North Korean Economy Watch

Daily NK
Han Young Jin
3/29/2007

North Korean inside source informed that authorities had been asserting control over illegal selling and use of mobile phones at the markets near the border regions. National Security Agents have also been conducting in-depth investigations on illegal acts such as drug smuggling and slave trade.

In a telephone conversation with a reporter on the 28th, Park Jong Run (pseudonym) of Musan, North Hamkyung said, “Authorities came to the People’s Units and said furtively, ‘Rations will be distributed in April. In future, you will live a good life. So, stop engaging in illegal trade.’ Why would we listen to them when they tell us to stop selling especially since they aren’t going to give us distributions anyway?”

Park relayed, “They said, don’t sell our confidential information about our country through the mobile phone. People already in possession of mobile phones will be forgiven if they self-confess at the National Security Agency.” Since last year, North Korean authorities have been keeping a close watch on mobile phone use particularly in the border regions.

He said, “They threaten us with a declaration, so that we will report cases of illegality or corruption such as slave trade and drug trade.” For example, large amounts of drugs were found in the home of a Chairwoman for the Women’s Union of Hoiryeong City, late February.

According to Park, authorities will directly carry out the procedures at Jangmadang (markets) themselves, with assistance from Hoiryeong Security Agency and various police departments. Some goods found to be linked to illegal trade are in part taken away by the sudden wave of control. In particular, these authorities have a keen eye for goods made overseas such as Chinese items.

National Security Agents and the police confiscate the items arguing that, “now we have a gap between the rich and poor, as well as the richer getting richer and vice versa, because you, tradesmen have tasted some money. Now, socialism has been infected by capitalism.” However, even the security agents are acting tactful by removing only some of the goods as a mere example of punishment.

Goods confiscated are locked up at the security agency and kept in provision. The endless lines in the waiting rooms of the security agency make up the people ready to pay a fine and recollect their items, says Park. Nonetheless, security agents are reluctant to return the goods back to the traders and so bribes must be ready at hand also.

“I barely got my goods back after bribing them with 10 packets of cigarettes, but there was only half the goods left remaining in the bundle” Park criticized and said that the security agents sarcastically remarked, ‘Hey, let us eat and live a little.”

Following the nuclear experiment, authorities have been trying to gather regime support and elevate the nation’s pride arguing the nation had become a strong militaristic country. They proclaim, “The world is cooperating with us and is throwing their goods at us. In future, you will live well.” It will be difficult for North Korean authorities to prohibit trade, especially with the people’s strong will power to make money.

Yonhap
3/29/2007

A group of 143 South Koreans made a four-day visit to North Korea starting from March 22 to celebrate the opening of a North Korean digital library built with South Korean technology, a local foundation that has a leading role in the project said.

During their stay in Pyongyang, Rep. Im Jong-seok of the ruling Uri Party and other delegates attended the opening ceremony of the digital library at the North’s top school, Kimilsung University, on March 23 and toured the city’s landmarks.

The library’s computer network was built with aid from South Korea’s Hanyang University, the Kim Dae-jung Presidential Library and the Korean Foundation for South-North Economic and Cultural Cooperation, a private foundation for the promotion of such inter-Korean cooperation.

Kimilsung University is the first North Korean school to introduce the South’s advanced digital library system.

Jo Chol, vice president of the North’s university, said he hopes to see an exchange of teaching staff between the universities of the two Koreas, saying the exchange in academic fields will promote the improvement of inter-Korean relations.

Yonhap
3/28/2007

South Korea on Wednesday shipped medical aid to North Korea to help stem the spread of foot-and-mouth disease in the communist country, the Unification Ministry said.

The shipment includes six types of medicine and five types of medical equipment worth about 280 million won (US$280,000), the ministry said in a statement.

Last Thursday, South Korea endorsed its package of emergency aid worth 3.3 billion won for the North, which has culled hundreds of cows and thousands of pigs infected by the disease since July.

South Korea plans to make additional shipments after the two sides hold a working-level meeting of quarantine officials in the North Korean border city of Kaesong on Friday.

The World Organization for Animal Health confirmed the outbreak, and South Korea has proposed to support the North’s quarantine measures. 

Daily NK
Yang Jung A
3/28/2007

The World Food Programme (WFP) revealed that North Korea had for the first time admitted that they were lacking a million ton of food.

Recently, Tony Banbury, WFP Asia Director spent 3 days on location with officials from the North Korean Agriculture Ministry and Foreign Ministry where the food situation was discussed.

On the 26th, Banbury told Reuters, “This is a very significant development that they themselves are confirming they have a gap of 1mn tones.”

Director Banbury informed that the WFP and other sources had provided for North Korea’s food variance which equated to about 20% of the nations needs, however that these sources had already been wasted.

Disputably, these figures made by Mr. Banbury do not correspond to the figures on North Korea’s crop yields. Some even criticize that it was inappropriate of the WFP to directly quote comments made by North Korean officials.

According to a source by the DailyNK, the cost of rice has remained at 800~900 won(US$0.25~0.29). Especially with the forthcoming cyclic hardships of spring harvest, these figures suggest that market costs are actually stabilizing.

Since the breakdown of the distribution system, many North Koreans have resorted to purchasing rice at the markets. In North Korea, the cost of rice is a good representation of market conditions, and considering that rice prices are showing constancy is evidence that there have not been drastic setbacks as a result of the rice distributions.

In comparison to last year where flooding made the food crisis chronic in various districts throughout North Korea, the situation hasn’t really deteriorated. Rather, the continuous inflow of food and hence trade from China has helped maintain market prices, North Korea-China tradesmen say.

Earlier this year, the Rural Development Administration in South Korea estimated North Korea’s food production to be 4.3mn tons. Evidence from a defector who once worked at North Korea’s food distribution ministry and past analysis on crop production suggests that North Korea would not have incurred a food crisis in the case it had produced more than 4mn tons of output.

Simply put, 4.3mn tons of production is at the least enough to maintain the lives of North Korean citizens. Undoubtedly, in a society like North Korea, this figure could initiate a food crisis and starvation in the lower class. However, inflating the shortage of food may only cause exhaustion of essential aid.

In addition, some argue that international organizations are actually provoking this vicious cycle in North Korea by decreasing the real amount of food produce.

Recently, North Korean analyst Marcus Noland published a report, ‘Famine in North Korea’ where he argued that about 50% of international food aid was being consumed by the military and, or the elite class.

In the report, he said, “The North Korean government consistently sought to frustrate transparent, effective humanitarian relief” and that, “Diversion is almost certainly occurring on a large scale, enough food to feed between 3 to 10 percent or more of the North Korean populace. Some of this aid is almost surely consumed by politically connected groups, including the military.”

Reuters
Paul Eckert
3/23/2007

The diplomatic deal that promises to bring North Korea aid in exchange for scrapping its nuclear weapon programs might allow the government to resist meaningful economic changes, an expert on the secretive communist country’s economy said on Friday.

Marcus Noland of the Peterson Institute, a Washington economic think tank, said research for his new book on North Korea’s deadly 1990s famine showed Pyongyang was “at best, ambivalent” about changing policies that led to that disaster.

“The great hope is that reassurances in terms of external security will give the North Korean regime the political room to engage in greater political and economic liberalization at home,” the economist told Reuters in an interview.

But the diplomacy playing out in Beijing could have the opposite effect, said Noland, co-author of “Famine in North Korea: Markets, Aid and Reform” with Stephen Haggard of the University of California, San Diego.

“It could well be that a nuclear deal that resulted in greater amounts of aid would actually allow the North Korean government to intensify activities that are essentially reestablishing economic and political control over the population,” he said.

Negotiators from North and South Korea, China, the United States, Japan and Russia were in Beijing this week, seeking to begin implementing a Feb. 13 deal that would give the North aid and security assurances in return for shutting down a nuclear reactor and preparing other disarmament steps.

Noland’s 368-page study of the famine that killed an estimated 1 million North Koreans in the late 1990s shows how the rigid central planners of Pyongyang were forced to allow markets to feed people and to give farmers some limited freedoms, but then pulled back when the disaster eased.

“When things look better … the North Korean government tries to pull back on this process of marketization and reform,” Noland said.

“One of the saddest things is that as food aid began arriving in North Korea, the regime systematically cut the amount of food it bought on commercial terms,” he said.

The author of three books on North Korea decries what he says are “truly reckless” food policies since the end of the famine. Pyongyang has banned trading in grain on markets that people rely upon for food, confiscated grain in rural areas and reneged on policy promises to farmers, he said.

“In a variety of ways, it seems to want to put the genie back in the bottle,” he said.

Reuters
Lindsay Beck
3/26/2007

North Korea has admitted for the first time to food shortages of a million tonnes, the World Food Programme said on Monday, adding that in the absence of better donor support, millions are vulnerable to hunger.

In the past that food gap — which represents about 20 percent of North Korea’s needs — was met by a combination of bilateral aid, WFP support, loans and commercial interests, but those sources are all drying up, the WFP said.

“This is a very significant development that they themselves are confirming they have a gap of 1 million tonnes,” WFP Asia director Tony Banbury told Reuters.

The figure, which is in line with U.N. estimates, was given in a meeting with the vice-minister of agriculture, Banbury said in an interview from North Korea, where he met officials at the Agriculture Ministry and Foreign Ministry and spent three days in the field.

“There is a real food security problem in the country that is now not being met either by domestic production or external sources.”

North Korea suffered a famine in the mid-1990s that killed as many as 2.5 million people, and has since suffered chronic food shortages.

The WFP began working there in the aftermath of the famine and grew into its biggest humanitarian agency, but was forced to radically scale back its programme last year after the government said it no longer wanted handouts.

Under its new programme, the U.N. agency aims to reach about 1.9 million people, but Banbury said a lack of donor support meant it was only reaching 700,000 of a total population of about 23 million.

North Korea, which tested its first nuclear device last year and is at the centre of diplomatic efforts to dismantle its atomic programme, has made incremental improvements in the nutritional status of children, but that could be reversed.

“There is a real risk that we’re going to see backtracking on the improvements, and people who are just on the edge and vulnerable could find themselves in a very difficult situation from a food and nutritional standpoint,” Banbury said.

Despite the close government watch maintained throughout the visit, Banbury said that for the first time WFP officials were granted a spontaneous request to see government warehouses that store WFP-donated food.

“On the one hand, it was very innocuous — it was just a warehouse with sacks of food in it. On the other hand, it was symbolically, quite important and welcome,” he said.

There were also moments of frankness from officials in the country known for its reclusiveness during Banbury’s visits to a paediatric hospital, a boarding school and orphanages in the west of the country.

“In every institution we visited there were malnourished children, according to the officials there themselves, not just our observations,” Banbury said.

Some of the children were severely malnourished, he said.

“It was my impression that the person on the street — the woman riding the bicycle, the kid walking along the side of the street — was thin and hungry and needed more food than they were getting.”

BBC
3/16/2007

South Korea is to resume shipments of fertiliser aid to the North later this month in a further sign of progress after a recently-agreed nuclear deal.

The South Korean Red Cross said the first of some 50 shipments would be sent on 27 March.

Seoul had suspended humanitarian aid to its secretive Communist neighbour after Pyongyang’s nuclear and missile tests.

Separately, the ending of a US probe into a bank linked to North Korea has been welcomed by a pro-Pyongyang paper.

The Japan-based Choson Sinbo described as a “very positive sign” the US Treasury’s announcement that it had ended its 18-month investigation into the Macau bank Banco Delta Asia (BDA).

The US found the BDA complicit in alleged North Korean money-laundering and counterfeiting activities and has barred the bank from accessing the US banking system.

But the Treasury decision does mean the Macau authorities could now remove the bank from receivership and return some of North Korea’s money.

North Korea had insisted the freeze on its assets – estimated to be up to $25m (£13m) – be lifted as part of any agreement on ending its nuclear programme.

“We can call this a truly epochal event because the most arrogant and violent regime ever in the United States did so as if it knelt before a small country in the east,” the Choson Sinbo said.

While North Korea itself has yet to comment on the US Treasury decision, China on Thursday said it “deeply regretted” the move.

The BDA denies it ever intentionally handled illicit funds.

‘Fully committed’

Nuclear negotiators are in Beijing for preparatory discussions ahead of more high-level talks next week.

They will discuss progress on the agreement of 13 February, which was reached during talks involving the two Koreas, China, the US, Japan and Russia.

Under the deal, the North has pledged to “shut down and seal” its Yongbyon nuclear reactor within 60 days in exchange for energy aid.

The UN nuclear chief, Mohamed ElBaradei, travelled to North Korea earlier this week to discuss the resumption of international inspections.

He said Pyongyang was still “fully committed” to giving up its nuclear programme.

Since 13 February various bilateral meetings have been taking place.

The two Koreas held their first talks in several months soon after the nuclear deal was reached, and discussed a number of issues including the resumption of reunions for families split since the division of the Korean peninsula.

But Seoul had linked the resumption of deliveries of rice and fertiliser to North Korean progress on dismantling its nuclear programme in accordance with the February deal.

South Korea’s Red Cross chief Han Wang-sang said the organisation would send its first shipment of 300,000 tonnes of fertiliser on 27 March.

“It will take about three months to complete the whole process, which will consist of about 50 separate shipments,” he said.

The fertiliser shipments will arrive in time for the impoverished North’s spring planting season.

KCNA
3/13/2007

The United Nations Development Program recently announced that it would suspend its country program for the DPRK and, accordingly, withdraw the staff members of its office from Pyongyang.

A spokesman for the DPRK Ministry of Foreign Affairs Tuesday answered the question raised by KCNA in this regard.

The responsibility for this abnormal thing that happened in the cooperative relations between the DPRK and the UNDP, which have favorably developed for the past several decades, rests with the U.S. and Japan and some circles inside the organization, who took this discriminative action against the DPRK only, yielding to the pressure of the above-said two countries, the spokesman said, and continued:

The U.S. has spread sheer lies about the DPRK’s “diversion of UNDP’s program fund” since the outset of the year in a bid to tarnish the international image of the DPRK. Taking advantage of this, Japan has pressurized the UNDP to suspend its country program for the DPRK. It wooed some member states of its executive board to reopen the discussion on the already passed country program for the DPRK.

Some officials of the UNDP tried to cancel the country program of developmental nature for the DPRK contrary to its mission under the pressure from outside and adjust it into a country program of humanitarian nature and has unilaterally closed or cancelled the ongoing project.

As regards this discriminative step taken against the country program for the DPRK only, it demanded the UNDP explicitly explain and clarify the step. The UNDP, however, has kept mum about the demand, deliberately avoiding its answer.

The DPRK does not care about whether it receives small assistance from the UNDP or not but it will not tolerate even a bit any foolish attempt to hurt its dignity.

It is the firm stand of the DPRK not to receive any politically motivated assistance seeking a sinister aim in the future, too.

Chicago Tribune
Bay Fang
3/11/2007

Office closes at the same time an audit was ordered into payments

The United Nations Development Program office in Pyongyang, North Korea, sits in a Soviet-style compound. Like clockwork, a North Korean official wearing a standard-issue dark windbreaker and slacks would come to the door each business day.

He would take a manila envelope stuffed with cash — a healthy portion of the United Nation’s disbursements for aid projects in the country — and leave without ever providing receipts.

According to sources at the United Nations, this went on for years, resulting in the transfer of up to $150 million in hard foreign currency to the Kim Jong Il government at a time when the United States was trying to keep the North Korean government from receiving hard currency as part of its sanctions against the Kim regime.

“At the end, we were being used completely as an ATM machine for the regime,” said one U.N. official with extensive knowledge of the program. “We were completely a cash cow, the only cash cow in town. The money was going to the regime whenever they wanted it.”

Last week, the development program, known as UNDP, quietly suspended operations in North Korea, saying it could not operate under guidelines imposed by its executive board in January that prohibited payments in hard currency and forbade the employment of local workers handpicked by the North Korean government.

But some diplomats suspect the timing of the suspension was heavily influenced by a looming audit that could have proved embarrassing to the United Nations.

Documents obtained by the Chicago Tribune indicate that as early as last May, top UNDP officials at headquarters in New York were informed in writing of significant problems relating to the agency’s use of hard foreign currency in North Korea and that such use violated U.N. regulations that local expenses be paid in local currency. No action was taken for months.

Then, under pressure from the United States, U.N. Secretary-General Ban Ki Moon on Jan. 19 ordered an audit of all U.N. operations in North Korea to be completed within 90 days, or by mid-April.

The Board of Auditors, the U.N. body tasked with the audit, made no movement on the audit for 40 days after Ban’s order. It sent out its notification letter for the beginning of the audit on the same day the development program announced the closure of its office — March 1.

That timing, combined with past concerns about the UNDP’s transparency, has raised suspicions that suspending operations would be a way to hamstring the audit, the results of which may prove damning to the organization.

“The office was closed precisely for that reason,” said another U.N. official with extensive knowledge of the program. “With no operations in place, first of all, you have no claim to get auditors into the country. Second, it will take months and months to get documentation out of the office there, to transfer to somewhere else like New York.”

The U.N. sources who spoke about the development operations in North Korea requested anonymity either for fear of retribution or because of the diplomatic sensitivity of the subject.

The saga of the UNDP in North Korea joins a list of other episodes in which critics have complained that the United Nations is a sprawling bureaucracy with few safeguards and little accountability. The Bush administration has been particularly outspoken about the United Nation’s need for reform.

The Oil-for-Food scandal, which erupted in 2004, involved corruption in a program designed to provide humanitarian aid for Iraqis, whose country faced economic sanctions. Ultimately, it emerged that the program had resulted in $1.8 billion in kickbacks and surcharges paid to Saddam Hussein’s regime.

Ban, a South Korean who took office in January, has sought to present himself as a fresh-faced reformer.

All this occurs against the backdrop of intensifying talks with Pyongyang over its nuclear weapons capacity, the most recent of which took place last week in New York. Last month, the United States and four other nations signed a deal with North Korea promising aid in exchange for the shutting down of a nuclear reactor and a series of steps toward disarmament and normalized relations.

A spokesman for the U.S. mission to the United Nations, Richard Grenell, said the United States supports the audit going forward to find out the extent of the problems at the UNDP office in Pyongyang. North Korean officials could not be reached.

Despite the closure of the UNDP office in North Korea, the audit is moving ahead. U.N. officials say they expect the audited documents to show not only the hard currency transfers to representatives of Kim’s government, but also the inability of staff on the ground to confirm that the money was going to its programs.

According to sources familiar with UN operations in North Korea, the international staff of the development program and other UN agencies were not allowed to leave the compound without a government escort.

They were not allowed to go outside Pyongyang without receiving special permission from the military at least a week in advance. They were not allowed to set foot in a bank. And under no circumstances were they allowed to make unrestricted visits to the projects they were supposed to be funding.

These rules mirror the restrictive conditions set by the U.S. government on diplomats from North Korea who must stay within 25 miles of New York City.

The UNDP, whose mission is to help the country develop economically, was one of several UN agencies operating in North Korea, including UNICEF and the World Health Organization. The United Nations is one of few channels for foreign aid in the secretive, authoritarian country.

One of the UNDP projects, sources said, involved the purchase of 300 computers for Kim Il Sung University. The computers supposedly arrived in Pyongyang, but the international staff was not allowed to see the equipment it had donated.

Finally, after a month and a half of pressuring their North Korean handlers, staffers were led to a room in which two computers sat. They were told the others were packed in boxes, which they were not allowed to open.

And while the UNDP’s programs — which have included projects such as “Human Resource Upgrading to Support Air Traffic Services” and “Strengthening of the Institute for Garment Technology” — cost anywhere from $3 million to $8 million a year total, the development program also acted as the administrative officer for all the UN agencies and wrote checks for tens of millions of dollars worth of programming every year.

The UNDP’s financial officer and its treasurer in Pyongyang, who issued those checks, were both North Korean.

UN officials privately describe a vivid scene playing out at the agency’s compound each day.

A driver in a UN-issued Toyota Corolla would pull out of the compound’s gate, taking UN checks to the bank. A short time later the driver, a North Korean employed by UNDP, would return with manila envelopes stuffed with tens of thousands of dollars in hard currency.

Then the windbreaker-clad North Korean official would show up and take the cash away.

UNDP spokesman David Morrison said the use of hard currency and the hiring of staff through local governments was standard practice in authoritarian countries like North Korea. Morrison said his understanding was that the agency had never had problems with site visits, and that in 2005 its staff had visited 10 of its 11 monitorable projects.

The agency was complying with the audit, Morrison said, “in order to take away even the perception that anything was untoward.”

But others believe the development program has no choice but to cooperate with the audit.

In January, a letter written to the head of UNDP by Mark Wallace, the U.S. ambassador to the UN for management and reform, was leaked to the U.S. media. The letter, which drew on Wallace’s review of internal audits dating back to 1998, accused the program of having been “systematically perverted for the benefit of the Kim Jong Il regime.”

These claims by the United States, supported by Japan, the two biggest donors to UNDP, pressured the secretary general to quickly order the audit.

“If there were simply the use of hard currency, or simply no site visits, that’s one thing,” said a UN diplomat familiar with the issue. “But when you combine the fact that large cash payments were made directly to officials of Kim’s government with the fact there were no site visits to verify how the cash was being used, that’s a great cause of concern.”

The first phase of the audit is scheduled to begin Monday in New York. It remains unclear whether the auditors will attempt to visit North Korea. It is possible that even if the UNDP office were still open, Pyongyang would not have granted them visas.

Even with its limited scope, the audit could yield significant revelations about how the agency worked in a dictatorial, tightly controlled society.

“There wasn’t a snowball’s chance in hell that they’d allow us to see what they did with all the cash they received,” said a member of the diplomatic community in New York. “But UNDP headquarters and the country office should be able to tell us what kinds of checks they were making, were they paid in cash, what, who, where the money was going to.”

The Board of Auditors had no comment for this article, but Morrison, the UNDP spokesman, said the organization was making arrangements to safeguard documents by transferring them to one of the other UN agencies in Pyongyang. He said that those necessary for the initial stages of the audit would be copied and carried to New York in electronic form by the UNDP chief in Pyongyang, who is due to leave North Korea within days.

But some suggest the mid-April deadline does not leave enough time to produce a thorough review.

“I don’t think this is an audit you can whip through in 30 days; this may take some time,” John Bolton, the U.S. ambassador to the UN until the end of last year and a staunch critic of the world body, said when contacted by the Tribune for a reaction to the newspaper’s reporting of the cash payments. “But I think for the reputation and integrity of the UN system, it’s critical that it proceed without delay.”

Joong Ang Daily
3/8/2007

North Korea yesterday asked for 300,000 tons of fertilizer in aid, the Unification Ministry said, days after the two Koreas agreed to resume humanitarian projects.

“Chang Chae-on, president of the North’s Red Cross, sent a fax message to his South Korean counterpart Han Wan-sang, requesting 300,000 tons of fertilizer and wanting to know how much and what type,” said Yang Chang-seok, a ministry spokesman.

Mr. Yang said the shipment will be sent to the North in late March or early April, after the details have been worked out.

Mr. Yang estimated the aid will cost 100 billion won. “The government earmarked 108 billion won for that purpose this year.”

The North has also asked for rice and Red Cross officials will discuss the resumption of rice aid during a new round of economic talks to be held in Pyongyang on April 18 to 21.