North Korean Economy Watch

According to the Daily NK:

A rumor that the North Korean authorities are working towards issuing a new form of identification card to all citizens is circulating, according to sources inside North Korea.

This rumor has been reported from some areas of Shinuiju and Yangkang Province. However, there has been no word from Pyongyang or any other provinces.

To date, North Korea has tended to issue new ID cards once every 10-15 years. However, the last time was in 2004, which has led some to suggest that there might be additional reasons for the changes this time besides standard administrative requirements.

Indeed, this may have been borne out by a Daily NK source from Shinuiju, who cited a cadre from a neighborhood government office as saying to him, “We decided to change the form of the ID card because spies from the South Korean intelligence agency (National Intelligence Service) are trying to infiltrate our society by copying our cards,” leading another source to comment, “We are so busy and the situation is so terrible, so why must we try to switch it?”

Free North Korea Broadcasting (Free NK) has released the same news, citing a source from Daehongdan in Yangkang Province. “The authorities are reorganizing and confirming all identification records,” the source explained to Free NK, “We presume that once the process is complete; they will change the ID card system.”

One defector familiar with the system added a further rationale for the possible move. “The reorganization is designed to confirm whether residency records are correct by making citizens re-register their residency in their locality,” he said, “This can also be a measure used to identify defectors and vagabonds.”

Andrei Lankov offers some thoughtful analysis on recent North Korea developments in the Asia Times:

Contrary to oft-stated accusations, Pyongyang leaders are neither irrational nor ideology-driven; they are a bunch of brilliant Machiavellians, very apt at exploiting the fears and controversies of their enemies and their partners alike.

Their country’s economy is in a sorry state, to be sure, but survival of the population has never been a major item on their agenda. They just want to stay in control and not be overthrown by popular insurrection or by a coup - they are very good at this game.

…

However, over the past year or so, something strange has begun to happen in Pyongyang. The North Korean leadership has taken some actions that have clearly damaged the interests of the ruling clique. It seems that the once formidable manipulators have for some reason lost their ability to judge and plan.

The recent currency reform is the best example of such weird and self-defeating policy decisions. For years, the Pyongyang government has waged campaigns against the unofficial and semi-official markets that have played a decisive role in North Korea’s economic life since the collapse of the state-run economy in the 1990s. As another move in this ongoing (and, perhaps, unwinnable) struggle, last November the government initiated currency reform that was meant to undermine the power of black-market merchants.

The reform was modeled on confiscation-oriented currency reforms once used in the Soviet Union and other communist countries. One morning, the populace suddenly learned that old bank notes were null and void and had to be changed for new ones within a week. The exchange rate was set as 1:100, so, for example, 1,000 “old” won should be exchanged for 10 “new” won.

Accordingly, all retail prices and fees were also reduced one hundred times. Harsh exchange limits were introduced: only the equivalent of US$30 in cash could be changed by one person. The use of foreign currency, which had become very common in North Korea’s retail economy, was banned.

The measures are standard for communist-style currency reform, since such reform usually pursues the double goal of fighting inflation and reducing the power and influence of the unofficial black economy.

However, North Korea’s planners also did something unexpected: they claimed that nominal wages and salaries would not change. In other words, a person who prior to the reform received a monthly salary of 3,000 won, would still receive 3,000 won, but paid in the new currency. Effectively, it meant that all wages in the country suddenly increased 100 times. To assure consumers, the government issued stern warnings against profiteers who dared to raise prices of goods and services.

For a brief while in December and early January, North Korean customers felt rich and consumers expected that even such luxuries as, say, Chinese bikes (a North Korean equivalent to a Porsche) were now within their reach.

The actual result was less impressive. The dramatic increase in salaries launched an equally dramatic round of inflation, so in the past three months the price of rice (and the black market exchange rate) has increased 50 times, from the official required 20 “new” won per kilogram to 1,000 “new” won. The government’s “stern warnings” were ignored. In the near future, prices are likely to return to pre-reform levels. The reform has failed completely and it only succeeded in making people irritated and in demonstrating the government’s inability to control a situation.

The unprecedented decision to raise wages doomed the entire affair from the start. But why was it done? Why was an otherwise standard package of well-tested measures saddled with this self-defeating (and, frankly, stupid) addition?

In the realm of diplomacy, North Korea is not faring much better. For decades, Pyongyang has demonstrated uncanny skills in manipulating its neighbors from whom it squeezed unconditional aid and unilateral concessions. The usual tactics consisted of three stages. In the first stage, the North Koreans raise tensions. Secondly, they launch missiles, test nuclear devices and make threatening statements. Finally, once tensions are sufficiently high for the world to feel uneasy, there are negotiations in which Pyongyang extracts aid that is essentially a reward for calming a crisis the North itself manufactured.

This time, both stage one and stage two were seriously mishandled. First, the North Koreans used both their trump blackmail cards - a nuclear test and a missile launch - almost simultaneously (analysts expected space of at least a few months before these two events). They also showered Washington with especially bellicose rhetoric, even though the Barack Obama administration was initially relatively soft on the North Korean issue.

As a result, the excessive activity of the North Koreans backfired: the US foreign policy establishment finally realized that North Korea would not surrender its nuclear program under whatever circumstances. This reassessment of the situation (or belated realization) meant that the US was now far less willing to shower Pyongyang with concessions. In the past, gifts were presented as incentives to surrender nuclear weapons, and since such surrender is now seen as unlikely, such generosity is not necessary. (See US finally wise to Pyongyang’s ways, Asia Times Online, November 12, 2009)

The North Koreans are now beginning to realize that the old trick is not working. They have only themselves to blame. Had they been slightly more careful last year, a significant part of the US establishment would still nurture the illusionary dream of “denuclearization through negotiations”.

The third stage of asking for aid was also handled badly. The unnecessarily aggressive rhetoric of the past was replaced by unusual softness in a short time - previously, the switch took months. Since August, North Korea has essentially begged to restart negotiations with the US and, especially, South Korea.

Pyongyang is demanding to restart cooperation projects. It is quite remarkable, since two of the three major projects - tours of Keumgang Mountain and Kaesong city tours - were abruptly stopped by North Korean authorities a year ago. Needless to say, the South Korean government is not too eager to restart negotiations. After all, so-called intra-Korean cooperation is essentially unilateral South Korean aid in disguise and Seoul sees no reason why it should hurry with the resumption of money transfers to Pyongyang. North Korean softness is (wrongly) seen by Seoul hardliners as a victory of the hard line they are advocating, so they say that an even harder approach will probably bring greater success.

Meanwhile, the North Korean government also did something it has never done before: it said “sorry” to the people. In January, Nodong Sinmun, a government mouthpiece, reported that Dear Leader Kim Jong-il felt bad for being unable to provide his subjects with the level of material affluence they were once promised.

The promise was moderate, to be sure. In the 1960s, Kim Il-sung, the founding father of the country and also father of the current dictator, promised that eventually all Koreans would eat rice (not corn or barley) and meat soup, live in houses with tiled roofs (not thatched), and wear silk clothes.

Every North Korean knows that even this moderate paradise has failed to materialize. However, the fact has never been admitted openly. In the past, economic difficulties and hardships, if mentioned at all, were always explained as they should be explained in a solid dictatorship, that is, by references to scheming enemies, above all US imperialists.

This time, Kim’s remark indicated that the system itself might bear some responsibility for economic problems.

In accordance with the new mood, a high-level official allegedly expressed his regret about the chaos created by the currency reform while addressing a large group of the party faithful. This might appear like normal behavior, but in a dictatorship that claims the possession of absolute truth and an infallible leader, such statements are very unusual - and, indeed, dangerous. They are likely to be seen as signs of fallibility and weakness, and every dictator knows that such signs should not be shown.

In other words, something has changed in Pyongyang recently - seemingly, after Kim’s illness in late 2008, when he reportedly suffered a stroke. The most likely explanation seems to be biological: the increasing inability of the ailing dictator to pass reasonable judgments and control people around him.

One can easily imagine how the Dear Leader (perhaps even driven by genuine sympathy to his long-suffering people) would look through a currency reform plan and say: “And what about poor wage-earners? Should we not reward the people who remained loyal to the socialist industry and did not go for black markets? Why not increase their salaries, so they will become affluent, more affluent than those anti-socialist profiteers of the black market?” Few, if any, officials would dare to explain the dire economic consequences of such generosity.

It is also possible that the deteriorating health condition of Kim has led to growing rivalry between factions so the North Korean leadership is now increasingly disunited, with rival groups pushing through their own agendas.

At any rate, something unusual seems to be happening in Pyongyang and it’s probably the time to think about the future a bit more seriously. We are heading towards serious changes, and unfortunately nobody seems prepared.

Read the full story here:
Is the Dear Leader losing his grip?
Asia Times
Andrei Lankov
3/5/2010

Choson Ilbo
2/26/2010

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

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

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

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

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

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

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

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

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

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

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

Daily NK
Jung Kwon Ho
2/22/2010

In late January, Kim Jong Il held a meeting of his highest officials, including Jang Sung Taek, Director of the Ministry of Administration of the Party, aiming to find ways to alleviate the negative side effects of November’s currency redenomination. In the meeting, the group apparently agreed to release emergency supplies of rice to those on the brink of starvation.

According to a Daily NK source, “Following the meeting, which he chaired, Kim Jong Il handed down a handwritten decree to the chief secretaries of all provinces on January 20 in which it was stated, ‘Preventing anyone from starving to death is your obligation.’”

Chief Secretaries of Provincial Committees of the Party, the recipients of the decree, handed on the threat to their subordinates, warning provincial cadres, “You will resign if anyone starves to death, because this was a direct instruction from the General.”

In the decree, the three most vulnerable provinces were named as Yangkang, South Hamkyung, and Kangwon Provinces, so the officials governing those provinces are understandably nervous. They are the provinces where most casualties occurred during the March of Tribulation, and they remain the most food insecure.

Under the decree, the Ministry of Procurement and Food Policy makes daily deliveries of 5kg of relief rice to each people’s unit and 5-15kg to each factory and enterprise. Chairpersons of people’s units and managers of factories are required to observe the circumstances of the people under their control and provide those in the greatest danger of starvation with relief rice first.

In late January, quite a number of households were reportedly facing starvation due to the aftermath of the currency redenomination; notably sky high prices coupled to strict market regulations. However, there have been no reports of starvation since relief rice deliveries began on February 1.

Alongside the chairpersons of People’s Units, cadres working for local government offices are required to cross-check whether or not starvation is occurring. In theory, they are reprimanded if they do not report the situation truthfully.

Upon hearing the news, a defector in Seoul commented, “It seems that the people will not lie still and suffer that dire situation. Kim Jong Il may have done this because he senses a crisis situation this time.”

According to the Daily NK:

Since the redenomination on November 30 last year, the cost of crossing the Tumen River has risen as high as 10,000 Yuan on the back of tighter border regulations.

A source from North Hamkyung Province told the Daily NK on Thursday, “Since border security was strengthened in February, it has cost at least 10,000 Yuan to cross the border into China.” This is equal to around 400,000 North Korean won at the black market exchange rate, or $1400.

In 2006, the cost of crossing the Tumen River around Musan and Onsung in North Hamkyung Province was just 500 Yuan.

The reason is because now there is an alliance of brokers monopolizing the crossing business, and a number of regulations designed to both circumscribe the ability of citizens to cross and limit the relationship between guard companies and local citizens.

In the distant past, if people wanted to cross the river, they approached guards and haggled over the price directly. However, now people have to rely on professional brokers who put them in contact with guards and guides in China. One pays a price to the broker, who shares it with North Korean border guards and Chinese guides respectively at a ratio of 4:3:3.

The North Korean authorities designated the period from February 5th until Kim Jong Il’s birthday on the 16th as a period of “special vigilance,” handing down special instructions to strengthen the border guard and regulations covering migration in border cities.

According to a Daily NK source, this measure is primarily intended to limit the ability of those suffering since the redenomination to smuggle or cross the border to make money in China, as well as to regulate citizens in advance of Kim Jong Il’s birthday, which is customary.

The source emphasized, “Since December last year, the number of citizens using human networks in China to make money has been increasing. Therefore, agents of the National Security Agency and the People’s Safety Agency have been watching those people closely.”

The source further explained, “Now, the authorities are forcing border guards to observe each other in order to track down those doing business with brokers and border crossers. In January, in Yusun-dong, Hoiryeong, one company commander was dismissed after a platoon commander informed on him for assisting border crossers.”

In the mid-2000s, along the border near settlements such as Namyang, Sambong, and Jongsung in North Hamkyung Province, the authorities set up nail boards and extra barbed wire along the Tumen River in order to inhibit defection. However, as these physical measures were not as effective as hoped, in 2006 the authorities took to switching guard posts between different guard companies without notice and awarding a prize, membership of the Party, to guards who caught people crossing the border. These measures were designed to break down connections between individual guards and the local populace

Therefore, the source added, “These days, no border guards are helping people cross the river, and the cost is soaring.”

Read the full story here:
Tight Rules Make Border Costs Soar
Daily NK
Lee Sung Jin
2/19/2010

February 16 is Kim Jong Il’s official birthday and the second most important national holiday in the DPRK. I will let you guess the first.  The celebration actiities were predictable: fireworks, synchronized swimming, public pledges of loyalty, dancing, and of course the Kimjongilia flower show. The usual.

KCNA, however, pointed out one new tradition of which I was unaware:

Turtle Dishes Begin to Be Served
Pyongyang, February 13 (KCNA) — Okryu Restaurant in Pyongyang has begun serving dishes made of snapping turtle on the occasion of the birthday of leader Kim Jong Il, February 16.

One can be treated in the restaurant with various kinds of turtle dishes such as turtle soup, raw dishes made of turtle heart, liver or spawn, steamed or fried turtle and turtle porridge.

Liquors of famous brands including Pyongyang Soju brewed at the Taedonggang Foodstuff Factory are adding to the taste of the dishes.

The dishes are associated with leader Kim Jong Il’s loving care for improving the people’s diet as required by a thriving nation.

He gave meticulous instructions as to turtle breeding and cookery, hoping that turtle dishes, good for health, would be served well to the people at restaurants.

Refurbished Okryu Restaurant, famous for Pyongyang cold noodles, took the lead in making preparations to successfully realizing the leader’s wish.

Its employees built a habitat in order to raise turtles on a large scale.

They completed a unique cookery for diversified turtle dishes to suit the Korean people’s taste through several sampling parties.

Along with turtle food the restaurant also delights customers with caviar and other rare dishes.

It has a plan to include bullfrog, salmon and other high-grade dishes in its menu.

The Okryu Restaurant is located here.

The Daily NK offers some unofficial news about Kim Jong il’s birthday holiday:

While the North Korean media praises Kim Jong Il’s greatness on his 68th birthday, the common citizens are having a quiet time, suffering under a growing food crisis.

This year’s Lunar New Year holiday fell around Kim Jong Il’s birthday, so sources report that the authorities gave the people time off from the 14th for three days. However, special distribution for the holiday was patchy this year, differing in quantity from province to province.

One source from Musan, North Hamkyung Province reported, “Even though we are facing the General (Kim Jong Il)’s birthday, there is no liquor being distributed. Just for cadres and soldiers, a 500ml bottle of liquor and a kilogram of pork are being supplied.”

The source added that general food prices are fluctuating. “Rice prices in the jangmadang are different all the time. On the 15th, over 450 won, but in the afternoon it went down to 400 won. And, now it is up to almost 500 won.”

“There are a number of people who are starving. Even though the jangmadang is open, these people cannot purchase rice due to its high price. However, liquor sellers are seemingly able to earn money because people need it for memorial ceremonies for their ancestors.”

A source from Yangkang Province reported the situation there, “The authorities have provided us with four days of mixed rice and corn. There has been no other special distribution, except cookies for children from their schools. However, even though people have received food distribution, the price of rice is up around 500 won.”

Only in Hoiryeong have residents received as much as Pyongyang citizens. They got one bottle of liquor and one day’s rice, according to a source in the city.

Links to previous birthday posts can be found here.

According to the Associated Press:

North Korea has given “gifts of love” to all its children ahead of leader Kim Jong Il’s birthday.

The North’s official Korean Central News Agency reported on the gifts Saturday without further elaboration. Defectors have said cookies and candies were given to children for past holidays.

Kim’s birthday and that of his late father, Kim Il Sung, North Korea’s founder, are the nation’s biggest holidays. Kim turns 68 on Tuesday.

Read Previous posts on Kim Jong il’s birthday gifts here and here. 

See photos of last year’s birthday gifts here.

According to the Chosun Ilbo:

A North Korean source has shed more light on an apology by Premier Kim Yong-il on Feb. 5 which apparently acknowledged that the currency reform in late December went disastrously wrong.

The source said Kim, not to be confused with leader Kim Jong-il, read out an hour-long statement before village chiefs and other party officials at the People’s Palace of Culture in Pyongyang on Monday morning. “I sincerely apologize for having caused great pain to the people by recklessly enforcing the latest currency reform without making sufficient preparations or considering the circumstances,” the source quoted him as saying.

Kim also pledged to rectify the mistakes, saying he would do “my best” to stabilize people’s financial circumstances. The revaluation of the won, instead of curbing inflation, led to skyrocketing prices of daily necessities.

He indicated that the regime will allow people to use foreign currency, which has been banned since the reform, and permit open-air markets to return to normal after a crackdown that seemed aimed at strangling a nascent market economy.

But Kim at the same time stressed the need to stick to state-set prices, adding that the government will strictly crack down on the hoarding of goods.

Some experts say the situation in the North has returned to almost the state before the currency reform. A South Korean official said North Korean authorities loosened their control of the markets since there has been unprecedented resistance from ordinary people. This seems to have forced Kim’s hand.

After Kim’s apology, most money changers and illegal traders who had been arrested were reportedly freed. The number of people leaving for China has grown noticeably as offices of state agencies or state-run corporations involved in earning dollars, which suspended business due to the ban on use of foreign currency, have resumed business.

The apology apparently quenched a lot of the simmering public anger.

“Premier Kim Yong-il’s direct apology to village chiefs, who are representatives of the people of each region, is tantamount to an apology to the people themselves. It’s a big event in the history of North Korea,” a former senior North Korean official who defected to the South said. “Authorities have never apologized to the people for wrong policies before.”

He believes the apology came “because discontent with the currency reform had spread widely even among core supporters of the regime,” he added.

Residents in Hwanghae Province are in some cases said to have beaten security officers who were cracking down on the use of dollars.

Since the climbdown, there have reportedly been calls to return the money the authorities confiscated. The won was revalued at a rate of 100:1, but the new won immediately plummeted in value, and those who saw their savings disappear into thin air have been demanding compensation.

The source said the apology may encourage North Koreans to become more assertive in the future.

The AP (Via Washington Post) adds:

South Korea’s National Intelligence Service and the Unification Ministry said they couldn’t confirm the Chosun Ilbo report. But Unification Ministry spokeswoman Lee Jong-joo said it would be “very rare” for a top North Korean official to issue a public apology.

Kim is believed to be the North’s No. 3 man in the country’s power hierarchy after autocratic leader Kim Jong Il and Kim Yong Nam, president of the Presidium of the Supreme People’s Assembly, according to South Korean media reports.

Last week, South Korean media reported that leader Kim Jong Il sacked a senior communist party official who spearheaded the currency reform, following arguments within the country’s elite over who should take responsibility for the fiasco.

Wow.

UPDATE: Good Friends reports that DPRK authorities are repealing market regulations.  According to the AFP:

Communist North Korea has allowed private markets to reopen nationwide after a bungled currency revaluation worsened food shortages and fuelled anger at the regime, a Seoul welfare group said Thursday.

“All the markets across the country should be reopened — without exceptions — as before,” Good Friends said in a newsletter, citing what it said was a special order from the central committee of the ruling Workers’ Party.

It said security organisations across the nation were also ordered to launch “absolutely no crackdowns on trading in food” at the markets.

…

The official policy turnaround came last week, “based on assessments that the currency reform has caused enormous pain to people by paralysing distribution networks”, group director Lee Seung-Yong told AFP.

“I believe North Korea will not clamp down on market activities for a considerable period, or at least until its state distribution system is back to normal.”

The South’s unification ministry, which handles cross-border relations, could not confirm the welfare group’s report.

“We’ve heard the North gradually easing curbs on the markets but it is difficult to verify the full-scale reopening,” said spokeswoman Lee Jong-Joo.

…

Good Friends said this week that about 2,000 people had starved to death across the nation this winter.

Read the full article here:
N.Korea eases curbs on markets nationwide: group
AFP
Jun Kwanwoo
2/18/2010

The Economist
2/10/2010

However loathsome his neighbours find Kim Jong Il, the nuclear-armed North Korean dictator, there are few who do not also admit that beneath the big hair lurks a tactical genius with a flair for survival. At home, North Koreans are smothered by his ruthless personality cult. With the outside world, he is an adept blackmailer: act mad enough to be dangerous; then be conciliatory in exchange for cash.

Recently, however, on both counts he has made tactical mistakes. None of these are serious enough to endanger his regime, diplomats say. But they are encouraging to those who believe they can eventually push North Korea back to talks about dismantling its nuclear arsenal. And they reaffirm the benefits of what the Americans call “strategic patience”: waiting until North Korea is desperate enough to offer concessions.

Even the regime appears, in its oddball way, to have acknowledged the most recent blunder. News reports this month suggest that North Korea has reversed some elements of a crackdown on private enterprise that it unleashed with a cack-handed redenomination of the won on November 30th.

In the interim, the currency collapsed, the price of rice surged by as much as 50 times, and much of traders’ working capital for buying and selling goods was wiped out. Amid a seizing up of food distribution, there were some rare grumbles of protest.

But since early February, regulations on trading in the jangmadang, or markets, across North Korea appear to have been lifted, according to news reports. Official prices (which are not necessarily what are paid) have been posted. A kilo of rice costs 240 won ($1.80) (a bit less than a pair of socks), a toothbrush is 25 won.

Meanwhile, the Dear Leader has made what some observers believe to be an unprecedented apology to his people for feeding them “broken rice” and not providing enough white rice, bread and noodles. He was, he said, “heartbroken”, and implicitly acknowledged he had violated an oath to his godlike father, Kim Il Sung, to feed the people rice and meat soup.

Adding to the poignancy, experts say the bungled reforms were done in the name of Kim Jong Un, the dictator’s third son and potential heir. The young man’s involvement may have been part of a strategy to reassert Stalinist-style state control of the enfeebled economy ahead of 2012, the 100th anniversary of grandfather Kim’s birth.

People knowledgeable on North Korea are loth to believe that such a plan has been abandoned, not least because the small markets that have flourished since the famine of the 1990s represent such a challenge to the state’s authority. But they say the ineptitude must have been glaringly obvious, even in the hermetic state.

“The government has never said sorry to the people, especially on a topic as sensitive as rice,” says Andrei Lankov of Kookmin University in Seoul, who has written a lot on North Korea and has described its leaders as brilliant Machiavellians. “Because of Kim Jong Il’s age and the age of those around him, it looks like he may be losing touch with reality.”

Mr Lankov believes there may have been a similar miscalculation in North Korea’s recent behaviour towards America, China, South Korea, Japan and Russia, the countries with whom in 2003 it started on-again, off-again denuclearisation negotiations, known as the six-party talks. Its firing of a long-range missile and explosion of a nuclear bomb in quick succession last year hardened the resolve of the five to strengthen United Nations sanctions against Pyongyang and maintain them until it gives ground on its nukes. However much Mr Kim has cajoled and coaxed in the months since, he has not yet managed to divide them.

What’s more, diplomats say he appears to be increasingly open to discussing a return to the six-party talks, something which last year he vowed “never” to do. China, which is closest to North Korea and chairs the six-party forum, sent Wang Jiarui, a senior Communist Party official, to meet Mr Kim this week and invite him to Beijing. Mr Kim made no public commitment regarding the six-party talks. But his nuclear negotiator returned with Mr Wang to the Chinese capital.

Lee Myung-bak, South Korea’s president, surprised his countrymen by saying that he, too, hoped to meet Mr Kim “within this year”. The timing was odd. His statement came at about the time North Korea was lobbing artillery shells threateningly into the Yellow Sea. But it revealed what officials say is a twin-track process in Seoul to engage North Korea: bilaterally and via the six-party framework. “My impression is that the North Koreans are moving in the direction of talks,” says Wi Sung-lac, South Korea’s special representative for peace on the peninsula.

Both North Korea and its six-party counterparts have set such tough conditions on coming together that it would be foolhardy to be optimistic. North Korea wants a lifting of the UN sanctions and a peace treaty with America to out a formal end to the 1950-53 Korean War before restarting talks. Washington has resisted both. An East Asian diplomat said the other five countries are demanding that North Korea take “concrete measures” towards denuclearisation as a pre-condition for talks and the lifting of sanctions. “We’re not giving any carrots.”

Underscoring the resolve, humanitarian assistance to North Korea has slowed to a trickle. South Korea sent only $37m of public aid north last year, compared with $209m in 2007. Officials say Mr Lee is adamant no money will go to North Korea to coax it into agreeing to a summit. Talks on cross-border tourism and factories, another means for Pyongyang to extort hard currency from the south, have made no progress.

Mr Kim still has some good cards up his sleeve. Tensions between China and America over Taiwan and Tibet provide a thread of disharmony that he can tug upon. And China has a strategic eye on North Korea’s ports and minerals, which may encourage it to be overly generous to the regime.

But the mere hint of economic and diplomatic fallibility in a regime that demands almost religious devotion from its subjects may be significant. It comes at a time when North Koreans, via smuggled DVDs and telephones, have a greater idea than ever before of how far their living conditions fall short of their neighbours’. That is a rare point of vulnerability for Mr Kim’s interlocutors to exploit.

According to the Guardian:

It is the nerve centre of North Korea’s money-making operations, the department dedicated to raising hard currency for Kim Jong-il while his country teeters on the brink of collapse.

Room 39 is responsible for some legal ventures, such as the country’s limited exports of ginseng and other items. But according to defectors, most of its energy goes into drug-trafficking, sales of weapons and missile technology, and the production of counterfeit US dollar bills.

Today, it was reported the department’s head – Kim Jong-il’s personal finance manager – has been sacked, possibly in response to international action against the alleged illegal moneymaking. South Korea’s Yonhap news agency said Kim Dong-un was dismissed because he had been blacklisted by so many foreign governments, including the EU in December, leaving him unable to travel on behalf of Room 39’s legal companies. He has been replaced by his deputy, Jon Il-chun, Yonhap said, citing an unidentified source.

Housed in an unremarkable government compound in Pyongyang, Room 39 oversees 120 companies and mines, accounting for a quarter of all North Korean trade and employing 50,000 people, according to Lim Soo-ho, a research fellow at the Samsung Economic Research Institute. He said Kim’s dismissal may be part of attempts to get around international sanctions.

While its inner workings remain a mystery to all but its occupants and the family they serve, Room 39’s role in enabling the regime to survive even in times of widespread famine and international pressure, has come under greater scrutiny since the imposition last year of tough UN sanctions over its nuclear programme.

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Some of the money generated by Room 39 is used to buy the loyalty of senior party officials, a role that may take on greater prominence as Kim Jong-il, who suffered a stroke in 2008, prepares to hand over power to his third son, Kim Jong-un. Analysts have estimated that illegal activities account for up to 40% of all North Korean trade and an even higher share of total cash earnings.

Additional information: 

1. More on the EU travel ban is here.

2. Office 39 is reportedly located here.  Kim Jong Il’s office is reportedly nearby here.

3. This week the KWP’s finance director, Pak Nam-gi, was also let go.

4. Mike Madden notes the new director’s  appearance with KJI at an “On the Spot Guidance” visit this week.  Mike also points to a possible appearance the Korea Taepung International Investment Group meeting.