about 90,000 family doctors who care for about 130 families each, according to Laroche.

“They know each family one by one,” he said. But, he added, “they’re extremely keen to be trained.”

…

Laroche said hospital staff have been trained in hygiene and clinics have received better material for operations, blood transplants and other medical interventions.

Numerous hospitals have been renovated, and material has also been distributed to 1,200 rural clinics.

Between 2007 and 2009, the number of patients dying in operations fell 73.4 percent, said Laroche, citing a study by the University of Melbourne.

He declined to give an overall view of the health system in the isolated communist nation. But he said services were well-spread among cities and communities.

Read the full article here:
WHO: Korean cooperation boosting health in north
Associated Press (via Washington Post)
Elaine Engler
3/4/2010

According to the Financial Times:

“The WFP can continue to support around 1.4m children and pregnant women with fortified foods until the end of June. However, new contributions are required now or the operation will come to a standstill in July. We are hopeful that donors will come forward with contributions, given the situation,” he told the Financial Times.

In 2008 the WFP hoped 6.2m people would receive such aid but found it increasingly hard to get donations. Annual aid to North Korea is equivalent to $4.50 (€3.30, £3) per person across the population. The average across other low-income countries is $37 per person.

The WFP has survived such funding crunches in the past, but UN officials fear donors have now become exasperated with North Korea, which expelled US non-governmental organisations last March. Pyongyang has severely restricted aid workers’ access, has demanded they give longer notice periods before rural visits and has barred teams from using their own Korean speakers.

Rocky relations with the US and South Korea after Pyongyang launched a long-range missile last April and tested an atomic warhead in May have further discouraged donations.

The US, once the leading food donor, has said it will not supply cereals until North Korea resumes proper monitoring, allowing aid agencies to track the final recipients.

North Korea’s harvests cannot feed all its people and in recent years the annual food deficit was about 1m tonnes. People are chronically malnourished and as many as 1m are believed to have died during famine in the 1990s.

It is hard to determine the scale of malnutrition but Kim Jong-il, the country’s dictator, made a very rare apology this year for failing to deliver “rice and meat stew” to the people. Food markets were thrown into disarray late last year by a currency redenomination but Mr Due, based in Pyongyang, said these seemed to be returning to normal.

Read the full article below:
Donor fatigue threatens aid for North Korea
Financial Times
Christian Oliver and Anna Fifield
3/3/2010

UPDATE: Some additional informtaion from Paul Costello:

Stanford researcher Sharon Perry PhD, an infectious disease specialist, has been working in North Korea with a team of American health specialists to develop the country’s first diagnostic laboratory to test drug-resistant tuberculosis. The Democratic People’s Republic of Korea, as the hermit country is formally known, witnessed a resurgence of TB in the 1990s after famines plagued the country.

The TB Diagnostics Project is being led by the Bay Area TB Consortium, which Perry directs, and the Nuclear Threat Initiative, a Washington nonprofit group working to strengthen global security. The program came about after a team of North Korean health officials visited California and met with Stanford and Bay Area tuberculosis experts in 2008.

It’s unusual for any outsiders to visit North Korea, but extremely rare for Americans. Safe to say that it’s an unprecedented partnership between U.S. researchers and health officials in North Korea. So far, Perry has ventured there three times and is soon to return for a fourth visit.

I spoke with Perry for a 1:2:1 podcast about her work in North Korea. It’s a candid, revealing interview that pulls back the curtain a bit from this most mysterious nation. I found it fascinating to hear Perry describe the work there and talk about collaborating with officials from the Ministry of Health on this significant health crisis for the nation. The porous nature of geographical borders and the ability of disease to spread easily from one country to another clearly illustrates that we’re one planet and all in this together.

ORIGINAL POST: According to the New York Times:

With help from scientists from Stanford University’s medical school, North Korea has developed its first laboratory capable of detecting drug-resistant tuberculosis, scientists involved in the project said last week.

Tuberculosis surged in the Democratic People’s Republic of Korea during the famines of the 1990s. (Starvation suppresses the immune system, allowing latent infections to grow.) But the country cannot tell which cases are susceptible to which antibiotics, meaning more dangerous strains could push out strains that are easier to kill, as has happened in Russia and Peru.

The project began after John W. Lewis, an expert on Chinese politics at Stanford participating in informal diplomatic talks over North Korea’s nuclear threat, realized how serious a TB problem the country had. In 2008, doctors from North Korea’s health ministry visited experts in the San Francisco Bay area. Last month, a Stanford team began installing the new diagnostics lab at a hospital in the capital, Pyongyang.

The project “represents an unprecedented level of cooperation” between North Korean and American doctors, Professor Lewis said. It is supported by the Nuclear Threat Initiative, a nonprofit global security group led by former Senator Sam Nunn, Democrat of Georgia, and by Christian Friends of Korea, a humanitarian group.

Although it will soon be able to grow and test TB strains, North Korea right now has none of the more expensive antibiotics that attack drug-resistant TB, said Sharon Perry, the epidemiologist leading the Stanford team. Without outside help it will also run out of routine first-line antibiotics by July, she said.

Read the full article here:
Tuberculosis: North Korea Develops TB Laboratory With Help From American Doctors
New York Times
Donald McNeil, Jr.
3/1/2010

Choson Ilbo
2/26/2010

North Korea is still demanding rice and fertilizer in return for an inter-Korean summit, even as it keeps sending increasingly urgent messages to Seoul to bring such a summit about.

Since a secret meeting between South Korean Labor Minister Yim Tae-hee and Kim Yang-gon, the director of the North Korean Workers’ Party’s United Front Department, in Singapore in October, “North Korea has kept asking us for a huge amount of economic aid in return for arranging a meeting” between President Lee Myung-bak and North Korean leader Kim Jong-il, a South Korean government source said on Thursday.

But the North seems to have no interest in giving in to South Korean demands to put denuclearization and the repatriation of prisoners of war and abduction victims on the summit agenda. “The North basically wants economic gain in return for letting us make political use of an inter-Korean summit for the upcoming local elections” on June 2, the source said. “It seems that the North still feels nostalgic for the Sunshine Policy,” which netted it huge benefits over the past decade.

The first inter-Korean summit in 2000 was announced only three days before the general election and was bought through a secret payment of billions of won. The second summit in 2007 was announced two months before the presidential election. Since 2000, the North has received more than 300,000 tons of rice and the same amount of fertilizer almost every year worth more than W1 trillion (US$1=W1,163) a year.

In another secret meeting between South Korea’s Unification Ministry and the North Korean Workers’ Party’s United Front Department in November, the North again insisted on specifying humanitarian aid in an agreement to be signed at an inter-Korean summit.

A “tree planting campaign for North Korea” initiated recently by the Presidential Committee on Social Cohesion also reportedly went awry because the North demanded a huge aid of food in return for letting South Korea plant trees there.

Kim Jong-il is apparently not aware that Seoul is serious about ending this cash-for-summits policy. A South Korean government official with experience in inter-Korean talks said, “At secret meetings, each side often had its own way of interpreting agendas. Maybe North Korean delegates who are accustomed to the Sunshine Policy are trying to interpret the current government’s messages the way they did with past governments.”

It seems the North has attempted to earn economic aid worth W1 trillion by prevaricating over the issue of the POWs and abduction victims, offering to handle it like part of reunions of separated families, and discussing the nuclear issue only with the U.S. 

Whether the attitude will change remains to be seen. The North is now in a worse economic situation than before in the wake of a recent disastrous currency reform on top of international sanctions and a severe food shortage.

Prof. Cho Young-ki of Korea University said, “The North is in dire need of support from the outside including South Korea to stabilize the regime for a smooth transition of power” to Kim’s son Jong-un. “It is possible that the North will reluctantly accept our request depending on progress in the six-party nuclear talks.”

The government believes that a dramatic turning point in inter-Korean relations could be reached if the North makes “big decisions” in the nuclear or POW issues, according to Kim Tae-hyo, the presidential secretary for foreign strategies.