Archive for the ‘International Organizaitons’ Category

Bank of Korea estimate of North Korean economy in 2015 published

Friday, July 22nd, 2016

I have added the report to my DPRK Economic Statistics Page. You can download the PDF here.

The Bank of Korea claims the DPRK economy shrank in 2015 by 1.1%

This number has numerous drawbacks which I have discussed before.

According to the Yonhap:

North Korea’s economy is estimated to have contracted 1.1 percent last year amid negative growth in most industries, South Korea’s central bank announced Friday.

The Bank of Korea (BOK) has issued an annual report on the estimated gross domestic product (GDP) of one of the world’s most secretive nations.

It said the communist country’s GDP shrank 1.1 percent in 2015 from a year earlier, the first negative growth since 2010.

The bank cited a drop in crop and mining output by 0.8 percent and 2.6 percent, respectively.

The manufacturing sector suffered a 3.4 percent decline. The electricity, gas and tap water business also tumbled 12.7 percent due to a fall in hydroelectric power production attributable to a drought, according to the BOK.

But the construction field posted a 4.8 percent rise, and the service sector grew 0.8 percent.

The North’s mining and manufacturing industries accounted for 32.7 percent of its GDP, down 1.7 percentage points from 2014.

The BOK put the North’s gross national income (GNI) at 34.5 trillion won ($30.3 billion), 45 times less than that of South Korea. The North has around 25 million residents, half of the South’s population.

The data also showed that the North’s trade volume totaled $6.25 billion, down 17.9 percent on-year.

Exports slipped 14.8 percent to $2.7 billion, and imports shed 20 percent to $3.56 billion.

The North is under heavy U.N.-led economic sanctions for its nuclear and missile activities.

Since no accurate economic data from North Korea are available, the BOK said the statistics are based on estimates using methodologies applied to gauge South Korea’s own economy. Thus, it’s not desirable to directly compare the data with those of other foreign nations, added the bank.

Here is coverage in the Wall Street Journal:

North Korea’s economy likely shrank last year for the first time in five years, South Korea’s central bank said, potentially increasing the ruling challenge for leader Kim Jong Un, who has promised to boost prosperity while confronting the U.S. and other nations with nuclear weapons.

The Bank of Korea said Friday that it estimated North Korean gross domestic product fell 1.1% in 2015, the first decline since 2010 and the largest fall since a 1.2% contraction in 2007.

North Korea doesn’t release official statistics or allow outsiders to make assessments of its economy from within the country. As a result, the BOK’s estimate of North Korean GDP is often cited as the best guess. It bases its calculations on information from Seoul’s spy agency and other authorities that study North Korea.

The biggest recent economic setback for North Korea has come from a sharp fall in the price of coal, its main export product, and a slowdown in China, its sole major trading partner. The South Korean central bank said the North’s external trade was valued at $6.25 billion in 2015—down 18% from a year earlier.

New international sanctions on North Korea following its nuclear bomb test in January this year and long-range rocket launch in February may increase the economic pressure on Pyongyang. For the first time, United Nations sanctions target North Korea’s commodities trade, while the U.S. has sought to cut off Pyongyang’s links to the international financial system.

North Korea insists it will continue to pursue twin policy priorities of nuclear weapons development for its defense while seeking to boost its economy. In his first speech in 2012, Mr. Kim said North Koreans should “not have to tighten their belts again” and has regularly visited economic projects such as factories and farms.

However, output in nearly all North Korean industries contracted last year, including agriculture, fishing, mining and energy, the South Korean central bank said in its report.

Construction was a rare bright spot, growing an estimated 5%, as Mr. Kim has pursued the redevelopment of areas of central Pyongyang, including major new housing projects. The Bank of Korea also estimated a 0.8% increase in service-sector output, reflecting the emergence of unofficial market trading and underground financial services.

The North’s per capita income was around $1,224 in 2015, the bank said, compared with South Korea’s $27,200.

Here is coverage in Reuters:

North Korea’s economy contracted in 2015 at the sharpest pace in eight years, an estimate from the Bank of Korea showed on Friday, as low global commodity prices landed a blow to exports, a key driver for the impoverished country’s economy.

The gross domestic product in North Korea last year fell a real 1.1 percent, South Korea’s central bank said, which was the first fall since 2010 and compares with a 1.0 percent gain in 2014. It also marked the fastest decline since a 1.2 percent drop in 2007.

Isolated North Korea does not publish economic data.

All sectors except construction and services declined, a likely burden for North Korean leader Kim Jong Un already under pressure from international sanctions against multiple provocations including a nuclear test in January.

“The key reason for the GDP contraction looks to be trade as global commodity prices fell while China demand also declined,” said a Bank of Korea official, who declined to be named as he was unauthorized to speak to media.

“North Korea’s main commodity exports are coal and iron ore, which likely all declined last year.”

Neighboring China is North Korea’s chief trading partner.

The Bank of Korea data showed exports in North Korea fell 14.8 percent last year in annual terms as mineral product shipments slumped 14.7 percent. This was far worse than a 1.7 percent decline seen in 2014.

Imports dropped a faster 20.0 percent last year, compared with a 7.8 percent increase in 2014.

The central bank official said trade is expected to worsen this year as it becomes difficult for North Korea to boost shipments with other countries with international sanctions likely to grow heavier following Pyongyang’s continued missile launches and nuclear threats.

Construction rose 4.8 percent last year, accelerating from a 1.4 percent gain in 2014, the same data showed.

Meanwhile, a 0.8 percent gain in services last year reflects North Korea’s economic shift towards capitalism as the black market there has become more pervasive. Financial services have also grown, which likely contributed to the gain, the BOK official added.

The Bank of Korea has released GDP data on North Korea every year since 1991 based on information received from related sources, including the Ministry of Unification.

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DPRK and FATF (UPDATED)

Tuesday, May 17th, 2016

UPDATE 10 (2106-5-19): Wendy Zeldin has published an analysis of the DPRK’s AML statue at the Library of Congress Global Legal Monitor. Here is a simplified version of her report:

On April 20, 2016, the Presidium of the Supreme People’s Assembly of the Democratic People’s Republic of Korea (DPRK) issued a decree on the adoption of the Law on Anti-Money Laundering and Combating Financing of Terrorism. The Law has 40 articles divided among six chapters. According to the decree, the former Law on Anti-Money Laundering, which was adopted on October 25, 2006, no longer has any binding force.

The subjects covered by the new Law are:

-the Law’s objectives, the establishment of a national coordinating committee for anti-money laundering and combating financing of terrorism (AML/CFT) actions, and the scope of the Law’s application;
-the obligations of reporting institutions on verification of customer identification data, the establishment of an internal reporting system for large or suspicious transactions, and the reporting procedures for such types of transactions and confidentiality;
-the placement in and status of the financial intelligence unit (FIU) in the government structure, the FIU’s obligations and powers, and the operation of its database, among other matters;
-AML/CFT supervisory and regulatory institutions, obligations and powers of the Financial Supervisory Bureau, the tasks of customs agencies, and the obligations and powers of law enforcement institutions;
-the principles of international cooperation, the institutions involved in international cooperation, and the types of international cooperation for AML/CFT purposes; and
the property subject to sanctions and handling of complaints in connection with AML/CFT activities and the settlement of such complaints.

Expert observers are of the view that the adoption of the new Law indicates North Korea’s desire to join the Financial Action Task Force (FATF), the international AML organization. More specifically, they suggest, it seems that North Korea is seeking to become a full member of the Asia Pacific Group on Money Laundering (APG), a regional body of the FATF that North Korea joined as an observer in July 2014. However, the FATF has blacklisted North Korea, along with Iran. North Korea and Iran are identified by the FATF as being among 13 “high risk and non-cooperative jurisdictions” and the only two for which there is a “call for action.”

The blacklisting entails enhanced monitoring of and restrictions on financial access of North Korean financial institutions by the international financial system, according to Tristan Webb, former senior DPRK research analyst for the Foreign and Commonwealth Office of the United Kingdom. (Choi, supra.) In addition, according to article 34 of Resolution 2270 of the United Nations Security Council, adopted in March in response to North Korea’s nuclear test of January 6, 2016, “States shall prohibit financial institutions within their territories or subject to their jurisdiction from opening new representative offices or subsidiaries, branches or banking accounts in the DPRK.” Webb noted that even if the DPRK meets the FATF standards, the financial sanctions will not necessarily be lifted.

Adoption of the new Law alone will not lead to full APG membership; North Korea will also have to “reveal annual reports for three years for the purpose of monitoring to judge its sincerity,” according to Rhee Yoojin, a research fellow with the Korea Development Bank based in Seoul. (Id.) On the other hand, although the Law’s adoption does not necessarily mean that North Korea will institute an open door policy or aggressive economic reforms, “it does signify its desire to overcome international sanctions” that have prevented foreign financial organizations from seeking to enter the country, Rhee stated.

UPDATE 9 (2016-5-17): KCNA announces that the DPRK has passed a law on anti-money laundering:

Law on AML/CFT Adopted in DPRK

Pyongyang, May 17 (KCNA) — The Law of the Democratic People’s Republic of Korea on Anti-Money Laundering and Combating Financing of Terrorism was adopted.

The Presidium of the Supreme People’s Assembly of the DPRK promulgated a decree on the adoption of the law on April 20.

The Law on AML/CFT consists of 6 chapters with 40 articles.

Chapter 1 (Articles 1-6) defines the fundamentals of the law such as its objective, principle in the AML/CFT efforts, the establishment of the National Coordinating Committee and the scope of application.

Chapter 2 (Article 7-24) specifies the obligations and principles of reporting institutions concerning the verification of identification data obtained from the customer, establishment of internal reporting system of large or suspicious transactions, reporting large or suspicious transactions and confidentiality.

Affiliation and status of the financial intelligence unit (FIU), obligations and powers of FIU, operation of database, etc. are stipulated in Chapter 3 (Articles 25-28).

Chapter 4 (Articles 29-31) concerning the supervisory and regulatory institutions clarifies the obligations and powers of the Financial Supervisory Bureau, functions of customs and obligations and powers of law enforcement institutions.

Principles in international cooperation, institutions involved in international cooperation, types of international cooperation for AML/CFT purposes are defined in Chapter 5 (Articles 32-34).

Chapter 6 (Articles 35-40) stipulates the property subject to sanctions, complaints in respect of AML/CFT and their settlement.

The Law on Anti-Money Laundering adopted on Oct. 25, Juche 95 (2006) has no binding force any longer, the decree said.

UPDATE 8 (2015-6-29):  FATF says member states should pay “special attention” to financial transactions with North Korea. According to VOA:

The Paris-based Financial Action Task Force last week reaffirmed its earlier decision to put the community country on its watch list because of North Korea’s “failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism,” the task force said in a public statement released on its website. It said that failure poses “serious threat … to the integrity of the international financial system.”

The task force had a plenary meeting last week in Brisbane, Australia.

“The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the [Democratic People’s Republic of Korea], including DPRK companies and financial institutions,” it said.

The group also expressed concern about the North’s noncompliance with its recommendations to fight money laundering.

In an apparent attempt to ease financial sanctions by the United States and the United Nations, the North promised steps to address money laundering concerns. In July 2014, Pyongyang announced it had joined the Asian affiliate of the anti-money laundering body as an observer. Later, the North sent a letter to the FATF indicating its commitment to implementing actions recommended by the group.

The FATF, created in 1989, has 36 members, comprising 34 member countries and territories and two regional organizations.

UPDATE 7 (2015-3-16): Following the FATFs statement regarding the DPRK on February 27, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a new advisory.

Read the full advisory here (PDF)

Here is coverage in Yonhap.

UPDATE 6 (2015-2-17): The FATF has issued another statement on North Korea:

The Financial Action Task Force (FATF) is the global standard setting body for anti-money laundering and combating the financing of terrorism (AML/CFT). In order to protect the international financial system from money laundering and financing of terrorism (ML/FT) risks and to encourage greater compliance with the AML/CFT standards, the FATF identified jurisdictions that have strategic deficiencies and works with them to address those deficiencies that pose a risk to the international financial system.

Jurisdictions subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/FT) risks emanating from the jurisdictions.

Iran
Democratic People’s Republic of Korea (DPRK)

Jurisdictions with strategic AML/CFT deficiencies that have not made sufficient progress in addressing the deficiencies or have not committed to an action plan developed with the FATF to address the deficiencies. The FATF calls on its members to consider the risks arising from the deficiencies associated with each jurisdiction, as described below.

Algeria
Ecuador
Myanmar

———–
Democratic People’s Republic of Korea (DPRK)

Since October 2014, the DPRK sent a letter to the FATF indicating its commitment to implementing the action plan developed with the FATF.

However, the FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threat this poses to the integrity of the international financial system. The FATF urges the DPRK to immediately and meaningfully address its AML/CFT deficiencies.

The FATF reaffirms its 25 February 2011 call on its members, and urges all jurisdictions, to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies and financial institutions. In addition to enhanced scrutiny, the FATF further calls on its members, and urges all jurisdictions, to apply effective counter-measures to protect their financial sectors from ML/FT risks emanating from the DPRK. Jurisdictions should also protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices, and take into account ML/FT risks when considering requests by DPRK financial institutions to open branches and subsidiaries in their jurisdiction.

UPDATE 5 (2015-2-4): NK News picked up the Choson Sinbo piece and offered these comments:

But other regime watchers suggested that there are at least certain segments of the North Korean elite who do indeed want money laundering combated.

“There’s a cohort of DPRK businessmen who want the country to take more active steps in dealing with financial improprieties because they are losing money or opportunities,” said Michael Madden of North Korea Leadership Watch. “The DPRK leadership, particularly Foreign Minister Ri Su Yong, is thinking more long-term on this.”

And Christopher Green of the Daily NK suggested that this was an effort by the North Korean government to not only avoid sanctions, but assert its control over the domestic financial industry by cracking down on money launderers.

“The state wants to bring into its remit all those rogue financial elements that occasionally tend to fall outside the remit of the ruling coalition,” he said. “The state is in a constant battle to stay as top dog in the financial sector in a country where so much is illegal for historical and political reasons – and illegality is always exploited eventually.”

And Daniel Pinkston of the International Crisis Group suggested that the North may have its eye on its northern neighbor with this move.

“I think it will be helpful – from the DPRK perspective – if Pyongyang ever needs to plead their case with Beijing to avoid financial sanctions that include Chinese banks since they are critical for the DPRK’s international financial linkages,” Pinkston said.

Kim Chon Gyun told the Choson Sinbo that the nation’s penal code has already been revised to reflect international standards when punishing money laundering.

UPDATE 4 (2015-2-3): Yonhap reports on the recent Chosun Sinbo article:

North Korea has created a national committee on efforts to fight money laundering and terrorist financing, a senior Pyongyang official confirmed Tuesday.

The communist nation’s move came after it joined the Asia/Pacific Group on Money Laundering (APG), the Asia-Pacific arm of the Financial Action Task Force (FATF) under the Organization for Economic Cooperation and Development (OECD), last year.

“The National Coordinating Committee is an organ to guide projects to prevent money laundering and financing of terrorism,” Kim Chon-gyun, head of North Korea’s central bank said in an interview with the Chosun Sinbo. The newspaper is published by the pro-Pyongyang General Association of Korean Residents in Japan, or Chongryon.

The panel, chaired by a deputy premier of the Cabinet, involves officials from the central bank, the foreign ministry, the finance ministry, and law-enforcement authorities, he added.

The North has already revised its penal code to take punitive measures against related violations in accordance with international norms, said Kim.

In January, Pyongyang said that it sent a letter to the FATF, based in Paris, pledging the sincere implementation of an action plan to meet global anti-money laundering standards.

UPDATE 3 (2015-2-3): The Chosun Sinbo has posted an article on anti-money laundering measures in the DPRK. Here is a rough translation:

[Interview] Kim Chon-kyun, the President of the Central Bank of the DPRK, Cooperation with International Organizations for Prevention from Money Laundering and Terrorist Financing.

“Establishment of the National System for Preventing from Illegal Acts”

By Kim Ji-young, reporter from Pyongyang

Kim Chon-kyun, the President of the Central Bank of the DPRK presented, at the interview with the Choson Sinbo, the opposite stance of North Korean government against money laundering and terrorist financing as follows.

“What cannot be allowed according to institutional characteristics”

– A letter from the president of the Central Bank of the DPRK that pledged to implement plans for action for prevention from money laundering and terrorist financing was submitted to Financial Action Task Force (FATF) on Jan 1st. How has the negotiation between North Korea and FATF proceeded?

The implementing recommendations of the plans for action we pledged this time were consented at the negotiation between North Korea and Asia/Pacific Group on Money Laundering in Cambodia on September 2014.

When looking into the recommendations, it included maintaining cooperative relations such as sharing data and proceeding cooperation with organizations, joining as a member state, devising a means to sanction and to punish on money laundering and terrorist financing, reinforcing the confirmation procedure of traders, establishing financing watching and information business system including reporting surreptitious trade, joining in international agreement, assessing loca, etc. These measurements are, in a word, that we should establish national system to punish severely illegal acts like internal/external money laundering and terrorist financing.

North Korea institutionally does not allow those illegal acts.

Long before such “international standard” appeared, North Korea already set legal, organizational measurement adequate for our society to prevent from money laundering –like acts. This is specifically described on our laws and those regulations have renewed according to the need for development in reality.

It is interesting that the head of the central bank is the point man for this operation because the DPRK’s central bank does not have the authority to hold foreign currency accounts–only accounts denominated in DPRK won. It seems to me that international money laundering should also be of concert to the Foreign Trade Bank, a sanctioned entity that is responsible for managing hard currency deposits in the DPRK.

UPDATE 2 (2015-1-24): According to the Pyongyang Times:

DPRK commits itself to anti-money laundering action plan

The Governor of the DPRK Central Bank on January 15 sent a letter to the Financial Action Task Force on Anti-Money Laundering, assuring it that the country would implement the Action Plan of International Standard for Anti-Money Laundering and Combating the Financing of Terrorism, a spokesman for the DPRK National Coordinating Committee on Anti-Money Laundering and Combating the Financing of Terrorism told KCNA on January 16.

He described this as a manifestation of the DPRK government’s political will based on its consistent stand to step up international cooperation in this field.

Recommendations of the action plan are legislative and organizational measures to criminalize and punish money laundering and financing of terrorism, and almost all of them have long been implemented in the DPRK to suit its actual conditions, according to the spokesman.

The DPRK will sincerely implement the action plan as it has pledged itself for the promotion of mutual understanding with member nations in the face of the obstructive moves of the US and some other countries that are reluctant to cooperate with the international organization, he stated.

He requested the organization to positively respond to the DPRK’s cooperative efforts as it assured in negotiations with the country.

UPDATE 1 (2014-10-24): FATF issues a public statement from Paris that includes the following:

Jurisdictions subject to a FATF call on its members and other jurisdictions to apply counter-measures to protect the international financial system from the on-going and substantial money laundering and terrorist financing (ML/FT) risks emanating from the jurisdictions.

Iran
Democratic People’s Republic of Korea (DPRK)

Democratic People’s Republic of Korea (DPRK)

Since June 2014, the DPRK has further engaged directly with the FATF and APG to discuss its AML/CFT deficiencies. The FATF urges the DPRK to continue its cooperation with the FATF and to provide a high-level political commitment to the action plan developed with the FATF.

The FATF remains concerned by the DPRK’s failure to address the significant deficiencies in its anti-money laundering and combating the financing of terrorism (AML/CFT) regime and the serious threat this poses to the integrity of the international financial system. The FATF urges the DPRK to immediately and meaningfully address its AML/CFT deficiencies.

The FATF reaffirms its 25 February 2011 call on its members and urges all jurisdictions to advise their financial institutions to give special attention to business relationships and transactions with the DPRK, including DPRK companies and financial institutions. In addition to enhanced scrutiny, the FATF further calls on its members and urges all jurisdictions to apply effective counter-measures to protect their financial sectors from money laundering and financing of terrorism (ML/FT) risks emanating from the DPRK. Jurisdictions should also protect against correspondent relationships being used to bypass or evade counter-measures and risk mitigation practices, and take into account ML/FT risks when considering requests by DPRK financial institutions to open branches and subsidiaries in their jurisdiction.

Here is the web page for FATF. You can learn more about FATF here.

ORIGINAL POST (2014-7-19): North Korea joins OECD anti-money laundering group. According to the JoongAng Daily:

North Korea has joined the Asia Pacific Group on Money Laundering (APG), whose purpose is to prevent funding of terrorism and development of nuclear weapons.

Members of the APG unanimously decided to accept North Korea and Tuvalu as observers during its general meeting held in Macau yesterday.

APG is the Asia Pacific unit of the Financial Action Task Force under the Organization for Economic Cooperation and Development (OECD).

The Financial Action Task Force (FATF) has 41 member countries including the U.S., South Korea, China and Japan and observers include countries such as Germany, France and the U.K., as well as 27 international organizations such as the Asia Development Bank and World Bank.

Since North Korea has been accepted as an observer, it has to follow several rules including the prevention of money laundering, funding of terrorist organizations or actions, sharing its knowledge and experience and following global regulations and laws.

The APG will decide later whether to elevate North Korea from observer status to a member country once it evaluates Pyongyang based on its annual reports to the organization and visits by the representatives of the group over the next three years.

South Korea and many other members are trying to figure out the motive behind the unexpected move by Pyongyang, because North Korea was previously opposed to joining the APG.

“[North Korea’s motive] is a mystery to us,” said a high ranking government official, who requested anonymity. “We suspect that North Korea, while looking for ways to ease the international financial restrictions imposed on them, decided to show their efforts in improving their global image [by joining the APG].

“But since the lists that they need to follow are long, we will probably have wait and see how sincere and determined they are with their decision.”

In other words, it could be a facade as a way for North Korea to ease the sanctions imposed on it, since the possibility that Pyongyang will give up its nuclear ambitions is low.

The action is particularly suspicious because up until last year’s APG meeting held in Shanghai, North Korea refused to join the organization because of the rule requiring members and observers to follow global standards. North Korea at the time argued that it would join the APG only after the agreement to follow UN resolutions was taken out.

The resolutions include prevention of money laundering, nuclear terrorism and development of nuclear weapons, which is the opposite of the North Korean government’s goal of securing both economic growth and nuclear weapons.

But now, North Korea has agreed to follow all regulations presented by APG.

The tide seemed to have turned as financial sanctions imposed by the international community and led by the U.S. have intensified.

Pyongyang suffered heavily last year after the U.S. and China closed the accounts of the Foreign Trade Bank of North Korea, which was known as the money laundering window for Pyongyang. The money laundered through the trade bank is suspected of being used in funding the regime’s control over the country.

In May, the state-run Bank of China said it had notified the Foreign Trade Bank of North Korea that it was closing all of its accounts and suspending all financial transactions. It did not specify the number of accounts in the bank.

The move came as a shock considering China and North Korea’s strong ties. China was previously the lifeline of North Korea, whose economy has been heavily dependent on its close ally.

Last year wasn’t the first time that North Korea’s accounts have been shut down. In 2005, the U.S. froze North Korea’s accounts at Macau’s Banco Delta Asia, which was a heavy blow to Pyongyang’s ability to secure foreign capital.

The recent change of heart seems to have been triggered by a report by the U.S. State Department in May designating North Korea as a country that is non-cooperative against terror, citing its decision not to join either the FATF or APG.

Although suspicious, the South Korean government isn’t disapproving of the move by the North, as there are positive aspects such as better transparency of Pyongyang’s finances if it conforms to the APG’s regulations.

And if Pyongyang doesn’t follow the rules and loses its license as an observer, the sanctions against North Korea will further tighten.

“North Korean representatives, after their acceptance was approved [in Macau], stressed that they will work on following the APG’s international standards and our [South Korean] government has emphasized the importance of following the resolutions set by the United Nations Security Council,” said a government official.

Read the full story here:
North Korea joins OECD anti-money laundering group
JoongAng Daily
Jung Won-yeop and Park Jin-seok
2014-7-19

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Choson Exchange 2015 report

Tuesday, April 19th, 2016

Choson Exchange has published their 2015 annual report. Read it here to learn about the interesting work they are doing in the DPRK.

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Deforestation in North Korea continues, new data shows

Thursday, March 24th, 2016

By Benjamin Katzeff Silberstein

Yesterday I stumbled upon a nice interactive World Bank data map that shows where forests have been lost and gained since the 1990s. Forestry is one of those rare areas where fairly extensive data exists for North Korea. Of course, all data has its faults and flaws, and figures on North Korea should always be taken with a grain of salt. But even if the figures aren’t fully correct to the last decimal, they show an interesting trend.

The World Bank World Development Indicators figures seem to be coming from the Forest and Agriculture Organization (FAO)’s Global Forest Resource Assessment, and their latest study of global forestry assets was done just last year (2015). Using these figures, I created a graph showing North Korea’s forestry area (in blue), using South Korea as a baseline comparison.

forestry DPRK ROK smaller

Data source: World Bank World Development Indicators. Graph created by Benjamin Katzeff Silberstein.

Deforestation is far from a new problem in North Korea. What’s interesting is that it appears to continue without signs of abating.

This data stretches all the way to 2015. According to one estimate, North Korean forests shrank by about 17 percent between 1970 and 1990. By the end of 2008, the United Nations estimated that around one third of all forests had been lost in North Korea. If the World Bank data is accurate, it suggests that this trend has continued exponentially, and that the situation has continued to worsen. According to the World Bank data, North Korea lost almost 40 percent of its forests between 1990 and 2015.

As this blog has laid out before, the cycle of problems is well known: people essentially cut down trees as a form of coping behavior in the face of resource scarcity, in order to clear areas for farmland, and to use wood as an energy source. When the annual torrential rains sweep over the Korean peninsula, the lack of trees contributes to soil erosion, spoiling harvests and causing devastation. Kim Jong-un highlighted forestry as an important policy area in 2015. The priority makes a lot of sense, but so far, the solutions don’t seem all that promising.

North Korea celebrated a “Tree Planting Day” about three weeks ago, and the Russian embassy in Pyongyang participated in the celebrations. Their pictures (see this link for their Facebook album) give an interesting snapshot of how it might look across the country as the regime’s tree planting drive unfolds:

A North Korean forestry official (?) giving instructions about tree planting. Photo credits: Russian embassy in Pyongyang.

A North Korean forestry official (?) giving instructions about tree planting. Photo credits: Russian embassy in Pyongyang.

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The Russian ambassador and a young North Korean planting a tree together. Photo credits: Russian embassy in Pyongyang.

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Young North Korean men in Red Cross (적십자) vests lining up for tree planting. Photo credits: Russian embassy in Pyongyang.

 

 

 

 

 

 

 

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Young North Koreans listening to tree planting instructions. Photo credits: Russian embassy in Pyongyang.

 

 

 

 

 

 

 

 

Instructions for how to plant and tend to trees. Photo credits: Russian embassy in Pyongyang.

Instructions for how to plant and tend to trees. Photo credits: Russian embassy in Pyongyang.

 

 

 

 

 

 

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Kim Jong-un announces need for financial reform

Monday, December 14th, 2015

(Benjamin Katzeff Silberstein)

The first meeting for 25 years of North Korean banking and finance officials was held a few weeks ago, Yonhap reported:

The Third National Conference of Financial and Banking Officials held on Sunday at the People’s Palace of Culture in Pyongyang was reported by the (North) Korean Central News Agency (KCNA) and Korean Central TV, monitored in Seoul.

“The conference reviewed successes and experience gained by those in the field of finance and banking in the past,” the KCNA said in an English report carried on Sunday.

The meeting also discussed ways to ensure “the financial guarantee for building a thriving nation,” according to the state media.

In a letter sent to the conference, North Korean leader Kim Jong-un highlighted the important role of the financial sector for national development.

“To improve financial and banking work is an inevitable demand for hastening the building of a thriving nation,” Kim was quoted as saying in the letter. “Reliable financial resources are necessary to build the people’s paradise featured by strong national power and great prosperity.”

Kim also ordered “revolutionary measures for steady development” of the financial system, as well as “fluent circulation of currency.”

It was North Korea’s first meeting of its kind since the last second session was held in September 1990 under the leadership of late leader and North Korean founder Kim II-sung.

Read the full article:
N.Korea hosts 1st bankers’ meeting in 25 yrs
Yonhap News
2015-12-14

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Orascom (OTMT) loses control of KoryoLink

Friday, November 20th, 2015

UPDATE 1 (2015-12-11): Orascom CEO claims to still control KoryoLink, but cannot obtain hard currency or get it out of the country.

ORIGINAL POST (2015-11-20): Martyn Williams broke the story here.

The first problem is that Orascom could not repatriate its profits:

Orascom’s efforts to get its profits out of North Korea have been unsuccessful, partially because of international sanctions imposed on the country but mainly by the government’s refusal to let the money go.

To transfer money out of North Korea, Orascom needs permission from the government and it hasn’t been granted, despite it being a partner in the joint venture.

The government hasn’t acted because it can’t afford to.

The profits are held in North Korean won, but the currency isn’t traded internationally and the government’s official rate is set artificially high, at 100 won to the U.S. dollar. At that rate, Orascon’s holding at the end of last year was worth $585 million.

But at the black market exchange rate, which is effectively the real value of the currency in North Korea, the cash is worth only $7.2 million. And therein lies the problem. The government can’t afford to pay the money at the official rate, and it can’t be seen to officially recognize the black market rate. So the two sides have spent months locked in talks about what to do.

Secondly, the DPRK government launched a second cell phone network to compete with KoryoLink, and efforts to merge the companies have been successful:

The issue came to light in an auditor’s report in June, and a month later Orascom dropped a bombshell: It said the North Korean government — supposedly its close partner — had set up a second carrier to compete with Koryolink.

With its options limited, Orascom entered merger talks to combine Koryolink with the new carrier. The North Korean government has agreed to the move in principle, but so far nothing has happened.

What’s more, the North Korean government has apparently proposed that it be the majority partner in any new venture that’s formed.

That led to a dramatic statement from Orascom when it reported its financial results Monday — “in the group management’s view, control over Koryolink’s activities was lost.”

Sawiris appears to hold out hope, but he might be out of moves.

“We are very proud of the success of our operation ‘Koryolink’,” he said in a statement. “We have around 3 million people today carrying our phones in the DPRK. We are still hopeful that we will be able to resolve all pending issues to continue this successful journey.”

Anna Fifield also followed up in the Washington Post and reported on the name of the new KoryoLink competitor:

This comes after Orascom discovered that North Korea was starting a competitor to Koryolink called Byol, and then began discussions about merging it with Koryolink, thus presumably extracting even more money from Orascom.

Byol (별) translates to English as “Star”.

Here is the OTMT financial report which explains the company’s position (PDF).

Here are screen shots of the relevant sections in the report:

OTMT-report-2015-11-associate

And

OTMT-report-2015-11-other-operator

OTMT-report-2015-11-other-operator2

A small correction needs to be added to the OTMT report, the Central Bank does not set the official exchange rate. That is set by the Foreign Trade Bank.

As Marcus Noland and I have pointed out, North Korea needs a big FDI win to inspire more large-scale foreign investment and modernize its investment regulatory framework, but debacles like this, Xiyang, and the KIC (referring here to the fact that it was too entangled in political risk to be a reliable investment without official subsidies and guarantees) reinforce the view that the DPRK is still too risky to become an attractive investment hub–and this excludes additional problems owing to the country’s weapons programs and human rights abuses.

 

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How a telecom investment in North Korea went horribly wrong

Wednesday, November 18th, 2015

By Benjamin Katzeff Silberstein

In PC World, Martyn Williams of North Korea Tech has an interesting piece on the story of Orascom in North Korea:

An Egyptian company that launched North Korea’s first 3G cellular network and attracted as many as 3 million subscribers has revealed that it lost control of the operator despite owning a majority stake.

The plight of Orascom Telecom and Media Technology in North Korea takes place against a backdrop of rapid telecom modernization and a public eager to adopt a new technology. It’s ultimately a lesson in the perils of getting into bed with a government that’s not known for respecting international law.

When Orascom announced plans to launch the 3G service in 2008 it met with skepticism. The North Korean government severely limits its citizens’ ability to communicate and has jailed or killed anyone who speaks out against the regime. The regime has regularly threatened war against its foes and was under sanctions at the time for a 2006 nuclear test.

But Orascom Chairman Naguib Sawiris saw something else: a land that technology had forgotten. He’d successfully built cellular networks in other developing countries, and North Korea seemed a perfect candidate, especially with its low fixed-line penetration.

Read the full story:

How a telecom investment in North Korea went horribly wrong
PC World
Martyn Williams
11-17-2015

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DPRK-China trade through 2014

Thursday, October 29th, 2015

Stephan Haggard posted some charts of DPRK-China trade taken from KOTRA:

North-Korean-China-Trade-from-KOTRA

North-Korean-Trade-including-North-South-Trade

North-Korean-Exports-and-Imports-from-KOTRA

 

 

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Phoenix Commercial Ventures terminates its association with Hana

Thursday, September 3rd, 2015

According to the PCV web page:

As a result of irreconcilable differences between the board of Phoenix and the local management, Phoenix Commercial Ventures Ltd has terminated its association with Hana Electronics JVC with immediate effect.

Hana Electronics JVC was a 50/50 joint venture between Phoenix Commercial Ventures Ltd and the trading department of The Ministry of Culture.

Phoenix has no further connection with Hana or any interests (direct or indirect) in its operations.

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2015 North Korea floods

Wednesday, August 12th, 2015

By Benjamin Katzeff Silberstein

Just like most summers for the past few years, North Korea has once again been hit by flooding. According to the International Red Cross (IFRC):

The Democratic People’s Republic of  Korea (DPRK) is experiencing flooding associated with seasonal rains, hitting areas like Hwanghae and the south and north Hamgyong provinces since early August. According to the State Committee on Emergency and Disaster Management (SCEDM), the Government of  DPRK and DPRK Red Cross Society, 3,455 people were affected, 21 were reported dead while 9 others remain missing. The floods have damaged or destroyed 968 houses and are expected to worsen in the coming days as the rainy season continues.

So far, the damage seems far smaller than the floods of both 2012 and 2013. For example, the number of people “affected” is reported as 3,455 people and 968 houses have been destroyed (see above quote), but in 2013, about 4,000 families lost their homes and 50,000 people were displaced. The number of deaths is also far smaller than in 2013 (33) and 2012 (169).

The South Korean government is thinking about stepping in. Korea Herald reports:

The Unification Ministry said that the government is reviewing whether to help North Korea cope with the flood.

“We are checking the damage from the flood in North Korea, based on data by the weather agency and international organizations,” Jeong Joon-hee, the ministry’s spokesman, told a regular press briefing.

Jeong said that the government would take into account various factors, including the level of the damage and the North’s reaction before making its decision.

Either the Red Cross and the UN Office for Coordination of Humanitarian Affairs (OCHA) are using different assessment methods, or the counts have been upped in between August 10th and 12th. Of course, it is also possible that more rain has fallen and increased the damage. The OCHA reported in their “Snapshot” document for the period between August 4th and 10th that “over 698 houses” had been destroyed while the Red Cross gave the figure 968.

The UPI also reports on the flooding, citing the OCHA figures:

North Korea is recovering from torrential rains that caused 21 deaths between Aug. 1 and 5, according to the U.N. Office for the Coordination of Humanitarian Affairs.

The OCHA report published Monday said rains and subsequent flooding in South Hwanghae, South Hamgyong and North Hamgyong provinces affected 3,400 people.

The U.N. said 21 have died and nine are still missing. The floods destroyed 690 houses and brought down public infrastructure, including roads, bridges and dams.

Crops also were seriously damaged – 4,000 hectares in total, according to the report.

The U.N. agency said the North Korean Red Cross is closely cooperating with local authorities to assess the scope of the damage. The International Federation of Red Cross and Red Crescent Societies is working with Pyongyang’s Red Cross to distribute relief aid to seven communities across the three provinces.

Rodong Sinmun also reports on the flood damage today, saying that the previously purged but resurrected Premier Pak Pong-ju has surveyed the flooding damage:

DPRK Premier Pak Pong Ju made a field survey of the flood damage in South Hwanghae Province.

Torrential rain and tsunami hit the province early this month, leaving breakwaters partially destroyed and dwelling houses, roads, railways and bridges inundated and damaged.

Farmland in some areas was inundated and washed away, making it hard to expect any harvest.

Going round several afflicted areas in Haeju City, Pyoksong and Sinwon counties, he learned about the damage there.

The consultative meeting convened on the spot discussed the issue of conducting the work for recovering from damage, directing primary efforts to bringing the living of the people in the afflicted areas to normal.

As the summer moves on, more is sure to follow.

(UPDATE): Here is the report from KCNA (2015-8-12):

Flood Damage in DPRK

Pyongyang, August 12, 2015 19:51 KST (KCNA) — South Hwanghae Province of the DPRK was hit hard by flood.

Early this month, the province witnessed downpour and tidal waves due to the seasonal rainy front that swept over the whole country.

Much rainfall was registered in all parts of the province. In particular, rainfall of 397 millimeters was observed in Pyoksong County between 18:00 of August 4 and 12:00 of August 5, 205 mm in Haeju City, 152 mm in Ongjin County and 125 mm in Sinwon County.

The downpour left more than 10 people dead, hundreds of dwelling houses destroyed and more than 1 000 hectares of arable land inundated or washed away.

Meanwhile, tidal waves left the dykes partially destroyed and roads, railways and bridges inundated or ruined.

At present servicepersons and inhabitants in the afflicted areas are working hard to clear away the flood damage.

(UPDATE): Radio Free Asia (2015-8-14) reports that river barriers ordered built by the government have come to exacerbate the flooding damage:

River barriers that North Korean authorities built to help irrigate crops affected by a recent drought may have contributed to the destruction caused by floods in certain parts of the country, sources inside the isolated nation said.

The barriers constructed by authorities in spring blocked the flow of water through gorges, so that torrential rains which fell in parts of the country at a high elevation in early August overflowed, destroying farmland and houses, said a source in North Hamgyong province, one of the affected areas.

“Despite strong opinions that the barriers to enable irrigation should be eliminated to prevent flood damage, nobody took any action,” he said. “Since the barriers were set up under [North Korean leader] Kim Jong Un’s order, no executive order could bring them down.”

Before the river barriers were built, some North Koreans pointed out that building them could cause greater flood damage, he said, but the warning fell on deaf ears.

The city of Hoeryong in North Hamgying province experienced downpours from late July to early August, and authorities declared Hwadea, Kiljou, and Myongchon counties flood-affected areas, he said.

They also declared the city of Tanchon and Heocheon and Riwon counties in South Hamgyong province flood-affected areas, he said.

The drought damage has become worse because of Kim Jong Un’s inflexible instructions, the source added.

Read the full story here:

North Korean flood Damage Made Worse by River Barriers

Sung-hui Moon

Radio Free Asia

2015-8-14

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