North Korean Economy Watch

Joong Ang Daily
August 01, 2006

With North Korea more isolated than ever from the international community over its nuclear program and recent missile launches, Pyongyang is taking steps to tighten controls on its people in a bid to show it can defy the international community, North Koreans interviewed in Beijing said.

“It seems that we have to sing the revolutionary songs again,” said one North Korean in Beijing, saying it was time for his country to get mentally tougher. “Nobody listens to us, thus the only way left is to stick together,” the North Korean said.

If Pyongyang hoped to gain more concessions in nuclear negotiations and resolve the issue of financial sanctions imposed by Washington on Banco Delta Asia through its missile launch, the results have been the opposite.

A United Nations Security Council resolution backed by Pyongyang’s long-time ally, Beijing, was adopted. The Bank of China also froze North Korean accounts at its Macao branch, a Korean lawmaker has said.

In addition, a senior official of the United States Treasury Department said recently, Singapore and Vietnam have made commitments to clamp down on illicit North Korean financial activities such as money laundering.

A source in Seoul who is familiar with North Korea’s circumstances said yesterday that Pyongyang has decided to halt exchanges with the outside until April of next year. The Arirang Festival scheduled for this month has already been cancelled.

Experts said a series of economic measures aimed at reviving the North’s ailing economy, which have been underway since 2001, will also likely be put on hold.

“Inside the North, there are even some calling for a halt of the Kaesong Industrial Complex and the Mount Kumgang tours,” said the source, who added that large numbers of North Korean college students are submitting requests to enlist in the military.

Recently, a senior North Korean official on a visit to Beijing said the North is fully prepared to engage in “a march of suffering.” Recent rhetoric coming out of Pyongyang reflects a war-like atmosphere in the country. The state-run Rodong Sinmun has warned that “invaders would be swept away by the fierce anger of the country.”

A government official in Seoul yesterday admitted that in the short run, diplomatic efforts to lure Pyongyang back to nuclear negotiations would be tough. “We are in a difficult situation, but what else can we do but try?” said the official.

From the Joong Ang Daily:

Experts say money squeeze on North is working

For 10 months, Washington has enforced a systematic plan to clamp down on cash going into North Korea. The measures are working, experts say.

Nam Sung-wook, a North Korea expert at Korea University, estimated yesterday that the recent measures have led to a 40 percent decline in North Korean leader Kim Jong-il’s income.

Since the 1980s, Kim Jong-il has regularly collected money from four sources: forged bank notes, arms sales, drug trafficking and money coming from ethnic Koreans living in Japan who acquire money by operating legal gambling casinos there.

Mr. Kim used the money to cement his hold on the North Korean elite, such as the military. Those in the right position received from the “Dear Leader” gifts ranging from German luxury cars to Japanese electronics.

However, since 2002, when the Bush administration started to tackle the issue with its North Korea Working Group, the situation changed and has squeezed the North. The U.S. group is composed of 14 government organizations, including the U.S. treasury department. Washington’s efforts against counterfeit money have yielded results: At the end of last year Irish national Sean Garland and six others were indicted for distributing North Korean-manufactured “supernotes.”

The North is believed to have produced annually $15 million to $25 million of forged money.

As a result of international pressure, one government official said it would be harder for the North to print new forged bank notes and circulate them.

The arms trade is also an important money maker for the North. However, since it sold 15 Scud-type missiles in December 2002 to Yemen, Pyongyang has not inked another arms deal. Sources said yesterday Pyongyang tried last year to sell missiles to African nations, but in light of Washington’s international call to prevent the transfer and sales of weapons of mass destruction, cautious African nations have distanced themselves from Pyongyang.

In the international arms market, Chinese-manufactured AK-47 assault rifles and other cheaper alternatives are being preferred over North Korean-made ones. The North’s drug trafficking is reportedly giving Pyongyang an annual income of $100 million. From 1998 to 2002 Japanese authorities seized 1,500 kilograms (3,300 pounds) of North Korea-manufactured philpone, a methamphetamine.

Nevertheless, a continued crackdown has narrowed the avenues of sales to organized crime groups such as the Japanese yakuza.

Money sent from the North Korea- backed Chongryon, the General Association of Korean Residents in Japan, amounted to 2 billion yen ($1.7 million) to 3 billion yen annually until 2002 with the money being shipped by a North Korean ferry.

However, since 2003, Tokyo has imposed regulations on the ferry, dropping the money flow to 1 billion yen per year. With the recent missile launch, Tokyo is now considering cutting off the money flow even more by strengthening the monitoring of insured postal parcels above a certain amount.

From the Joong Ang Daily:

The United States is blocking all possible ways of transferring money to North Korea. Along with a United Nations resolution, Washington is putting pressure on companies and banks of all countries that have business transactions with North Korea to cut the relations. Japan has blocked money transfers to North Korea, banned a North Korean ferry from entering its ports, frozen North Korea’s assets and banned companies from having transactions with North Korea.

The hardest blow on North Korea was China’s approval of the UN resolution. As the only ally to North Korea, China has provided it with more than half the food and energy the North needs. It is North Korea itself that has made China change its stance.

North Korea-China relations these days are the worst since in June 1995. Back then, North Korea’s leader Kim Jong-il released a statement in the Rodong Sinmun, or Newspaper of the Workers that China had betrayed the spirit of socialist revolution by introducing a market economy. Although the head of North Korea depends heavily on China for the survival of his country, he recently told an American delegate that China was unreliable.

Joong Ang Daily
7/17/2006

At the end of “the hermit kingdom,” or Joseon Dynasty, the outer world tried hard to force Korea to open its doors.

Japan forced the Joseon leaders to sign the Treaty of Ganghwa, or Korea-Japanese Treaty of Amity, and then used force to enter Korea.

The United States also eagerly wanted to secure a market here. When the U.S. ship the General Sherman was attacked by infuriated Koreans, the United States used the incident as an excuse to force Korean to open its doors and also sign a trade treaty.

Russia intensified its fleet at Vladivostok in preparation for a southward expansion.

The Qing Dynasty couldn’t stand the idea of its tributary state being under the influence of other countries and thus gave Li Hongzhang, a Chinese politician and general, exclusive power to interfere in domestic affairs inside Korea.

What is the right way to keep self-reliance in the face of outer forces’ attempts to open a nation’s doors?

To this question by Emperor Gojong, a booklet titled “Joseon Chaengnyak,” or “Korean Strategy,” gave an answer.

The book was written by He Ruzhang, a Chinese minister of the Qing legation stationed in Japan.

The author advised that Korea should consult on all matters with China, engage with Japan and sign a trade treaty with the United States in order to keep Russia in check. (From “World Diplomatic History,” by Kim Yong-Koo.)

But Japan was brutal, the United States was too far away to help and Russia was insidious.

Self-reliance means balancing power between nations and that first requires the possession of a certain amount of power. Lacking that, there was little that Emperor Gojong could do.

One hundred and twenty years have since passed. But the foreign policy of Emperor Gojong and that of President Roh Moo-hyun look similar, except that Korea has gained a little bit more capability since those deplorable days.

Both leaders have emphasized self-reliance and a minimum of intervention by other countries. Both have tried to become mediators and secure a leading position through the balance of power.

Does President Roh then have more options in the midst of the current missile crisis?

There is little proof that international order has become more advantageous to us than during the times of Emperor Gojong in the late 19th century.

Except Japan, the other three powers ― the United States, Russia and China ― have become permanent members of the United Nations Security Council.

The format of the four countries has become two sided — the United States and Japan versus China and Russia.

On top of this, North Korea has been added as a rogue country that is a beneficiary of China and Russia’s strategic protection.

In this post-modern era, the legacy from the previous era remains clearly in the Asian region. People in Korea have vivid memories of the colonial era and strong nationalism recalls the nightmares of past imperialism.

Under these complicated circumstances, North Korea fired its missiles as if publicly displaying its political beliefs.

Borrowing the North Korean leader Kim Jong-il’s rhetoric, that was a “revolutionary force that will crush imperialism.”

The head of North Korea, Kim Jong-il, wants to get through this situation, although it may require him to resort to extreme methods.

After shocking international society, he has remained low-profile, as if asking, “What will you do now?”

South Korea is in the trickiest position. Seoul had told the world powers that it would resolve the North Korea problem in its own way and asked them to wait, while approaching Pyongyang.

Seoul must now feel that it was betrayed after giving aid to the North.

To the South Korean unification minister who revealed this feeling, the head of the North’s delegation delivered his leader’s message that South Koreans also benefit from the North’s military-first policy.

Whether the head of the South Korean delegation became speechless at that remark or not, if a serious statement condemning the insane aspects of that claim is not released, the United States and Japan will assume that South Korea is not much different from the North.

If the North’s intention was to separate South Korea from an alliance with the United States and Japan, or to make publicly obvious the South Korean government’s sympathy for the North, it has achieved some of those goals by launching its missiles.

When President Roh, who has remained quiet on the missile incident, condemned Japan for talking about the possibility of a pre-emptive attack on the North, Kim Jong-il must have worn a smug face.

Kim Hong-jip, who claimed that Korea should engage the Japanese, was beaten to death by a public crowd in downtown Seoul. Emperor Gojong had to endure the collapse of the Joseon Dinasty.

Although 120 years have passed since the “Joseon Chaengnyak” was written, Koreans are still confused which country they should stay close to, which country to engage with and which country to reach out to.

The government set its strategy for peaceful co-existence to achieve self-reliance and to become a mediator.

It also kept providing aid to the North, arguing that it should help North Korea to stay afloat in order to avoid a war. These arguments were crushed by the North’s missile launchings.

Seoul seems unable to turn its head when Pyongyang asks for supply of electronic power and rice.

As the United States and Japan are likely to push North Korea further away, labeling it a rogue country, South Korea’s cooperation with the two countries does not seem probable either.

If there is no chance to work with other countries, South Korea will be adrift in the middle of a turbulent sea for a good while, with its flag of self-reliance flapping.

Japan is sly, the United States has adopted a hardline and China and Russian call themselves the big brothers of North Korea.

I wonder what is the “new Korea strategy” that can rescue the vessel named “Roh Moo-hyun”.

by Song Ho-keun 
Professor of Sociology at Seoul National University
Translation by the JoongAng Daily staff

The 2005 winners of the Nobel Prize in Economics were selected for “having enhanced our understanding of conflict and cooperation through game-theory analysis”.  I would check out thier work in order to make sense of the current DPRK/ROK diplomatic posturing.

From the Washington Post:

South Korea on Thursday suspended humanitarian aid to North Korea until it agrees to return to international nuclear disarmament talks.

The action infuriated visiting North Korean officials, who immediately cut off high-level talks in South Korea and stormed back home.

The decision to postpone consideration of a North Korean request for 500,000 tons of rice marked the South’s first punitive action against its impoverished communist neighbor since it defied the international community and test fired seven missiles, including a long-range Taepodong-2, on July 4.

The move came as the administration of South Korean President Roh Moo Hyun has come under sharp public criticism at home for what many there viewed as a weak response by Seoul to the North’s missile tests.

South Korea on Thursday reiterated its deep opposition to a push by Japan and the United States to impose broader sanctions on North Korea through a draft resolution at the United Nation’s Security Council. Seoul has also vowed to maintain its “sunshine policy” of engagement, which has fostered the warmest ties between the Stalinist North and capitalist South since the Korean War divided them in two more than half a century ago.

But the decision to follow through with a previous threat to suspend food aid if North Korea tested missiles — a threat many experts doubted the South Koreans would stick to — displayed a new willingness by the South to use its significant economic clout to apply pressure on the North.

The North Koreans — for whom economic assistance by South Korea is topped only by China — appeared jolted by the decision. At talks being held in the South Korean city of Pusan that were originally scheduled to end Friday, Pyongyang’s delegation abruptly departed Thursday afternoon.

South Korea’s Yonhap news service reported that the North Korean officials left after circulating a statement calling the rupture the result of “reckless” attempts by South Korea to raise “irrelevant issues.” Those issues, South Korean officials said, were the recent missile tests and the North’s refusal to return to six-party talks on its nuclear programs.

The North bitterly condemned Seoul’s decision to suspend food aid, saying “the South side will pay a price before the nation for causing the collapse of the ministerial talks and bringing a collapse of North-South relations.”

South Korean officials, who in recent years have rolled out the red carpet for their visiting North Korean kin, this time offered them a simple meal and welcome bereft of customary sightseeing excursions and photo opportunities. When the North’s representatives understood they would not be returning with promises for more food aid, they simply left.

“The North Korean side expressed their position that additional negotiations would be unnecessary under the circumstance that additional humanitarian aid they need would be impossible,” Lee Kwan Se, a South Korean Unification Ministry official, told reporters.

For the United States and Japan, both pushing for a strong draft resolution at the United Nations that would ban international trade of North Korean missile and other military technology, the South Korean action was a rare diplomatic bright spot.

Christopher Hill, Washington’s top envoy on North Korea, left Beijing for Washington on Thursday after it became clear that Chinese efforts to persuade the Pyongyang government to come back to the six-party talks had apparently failed.

Before leaving, Hill said there was no indication that the North Koreans had changed their position to boycott the talks, which have been stalled since last November.

Japan, which has been deeply rattled by the North’s missile tests, vowed to continue pushing for a tough resolution that would impose sanctions on the North Koreas. But China and Russia back their alterative U.N. resolution unveiled on Wednesday. That draft would censure North Korea for its missile tests, but would endorse only voluntary measures aimed at restraining Pyongyang’s ballistic missile and nuclear weapons programs.

“The Chinese are as baffled as we are,” Hill told reporters in Beijing before departing. “China has done so much for that country and that country seems intent on taking all of China’s generosity and then giving nothing back.”

By Anthony Faiola
Washington Post Foreign Service

An interesting strategic analysis fo the DPRK/PRC realtionship in a regional competition context.  From the Council on Foreign Relations:

Introduction

Nautilus Institute
Alexander V. Vorontsov
6/8/2006

The “Songun Chongch’i” or military-first politics mantra adopted by North Korean leader Kim Jong-il as a guideline for domestic governance and foreign policy has elicited mostly negative responses from Korea-watchers. Many view songun as the final phase in the deterioration of North Korea and a serious threat to neighboring states saying that an impoverished country of 24 million inhabitants supporting a military of more than 1 million soldiers is incapable of modernization and economic reform. They argue that greater military participation in politics creates a dual-pronged threat: the army may appropriate a greater share of already-dwindling state funds to increase its readiness and effectiveness; and the generals, supposedly the most militant sector of the policy-making structure, will have a louder voice in foreign policy formulation, which could lead to hostile rhetoric towards South Korea.

A less alarmist interpretation of military-first politics is that Kim Jong-il is trying to maintain the existing order, to strengthen his regime based on personal authority, and consolidate control of military forces with the goal of preventing an overthrow of the state.

So, is military authority a curse or a blessing? The lessons from history are ambiguous, as states ruled by the military have experienced both prosperity and hardship. But some argue that South Korea represents a relatively positive example in which it has experienced a national revival because of a period of military rule.

In 1961, Park Chung-hee, a colonel in the ROK army, seized authority South Korea in a bloodless coup and established a rigid dictatorship with his military comrades. Though politics became more repressive, the national economy grew exponentially and General Park is remembered by many as the “father of the South Korean economic miracle.” Few dispute that this economic growth planted the seeds for the ensuing process of democratization. So it is hardly accidental that, in recent years, Kim Jong-il has started to speak favorably of General Park and his role in the modernization of the Republic of Korea.

The implementation of songun in the mid-1990s increased the role of the Korean People’s Army (KPA) in daily life. The army began to participate even more in social and economic decision-making, from large-scale infrastructure development to providing its own food. While military personnel are required to serve for ten years, they spend most of their service participating in different areas of the country’s socio-economic life. Thus, the army is now not as heavy economic burden, and is serves as an important resource and catalyst for developing the national economy.

The movement to the military-first policy has accompanied a gradual transformation of North Korea’s planned economy to the direction of a mixed economy. The result may eventually be a network of large, less state-controlled corporations that share close ties with government agencies, similar to the “chaebol” that Park Chung-hee created in South Korea. Because of this, the North Korean military is now involved in different spheres of economic activity, including foreign economic ties and trade operations, and will likely play a key role in this ongoing process of privatization.

With songun also come changes in ideology. This change and its underlying goal of building a powerful and prosperous state – “kangsong taeguk,” are justified by flexible and creative interpretations of the bedrock ideal of self-reliance – “juche,” a nationalist ideology developed by revolutionary leader Kim Il-sung. The songun concept replaces the proletariat and the vanguard Communist Party with the army as the driving force in society. This innovation is significant because the army is typically a less ideological and more pragmatic institution than the Party.

The army’s role in society is not the only example of Kim Jong-il’s liberation from orthodox ideologies. Since the early 1990s, North Korea has shifted its emphasis from socialist ideals to historical and spiritual values. This is reflected in the use of Confucian norms in public policy and everyday life, and legitimizing the state through reference ancient Korean kingdoms. Again, the parallels with Park Chung-hee are very strong. Kim Jong-il has also sought to reduce the prevalence of the personality cult. From early 2004, for example, there could be only one portrait of Kim Il-sung in public places. Similarly, Kim Jong-il is to be described only by his official positions, rather than the use of laudatory epithets such as “Dear Leader.”

Songun should not be automatically dismissed as an ideological dead-end. As the experience of South Korea under Park Chung-hee demonstrates, military rule can have positive effects on society under certain conditions.

Economic Reform and SEZ as Survival Strategy of DPRK
PDF: Deok Ryong Yoon.pdf
Deok Ryong Yoon

Introduction to & implications of Gaesong Industrial Complex Project
PDF: kaesong.faqs.pdf
Ministry of Unification

Gaeseong Industrial complex: Past, Present and Future
PDF: Dong-geun Kim.pdf
Speech by Dong-geun Kim, Chairman of Gaeseong Industrial District Management Committee

Gaeseong Industrial Complex : Frequently Asked Questions (FAQs)
PDF: kaesong.faqs1.pdf
Ministry of Unification, ROK

Joong Ang Daily
Yoo Kwang-Jong
11/24/2005

Organized efforts are ongoing in North Korea to hand over the hereditary communist regime to a son of current leader Kim Jong-Il, doplomatic sources here with strong connections in Pyongyang said yesterday.

North Korea has reportedly founded a department inside the governing Workers’ Party to promote Kim Jong-chol, the second son of Mr. Kim, as his successor. “When the Workers’ Party reorganized its departments in 2004, two new bureaus were opened under the organizational guidance department,” a source well-informed about Pyongyang affairs said.  “The bureaus handle matters about the regime’s succession.”

According to the source, 10 officials in their 30s work at each bureau, and are in charge of educating Kim Jong-Chol about party governance affairs.  While the two bureaus are publicly under the control of Ri Je-gang, a senior party official, Kim jong Il’s National Defense Commission oversees their operations directly, the source added.

Antoher source said the third generation father-to-son hand-over was seriously resisted in North Korea, but Pyongyang appeared to have decided on its course.  “with the Workers’ Party backing, the succession has become more and more visible,” the source said. 

Kim Jong-chol, 24, studied in Switzerland in the late 1990s.

Meanwhile, South Korea said it was checking a recent German media report that Kim Jong chol attended a presidential dinner for the visiting Chinese leader Hu Jintao in late October.  

BBC
10/25/2005 

North Korea has admitted it is holding 21 South Koreans either captured during the 1950-53 Korean War or subsequently, the South Korean government has said.
Seoul had pressed the North about 52 POWs and 51 citizens it believes were abducted after the war.

Seoul has been raising the issue for decades, but has recently been wary of campaigning too hard for fear of damaging relations, analysts say.

It is not clear why the normally secretive North Korea has responded.

“North Korea has confirmed there are 11 abductees and 10 prisoners of war alive in the North,” a South Korean Unification Ministry official told Reuters news agency on condition of anonymity.

Of the other South Koreans whom Seoul had inquired about, the North said 10 kidnapped citizens and six POWs were dead, and the rest unaccounted for.

Many people in South Korea believe around 1,000 South Koreans are alive in the North.

These include more than 540 POWs, according to the Red Cross.

Reunions

A number of the kidnapped South Koreans will be able to see their families again during the next round of reunions between relatives who ended up on different sides of the Korean border after the war ended, Yonhap news agency reported. This is scheduled for 5-10 November.

Japan also believes its citizens are being held in the North against their will.

It has been much more vociferous in its inquiries, and in 2002 Pyongyang admitted it had abducted 13 Japanese citizens in the 1970s and 80s, but said eight of them had since died.

The five still alive returned to Japan three years ago, but Tokyo questions whether the others are really dead, and believes there may be yet more held captive in the North.