North Korean Economy Watch

A presentation by the Korea Economic Institute using Bank of Korea data

Presentation in PDF here: North Korea eocnomic data 2005.pdf

via: http://www.vuw.ac.nz/~caplabtb/dprk/NK_econ06.htm

Reuters
6/29/2005

A South Korean pastor is aiming to cut into North Korea’s severe food shortage by sending the reclusive state 1.2 million rabbits to eat.

Cho Soon-tae from the Evangelical Movement for National Unification said rabbits are tasty, resilient and reproduce, well, like rabbits, which would make them an ideal food source for North Korea.

With the help of seven pastors from leading South Korean churches, Cho secured more than $1 million to buy rabbits at a little under $1 each in China and transport them to North Korea.

“They will be delivered to the North in August by train from China,” Cho said by telephone.

Cho said he had asked permission from South Korean authorities to ship the rabbits and was in talks with officials from the North seeking their permission.

The U.N. World Food Programme has said North Korea is in the midst of a severe food shortage that may quickly grow worse as food stocks and international aid dry up. Many of the country’s 22 million people rely on food aid.

Cho said he thought about how he could help alleviate food shortages in the North after a visit to a kindergarten there that was sparsely attended because of malnutrition among the students.

If all goes well, Cho is looking to send more rabbit aid.

The BBC offers a summary of economic conditions in the DPRK:

The focus of the international community’s alarm over North Korea is the isolated nation’s nuclear arsenal, and its refusal to talk about it.

An aspect that is sometimes overlooked is the dire state of its economy, and yet this could be at the heart of the nuclear crisis.

The regime, with few allies in the world, cannot appeal to the sort of humanitarian emotions that African or South Asian nations have in the past.

To ensure the flow of food and oil, it must have a bargaining chip, and its nuclear arsenal is that chip.

Therefore Pyongyang’s diplomatic bluster is inextricably linked to its need to keep what remains of its economy propped up by donations.

North Korea has recently attempted limited reforms to its economy, but these have not been comprehensive or well-enough planned to work.

Pushed into reform

North Korea became an independent state in 1953, and has operated a rigid centrally planned, or “command” economy based on that developed by Stalin in the USSR.

Industry and agriculture are planned on a five-year basis, all farms are collectivised, volume is praised over value and most foods and goods are rationed.

This model initially allowed for rapid industrialisation and rebuilding, but it failed to deliver sustainable growth or raise living standards.

The economy began to collapse, and by the mid-1990s the country was in a state of famine. The industrial base and the agricultural sector have been in decline ever since. Beijing, North Korea’s only real ally, decided to act in October 2001 with an economics lesson for North Korean leader Kim Jong-il.

He was shown round a GM plant and a hi-tech factory in Shanghai, and received a lecture about the benefits of Chinese-style reform.

The Chinese were effectively telling Mr Kim that it was time for change – and that they were fed up with the growing number of refugees fleeing over the Chinese border, and increasing demands for aid.

Mr Kim realised he needed to keep China close, and in June 2002 announced a series of economic reforms.

Pyongyang partially ended rationing and reformed the wages and pricing system.

Retail prices shot up – rice by 55,000%, corn 5,000%, electricity 143% and public transport fares 2,000% – but average wages increased by just 1,818% – from 110 won to 2,000 won (US$22) per month.

It also allowed private farmers’ markets to expand – to provide more goods for the consumers this monetary liberalisation had created.

Another major plank of the reforms was the new investment zone in Sinuiju – and another one in Kaesong, agreed as part of Kim Dae-jung’s Sunshine Policy.

These investment zones used foreign investment to create new economic ventures.

But neither the wage and pricing reform, nor the investment zones, have worked.

Scarce resources

The government had hoped that inflation created by the reforms, if kept under control, would “kick-start” the economy.

But this theory assumed there was a mass of underutilised resources waiting to be kick-started. Twenty-five years of decline meant that these resources were now scarce.

More food found its way into the farmers’ markets, but at prices ordinary people could not afford.

This effective legitimisation of private farming and smuggling across the border from China only succeeded in increasing the availability of goods to the elite – those whose wages were protected or had access to foreign currency.

As for the economic zones, Sinuiju’s position, opposite China’s flourishing economic zone in Dandong, annoyed Beijing.

It consequently arrested the Chinese businessman hired to run Sinuiju, imprisoning him for 18 years for tax evasion and effectively ending the project.

Kaesong survives but all the ventures are foreign-owned, with little benefit, therefore, for North Korea.

By the end of 2002, economic growth was estimated at just 1.2% at best, with the average citizen’s purchasing power severely eroded.

For most ordinary North Koreans, the end result of the reforms was further impoverishment and the eroding of any savings they may have been able to build up.

So, in light of the reforms’ failure, North Korea’s alleged announcement in October 2002 that its country was pursuing an enriched uranium programme could be interpreted as a return to its old bargaining tactics.

The international community responded to the announcement by setting up six-party talks in August 2003.

But the diplomacy is failing because North Korea, with no allies but the increasingly exasperated Chinese, and little prospect of economic revitalisation, needs to ensure a continued drip feed of aid.

That means a hard bargaining process, and Mr Kim has one bargaining chip – his nuclear bombs.

Already twice, as far as we know, Beijing has managed by persuasion, and perhaps a little economic pressure, to get Pyongyang back to the table after talks have stalled.

Now Beijing is trying again. Perhaps what Pyongyang wants most is a serious package of economic aid from China.

China may provide it to get the talking started again.

But the price Beijing will need to demand is that Pyongyang restarts economic reform in earnest, and moves away from the continual brink of collapse that forces it to make desperate diplomatic gambles such as the current crisis.

As for the economy today, it has to all intents and purposes collapsed.

The reforms were limited, and benefited just the elite of the country rather than ordinary people.

The basic structure remains in place and continues to erode the economy.

However, as long as the regime can keep the country isolated, it can survive on this drip-feed indefinitely.

The endgame is simple – regime survival. It is a long-term strategy using diplomatic belligerence and military threat to secure enough aid to maintain power and isolation.

The regime may survive, and may under pressure begin another round of tentative reform, but it seems unlikely that life will improve for ordinary North Koreans any time soon.

Read the full story here:
Economy root to N Korea crisis
BBC
Paul French
2005-4-12

BBC
3/27/2005

North Korea says it has had a first outbreak of the deadly bird flu virus.

The state Korean Central News Agency said no people had been infected but hundreds of thousands of chickens had been culled and the carcasses burned.

The agency only said that the outbreak was “recent” and occurred at “two or three” chicken farms. It did not specify the virus type.

The H5N1 virus has killed almost 50 people since its resurgence in South East Asia in December 2003.

Tight controls

KCNA said Hadang farm in Pyongyang, among the city’s largest, was one of the sites of the outbreak.

North Korea had previously said it was free of the virus that has struck many countries in south and east Asia.

South Korean news agency Yonhap earlier this month reported an outbreak at Hadang, prompting the World Health Organization (WHO) to ask the reclusive North for information.

The North has relied on food aid for more than a decade but imposes tight controls on foreign visitors and aid workers.

Experts fear the H5N1 virus could eventually combine with human flu and threaten a deadly pandemic.

There are suspected cases of the virus being passed between humans.

Seoul offers N Korea bird flu aid
BBC
3/28/2005

South Korea has said it is ready to help the North combat bird flu, after the isolated state publicly admitted on Sunday that it was fighting the virus.

Pyongyang has not asked Seoul for assistance, but a South Korean official said the official announcement appeared to indicate the North would accept aid.

The North says no people have been infected but hundreds of thousands of chickens have been culled.

Analysts warn that the virus could wipe out its fledgling chicken industry.

“North Korea, plagued by food shortages, has struggled to modernise and build facilities for the breeding and processing of chicken, a main source of animal protein,” Kwon Tae-jin, an expert on North Korean agriculture based in Seoul, told the South Korean Munhwa Ilbo newspaper.

The North has not specified the type of bird flu virus it is battling. The H5N1 virus has killed almost 50 people since its resurgence in South East Asia in December 2003.

The state Korean Central News Agency only said that the outbreak was “recent” and occurred at “two or three” chicken farms.

The World Health Organization (WHO), which has an office in Pyongyang, said it had been contacted by the North, and would co-ordinate counter-measures.

South Korea was to hold several meetings on Monday to decide on a strategy to help the North.

It has already put in place measures to prevent the spread of bird flu into the South, as rumours first surfaced of an outbreak in the North earlier this month.

South Korea has itself suffered several outbreaks of bird flu, but no human infections.

Experts fear the H5N1 virus could eventually combine with human flu and threaten a deadly pandemic.

There are suspected cases of the virus being passed between humans. So far, Vietnam has been the country hardest hit by this year’s outbreak of bird flu.

UN bird flu expert visits N Korea
BBC
3/30/2005

A senior United Nations bird flu expert has gone to North Korea to try to prevent the spread of the virus.

North Korea confirmed on Saturday that bird flu had been detected in several farms near the capital, Pyongyang.

State media said hundreds of thousands of chickens had been destroyed to prevent the virus from spreading, and no humans had been affected.

The UN has also sent diagnostic kits to help the North Koreans determine if the birds died from the deadly H5N1 strain.

This strain of bird flu has killed almost 50 people since its resurgence in South East Asia in December 2003.

Hans Wagner, a senior official from the UN’s Food and Agriculture Organization, flew to Pyongyang on Tuesday, and will be joined by two other experts from China and Australia in the coming days.

Survivor’s story

“They will look at the strategies being set up by the government and also bring some supplies,” FAO spokesman Diderik de Vleeschauwer told Reuters news agency.

South Korea’s Yonhap news agency reported on Tuesday that the North Korean authorities were struggling to control the outbreak, and the disease was spreading quickly.

Analysts warn that the virus could wipe out the poverty-stricken country’s chicken industry.

Before the bird flu outbreak, poultry production was one of the few growing sectors in North Korea. The number of poultry was estimated at 25.5m in 2004, about two times higher than in 1997.

N Korean bird flu ‘different’
BBC
4/5/2005

A strain of bird flu infecting poultry in North Korea is different from that which killed scores of people in other parts of Asia, a UN expert has said.

Hans Wagner, an official for the Food and Agriculture Organization, said the birds were infected with the H7 strain.

The strain that has decimated poultry stocks and caused recent human deaths in Cambodia, Thailand and Vietnam is the more virulent H5N1 strain.

North Korea has culled 219,000 birds to tackle the outbreak, Mr Wagner said.

“We have a new situation, because H7 has so far not occurred in Asia,” he told reporters.

“We don’t know where the virus came from,” he said, adding that UN experts would now try to trace the source of the infection, to prevent future outbreaks.

H7 can cause illness in humans, but outbreaks of the strain have not been as severe as those caused by H5N1.

H5N1 has killed almost 50 people since its resurgence in South East Asia in December 2003.

When North Korea first announced that three of its farms had been infected with bird flu last month, analysts warned that the virus could wipe out the poverty-stricken country’s chicken industry.

Poultry production is one of the few growing sectors in North Korea, which has relied on foreign aid to feed its people since the mid-1990s.

Asia Times
Aidan Foster-Carter
March 15, 2005

It’s a cliche to complain how little we really know about North Korea. Hard facts, and especially figures, are indeed hard – as in hard to come by.

In some fields this is perfectly true. The military, obviously. Does North Korean leader Kim Jong-il have the bomb or bombs? How many? Where is he hiding them? All countries keep that kind of information secret.

But no other nation in the world fails to publish any regular statistics about its economy. This 40-year silence should temper hype about market reforms. Without numbers, neither local enterprises nor external donors or (they wish) investors can do more than gamble in the dark. They really do need to know. Providing accurate numbers is a basic prerequisite of being a modern state.

Yet North Korea possesses a Central Bureau of Statistics (CBS), and it is not idle. No doubt the Dear Leader demands economic data – for his eyes only. But in some fields, the CBS does publish its work. One example was North Korea’s 1993 census, its first ever.

More recently the CBS has worked with international aid agencies to collect information that the latter need in a key area: hunger and its human consequences. The latest fruits of such cooperation have just been published in the “DPRK 2004 Nutrition Assessment Survey”, a joint product of the Central Bureau of Statistics and North Korea’s Institute of Child Nutrition (ICN), with financial and technical help from United Nations Children’s Fund (UNICEF) and the United Nations World Food Program (WFP). The two chief consultants were from Australia and Vietnam, so this was a regional Asian effort. It follows earlier surveys carried out at two-year intervals, in 1998, 2000 and 2002.

It was the WFP that released this report, at a press conference in Beijing on March 7. It is in fact dated November 2004; the survey itself was carried out in October. The delay wasn’t explained. Perhaps the lag was attributable to translation time and to make sure it was fit for publication generally.

I’m often critical of North Korea, so all the more reason to give credit when it’s due. This is an impressive, highly professional report comprising 104 pages, five chapters, 46 tables, 24 figures. The sample was 4,800 children, ages up to six, and 2,109 mothers of children under two, drawn evenly from seven of North Korea’s nine provinces plus the capital, Pyongyang.

Having taught social science research methods in a former life, I get a kick out of reading about random and cluster sampling (sad, I know). Then I pinch myself. This is North Korea. An official document! All these numbers! And on a potentially very sensitive subject, too.

For what this survey measures, with grim precision, is what years of hunger have done to the bodies of small children – and I do mean small – and their mothers in North Korea.

To be technical, there are three main criteria:

*Underweight (for age) is self-explanatory;
*Stunting, low height for age, signals chronic malnutrition;
*Wasting, worst of all, is low weight relative to height, indicating acute malnutrition. Each of these categories is sub-divided into mild and severe cases. For the mothers, a fourth measure was used: MUAC (mid-upper arm circumference). Less than 22.5 centimeters means they aren’t eating enough.

So how are Juche’s (juche is the policy of self-reliance) children faring? The WFP’s press release tried to look on the bright side. Since the last survey in 2002, the proportion of young children chronically malnourished (stunted) is down from 42% to 37%. Acute malnutrition (wasting) eased from 9% to 7%. But those underweight rose from 21% to 23% – though for children under the age of two, those most at risk, this fell from 25% to 21%. One in five children had diarrhea, and one in eight showed symptoms of acute respiratory infection. But mothers have made no progress: a third were anemic and malnourished, the same figure as two years ago. Vitamin A deficiency is common.

Much depends on where people are living. Things are less bad in Pyongyang and in the southwestern Hwanghae farming region than in bleak northeasterly Hamgyong and Ryanggang provinces. Ryanggangites get to eat meat, fish or eggs just once every three weeks on average. Chagang in the far mid-north is bleaker still, but North Korea doesn’t allow access to this area – probably because of military bases located there. Thus, no survey was conducted in Chagang, which means no food aid either; the WFP is strict about that – surveys first.

Even at the national level, the few slight improvements offer scant comfort. The more than one-third (37%) of North Korean’s under six who are stunted – and especially the one in eight (12%) who are severely stunted – will grow up stunted and stay that way. Even once Korea is reunified politically, they will stand out physically: dwarfed by their Southern peers.

Seoul, meanwhile, has different – nay, opposite – child health issues. With uncanny timing, the very same day as the WFP released its survey on the North, education officials in the Southern capital reported that one in 10 schoolchildren in Seoul is overweight. Obesity rates are growing fast, too. As the old adage has it, the rich slim while the poor starve.

Back in the North, the WFP doesn’t appear to be leaving any time soon. Richard Ragan, head of the program’s Pyongyang office – and an American, to boot – said he hopes the agency will shut up shop one day, once the government and the private sector can stand on their own feet.

But for now, one anniversary a proud North Korea won’t be celebrating, is that this year marks a whole decade since it first, reluctantly, asked the WFP and other agencies for help coping with flood and famine. While the worst of the famine has eased, food self-sufficiency – in a country so mountainous that this is a ludicrous goal anyway – looks as remote as ever.

So still, in 2005, the WFP has extended the begging bowl for Kim Jong-il – whose own priorities evidently lie elsewhere. Ever prickly Pyongyang has bitten the kind hand trying to feed it, forbidding UN agencies to launch their usual formal consolidated aid appeal this year. Nonetheless the WFP is seeking $202 million with which to buy 504,000 tonnes of food, mainly grains.

And no wonder. In January North Korea cut its Public Distribution System (PDS) rations to starvation level: 250 grams of cereal per person per day, the lowest in five years. Such cutbacks don’t usually happen until March, when last year’s crop typically runs out. This is all the more odd, since 2004’s autumn harvest is thought to have been the best in years.

Luckily, the WFP currently has enough stocks – as it did not, in the recent past – to feed all of its target group: a staggering 6.5 million North Koreans, or nearly one-third of the entire population. The main categories within this group are 2.7 million children from birth to the age of 10 and 2.15 million people in food or work programs. Other beneficiaries include 900,000 elderly, 300,000 pregnant women and nursing mothers, and 350,000 in low-income households. The latter are a new category: victims of the post-2002 reforms that have seen inequalities widen, even as the state retreats ever further from providing any help to the millions of citizens whom its disastrous past and half-baked present policies have starved and stunted.

That’s my take, not the WFP’s. Diplomacy precludes any such critique from a UN body. Yet the raw data, the results – written indelibly on the bodies of innocent children, marked for life – are there for all to see. It’s ironic, but the same regime that branded this suffering on its people is at least now registering and owning up to the outcome: collating and publishing these damning data, putting its name to the survey, and signing off on it. That’s a start.

Where his statisticians boldly go, will the Dear Leader follow? It’s so simple. Ditch nukes; watch aid explode instead. Let the children eat, and grow. If not, what future is there?

KCNA
1/5/2005

The government of the Democratic People’s Republic of Korea decided to render emergency relief aid amounting to 150,000 US dollars as regards the strong quake and tsunami that occurred in the waters off Sumatra Island of Indonesia on December 26 last year, causing huge material losses to Indonesia, India, Thailand, Malaysia, Sri Lanka, Maldives and other countries. The government and people of the DPRK express deep condolences and sympathy to the governments and peoples of the afflicted countries and hope that the aftermath of the quake and tsunami will be eradicated and the living of their peoples return to normal as early as possible amidst the international concern.

Asia Times
Andrei Lankov
12/4/2004

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BBC
8/28/2003

North and South Korea have signed a landmark agreement to increase direct trade, the latest step in the slow economic thaw between the two enemies.

According to the agreement, made at bilateral talks unrelated to the simultaneous discussions over nuclear capability, South Korean firms will be encouraged to set up in the North.

The town of Kaesong, just north of the border, has been selected as the site of an industrial park, currently being built by South Korea’s Hyundai.

The two governments will open a corporate liason office in Kaesong, which will deal with the many southern companies keen to exploit cheap northern labour.

Slowly opening

Cross-border economic contacts have become frequent in recent years.

But almost all the $270m (£172m) in north-south trade so far this year has been conducted through intermediary countries, a formality the new agreement aims to dispose of.

The deal represents another step in the extremely slow economic opening of the stalinist North, which long operated in complete isolation from the world economy.

Over the past three years, Pyongyang has reformed its currency, invited visits from foreign investors, cautiously liberalised some prices and planned various – mainly abortive – schemes along the lines of the Kaesong industrial zone.

Reliance on aid

The motivation in much of this, analysts say, is the desperate economic situation in the north.

A series of natural disasters in the 1990s crippled northern agriculture, and the government has done little to put the sector back on its feet.

North Korea – which long rejected outside help – has become increasingly dependent on aid.

This latest agreement concedes to the South the right to oversee the distribution of food aid in the North.

BBC
6/25/2003

Two top aides to South Korean former President Kim Dae-jung have been charged following an inquiry into a cash for summit scandal which preceded an historic inter-Korean meeting three years ago.

Park Jie-won, Mr Kim’s presidential chief of staff, and Lim Dong-won, the former head of South Korea’s spy agency, were among more than eight people charged as a result of a 70-day probe by independent counsel Song Doo-hwan.

Mr Song’s investigation found that $100m of the $500m transferred by Seoul to North Korea ahead of the 2000 summit was government money.

The inquiry was ordered by incumbent South Korean President, Roh Moo-hyun, after the scandal first surfaced during last year’s presidential election.

Kim Dae-jung has already apologised to the nation for the advance payment to the North, but denied the government itself had made any payments.

Mr Song said that while $400m of the money belonged to Hyundai, and was intended for legitimate business investment in North Korea, $100m was sent by Seoul as “politically motivated government aid”.

He stopped short of saying the government money was a bribe, but said the donation was clearly related to the summit and had been sent secretly through improper channels.

Mr Kim, who left office this February after a five-year tenure, was given the Nobel Peace Prize largely as a result of the historic inter-Korean summit.

He has argued that the money transfers “facilitated peace on the Korean Peninsula”.

But opposition politicians have continued to demand a more thorough enquiry into the matter.

Charges

One of the officials charged in connection with the scandal, former Culture and Tourism Minister Park Jie-won, met North Korean officials in April 2000 to arrange the June summit, according to Mr Song’s inquiry.

During the meeting, Mr Park pledged $100m to Pyongyang, which he later persuaded Hyundai to transfer, Mr Song said.

Lim Dong-won, former director of the National Intelligence Service, is accused of violating laws on foreign exchange transactions.

Chung Mong-hun, the chairman of Hyundai Asan, has also been charged in connection with the falsification of financial documents in order to cover up the payments to Pyongyang.

At least five others have been charged in connection with the case – some of whom could face up to five years in jail, according to the Associated Press news agency.

Mr Roh has vetoed a call by the South Korean opposition that the probe be extended to investigate the role of former President Kim Dae-jung himself.

New York Times
March 11, 2003
James Brooke

Even as it rattles its nuclear sabers, North Korea is toying with a version of market reforms to patch its ravaged economy. But eight months after changes like price incentives began, the economy retains an unmistakable Alice in Wonderland quality.

North Korea’s deep ambivalence about business could be seen on a recent Saturday in this mountain resort district, opening day of the Magnolia Blossom. Security police officers paced outside the freshly painted restaurant, hands clasped behind their backs, glaring at customers inside. In the dining room, waitresses bent over ever smaller shards of a broken water bottle. The maître d’, on loan from South Korea and looking lonesome in his black tie, was not authorized to tell North Korean workers to sweep up the glass.

Then the North Korean manager started to argue with an assistant over how much to charge for lunch — $9 or $100.

”I hear there are restaurants in Cheju that charge $100 for a meal,” the assistant volunteered, referring to a desirable southern vacation island.

An American diner, halfway through his bowl of spicy Pyongyang noodles, suggested calculating a price based on profits.

”Our purpose is not to make a profit,” Kim Chol, the 45-year-old manager, lectured patiently. ”It is for the everlasting honor of our beloved leader, Kim Jong Il, that we are interested in serving proper meals to South Korean tourists, even to foreign tourists.”

Asked the prices of ingredients for the meals, Mr. Kim said he did not know. He orders the food he needs. It comes.

While North Korea may be feared for its 11,000 artillery pieces pointed at South Korea, its 100 missiles pointed at Japan, and the nuclear weapons program that so angers Washington, this militarized nation remains an economic weakling with a gross domestic product that is 4 percent that of South Korea.

In this parklike border region not far from the 38th Parallel, where the Hyundai Asan Corporation of South Korea started sending tourist buses across the demilitarized zone in mid-February, two restaurants opened here this winter to cater to South Koreans paying with hard currency. But the primary incentives are not tips, which are banned in North Korea, but pleasing the little man with a high forehead whose visage appears on buttons worn by all restaurant employees — Kim Jong Il.

Last July, in a break with half a century of economic policy, Mr. Kim’s government increased wages as much as 20-to-30-fold. Soon after, food rationing was partly abandoned and prices were raised 20-to-40-fold on staples like rice, corn and pork.

The result, defectors and economists say, has been hyperinflation — at least in the small sector of the economy that runs on money.

”North Korea is short of food, clothes and consumer goods, but they cannot afford to import these materials from China and other countries,” Nam Sung Wook, a South Korean economist who is an expert on North Korea, said on a visit here.

With far too many North Korean won chasing far too few goods, the North Korean won now trades privately around 700 to the dollar. Last summer, in an effort to close the gap with the black market rate, the country devalued the won to a rate of 151 to the dollar from 2.16 to the dollar. As the won became increasingly worthless, the government ordered in the fall that all dollars be swapped for euros, a quixotic decree that was ignored in this resort region.

Last summer, climbing on a high-inflation treadmill reminiscent of some South American economies a decade ago, the government printed a new top-denomination bill, the 1,000-won note, nominally worth a little more than $6. Then in October, it added a 10,000-won note.

With the summer’s financial decrees, the government hoped to close the gap between prices here and much of the rest of the world. Under this plan, the reasoning went, the outside world would then step in with foreign aid and investment.

But North Korea quickly alienated almost all its aid donors. Hopes to win $1 billion a year in World War II reparations from Japan unraveled in September when officials balked at Japanese demands for the return of all Japanese kidnapped by North Korean agents. Relations with China reached a low point in October when Chinese authorities arrested the new head of a North Korean free trade zone, charging him later with ”economic crimes.”

Then came news of North Korea’s nuclear development. Nicholas Eberstadt, a Korea specialist at the American Enterprise Institute, said by telephone from Washington, ”The North Korean government tried to do a forced-march economic opening under the presumption they would get foreign aid and that no one would catch them on their nuclear program.”

Aid, which plays a crucial role in the economy, dried up, and the home-grown incentives stalled: the United Nations has forecast that harvests will not respond measurably this year to the new price incentives. With most potential farmland under production, any big lift for crops would have to come from more electricity for irrigation and more imported fertilizer.

When China made its first moves to free prices, in 1979, it acted cautiously and gradually, cushioned by a society that was 80 percent rural. In contrast, North Korean officials are imposing a food-price shock on a population that increasingly seeks the advantages of life in towns and cities.

”North Korea is living on the edge,” Kathi Zellweger said from Hong Kong, where she manages the North Korea aid program for the Roman Catholic charity Caritas. Fresh from a trip to North Korea in mid-February, she said, ”Kids who to me looked 9 to 10 years old were really 14 and 15.”

Along an urban coastal strip 50 miles north of here, visitors say it is easy to see why many outsiders dismiss North Korea as an economic disaster.

”You see mile after mile of derelict factories, you see smokestacks and very little smoke,” Gerald Bourke, a spokesman for the World Food Program, said from Beijing after a tour of North Korea’s eastern coast late in January. ”The factories are rusting, they are decaying. It goes on and on. There is nothing happening. It is quite eerie.”

Although North Korea is highly secretive about statistics, many economists in the South estimate that the North’s economy contracted by about a third in the 1990’s.

Ms. Zellweger, a frequent visitor to North Korea, said the economic changes have prompted cautious sprouts of private business.

”It was very visible that more people were outside — selling, bartering, running little bicycle repair shops, selling gas for cigarette lighters,” she said of eastern cities. ”People now have more money.”

But just as the only Internet cafe in North Korea is operated by a South Korean entrepreneur, the signs of economic life in North Korea come largely from investments by South Koreans.

At the Hyundai resort here, visited by about 120,000 people last year, ground is to be broken this spring on two golf courses, a ski lift and the renovation of two hotels. And in a country where it is easy to score firsts, Hyundai plans to build North Korea’s first bungee jump.

”One golf course will be by the mountains, the other by the sea,” said Yook Jae Hee, the resort’s general manager. ”We can use North Korean workers. They are very cheap.”

Expecting a flood of tourists using a new civilian road across the demilitarized zone, Kim Chong Seong has brought 50 car campers here. Without permission to roam the countryside, South Korean tourists are to use them as fixed mobile homes.

”North Koreans need to be taught competition, but they are not ready for capitalism,” said Mr. Kim, whose father’s company, Hyo Won Moolsan, pioneered South Korea’s trade with North Korea. ”North Koreans have no idea of price or design.”

(Typical of the North’s capricious view of contracts, it suspended Hyundai’s bus tours for the month of March to do ”road work.” Analysts say it may be a way of putting pressure on Hyundai to increase payments.)

Hyundai, which has yet to make money on its four-year-old tourism operation here, has contracts for six other big projects in North Korea, including building dams, an airport, power plants, a communications network and an industrial park.

On Feb. 16, its group chairman, Chung Mong Hun, admitted at a news conference that he had secretly sent $500 million to North Korea. Critics say the payments helped the company win the North Korean construction contracts.

After two decades of speculation by some that North Korea would follow the liberalizing path of China, many South Koreans are skeptical that the Communist government will ever produce attractive investment conditions.

”We are interested in one day opening restaurants in Pyongyang,” Kwon Won Sik, president of the Lotte Hotels and Resorts chain, said during a pause in a mountain hike here. Referring to North Korea’s levy of $100 a tourist, paid by Hyundai, he added, ”North Korea is really taking advantage financially.”

Despite incentives by the Seoul government for companies to invest and trade with North Korea, interest from outside has trailed off. Investors cite erratic supplies of electricity, the cavalier attitudes toward contracts, a small domestic market and bureaucratic paralysis.

The number of new projects approved by the South Korean government fell to 3 last year, from 13 in 1998. Of 52 Southern companies allowed to invest in the North, half have dropped out of the program.

South Korea’s new president, Roh Moo Hyun, has promised to extend to the North a generous economic investment program of ”peace and prosperity.” Trans-Korean gas lines and railroads are planned, projects that could provide revenue to the impoverished North.

Chung Dong Young, an envoy of Mr. Roh, said in January at the World Economic Forum in Switzerland: ”If North Korea gives up its nuclear programs and addresses other security concerns, it will be able to receive rewards both economic and diplomatic, that will surpass its own expectations. We are considering a bold North Korea reconstruction plan to move toward the Korean Peninsula Economic Community. ”