North Korean Economy Watch

Vladimir Lenin is often quoted as saying “The Capitalists will sell us the rope with which we will hang them”.  This popped into my head this morning when I read this story in the Choson Ilbo:

Unification Minister Hyun In-taek on Tuesday admitted that the fiber optic cables South Korea provided have made it more difficult to spy on North Korea. Hyun was answering a question from a lawmaker at a session of the National Assembly’s Foreign Affairs, Trade and Unification Committee. “I understand that there is a problem or a loophole” in South Korea’s intelligence-gathering ability, he said.

Grand National Party lawmaker Chung Jin-suk expressed worries that South Korea’s ability to gather intelligence was weakened by fiber optic cables which the South Korean government supplied to the North in the past. “I suspect that some of the 45 km-long fiber optic cables may have been diverted to lay a communications network between frontline Army units in the North,” he said.

Hyun said Seoul has “no plan as of now to comply with an additional request from the North for more fiber optic cables.”

The South Korean government sent 20 km, 15 km and 2 km-long copper cables to the North in 2002, 2005 and 2007, which were meant to be used for inter-Korean military communications. Last year, the South supplied the North with 45 km-long fiber optic cables, two sets of optical termination equipment, and two sets of optical measuring instruments.

Under an agreement, a 25 km portion was supposed to be laid on the east coast, and another 20 km portion on the west coast. It is difficult to wiretap a network of fiber optic cables, Chung said.

“We haven’t checked yet whether the cables were used simply for the inter-Korean military communications network or for the expansion of a new communications network for frontline units,” Chung said.

He said if copper cables were replaced with fiber optic cables, then that would make intelligence gathering much more difficult in cases like the sinking of the Navy corvette Cheonan, where there is a suspicion of North Korean involvement.

Read the full story here:
Seoul ‘Hampered Its Own Ability to Spy on N.Korea’
Choson Ilbo
4/14/2010

That is the claim in this Wall Street Journal article:

North Koreans willing to tamper with their government radios or buy a $3 radio smuggled in from China have a wide range of choices. Over a dozen radio stations from the United States, South Korea and Japan currently broadcast to North Korea. Voice of America (VOA), one of the most popular stations, has been broadcasting to the North since 1942, while the equally popular Radio Free Asia (RFA) began its Korean service soon after its establishment by Congress in 1997. VOA focuses on news of the U.S. and the world, while RFA concentrates on North Korea and life for the nearly 20,000 defectors in the South.

North Korean defectors themselves have also created three stations in recent years, led by Free North Korea Radio (FNK Radio). These stations employ stringers in North Korea who communicate by cell phone or smuggle out interviews through China. As a result, information is flowing in and out of the North more rapidly than ever. For example, when authorities undertook major economic reforms in 2002, it was months before the rest of the world knew. In contrast, when the regime launched a disastrous currency reform in November, FNK Radio filed a report within hours.

It’s impossible to count how many North Koreans listen to these stations, but there is anecdotal evidence the numbers are significant. For starters, on dozens of occasions, authorities in Pyongyang have used their own media to attack foreign broadcasters. The North reserves the insult “reptile” exclusively for foreign broadcasters. Last month, the regime likened defector broadcasters to “human trash.” Ironically, this diatribe also contained the first official mention that the botched currency revaluation had taken place. Foreign broadcasters not only struck a nerve, but also forced the regime to discuss developments it would prefer to ignore. If the broadcasts were not being listened to, the regime would ignore them instead of lavishing free publicity.

Meanwhile, broadcasters to North Korea frequently receive heartbreaking messages of thanks from North Koreans in China. One listener on RFA’s Web site described RFA as “our one ray of hope.” Over the past several years, South Korean researchers have quietly interviewed thousands of North Korean defectors, refugees, and visitors to China about their listening habits. One unpublished survey conducted last summer of North Koreans in China found that over 20% had regularly listened to the banned broadcasts, and almost all of them had shared the information with family members and friends. Several earlier studies confirm these findings.

I am not sure which “unpublished study” makes this claim so I can’t evaluate the findings. 

A Haggard and Noland survey of North Korean refugees claimed that a majority had listened to foreign broadcasts.

I do not believe these numbers reflect the listening habbits of North Koreans still in North Korea.

Read the full story here:
North Korea’s Radio Waves of Resistance
Wall Street Journal
Peter Beck
4/14/2010

According to Yonhap:

North Korean leader Kim Jong-il on Wednesday carried out the second biggest promotion of generals since he took power, official media reported, as the country geared up to mark the birthday of his late father and North Korea’s founder.

Kim issued an order promoting a group of 100 general-grade officers “on the occasion of the Day of the Sun,” the birthday of his father, Kim Il-sung, which falls on Thursday, the Korean Central News Agency said in a report monitored in Seoul.

The promotion was the biggest in scale since 1997 when Kim Jong-il raised the ranks of 129 generals in an apparent bid to consolidate his grip on the military after he took over the regime from his father, who died four years earlier.

…

Gen. U Tong-chuk, a senior official at the North’s spy agency and a member of the National Defense Commission, the highest seat of power, stood out as he had already been promoted in April last year.

Mike has more on Gen. U Tong-chuk. 

Read the full article here:
N. Korea conducts sweeping military promotion ahead of founder’s birthday
Yonhap
Sam Kim
4/14/2010

Hat tip to a reader:

The Russian website Аргументы и факты reported that at a ceremony in the Russian city of Ulyanovsk on March 4th the Russian company Aviastar-CP handed over a new Tu-204-100B airplane to a delegation from Air Koryo.  Also present was a team representing the “Ilyushin Finance Leasing Company” through which the plane was handed over to the Korean airline. The report relates that, “Late at night, the aircraft took off for the flight to Pyongyang from Ulyanovsk’s Vostochnyy Airport.”  It also states that this is the second “new-generation” Russian aircraft delivered to the DPRK by Aviastar.  It is expected to operate on routes between the DPRK and Russia and Southeast Asia as well as within the DPRK.

Here is the story in Russian.

Here is the story in English via Google Translate.

Here is a photo of the first Air Koryo Tupolev that went into service on May 1, 2008.

Wall Street Journal
Marcus Noland
4/12/2010

North Korea likes to project an image of strength to the world. But back home, there is a serious economic crisis playing out that could have long-term repercussions. Historians may look back and see this as a tipping point.

The crisis originated in November, when the government sprang upon the public a confiscatory currency reform that wiped out household saving and the working capital of traders and entrepreneurs. The value of the North Korean won predictably plunged as people abandoned it for foreign currencies and even physical goods—anything that could preserve value. The second shoe dropped a month later when the state extended its war on privately held capital, banning the use of foreign currencies.

The government’s intent was to reconstitute orthodox communism. Earlier in August, North Korean leader Kim Jong-il’s sister, Kim Kyong Hui, telegraphed the move in an essay extolling the superiority of central planning over the decentralized market—even trashing the notion of giving enterprise managers greater autonomy in the context of a socialist economy. The regime’s basic motive—to crush the market and strengthen direct state control—was confirmed by central bank statements immediately after the reform.

But the policy, which was supposed to constitute the political coming out of expected heir Kim Jong-un, Kim Jong-il’s third and youngest son, unleashed extraordinary, though sporadic, protests. The government backtracked, allowed markets to reopen and in February issued an unprecedented apology. Park Nam-ki, a 77-year-old technocrat who upon becoming the Party’s economics chief allegedly vowed to end the “capitalist fantasy,” was scapegoated and reportedly executed.

Once broken, the economy may prove difficult to repair. Prices for goods such as rice, corn, and the dollar rose 6,000 percent or more after the reform. And while prices have come down from their peak as the government has relaxed some of its strictures, they are currently still 600 percent or more above their prereform levels—in spite of the money-supply contraction.

The United Nations’ Food and Agriculture Organization reports that the country is more than one million metric tons short of grain. This estimate is likely exaggerated due to faulty methodology, but anecdotal reports of hunger are emerging from returning visitors and refugee networks. It appears the government persuaded farmers in cooperatives to accept cash in lieu of half of their annual in-kind grain allotment—then rendered the bonus worthless via the currency reform. Farmers are now hoarding grain however they can: The United Nations Development Program reports that post-harvest losses amount to 30 percent. The farm economy has been severely disrupted. But unlike the 1990s famine, which was largely an urban phenomenon and killed perhaps a million people, hunger is now reported in the countryside.

The state’s response to these developments has not been reassuring. After Mr. Park was executed, he was replaced by an octogenarian, Yun Gi Jeong, known primarily as a confidante of North Korea’s founder, Kim Il-sung. The political police have been bureaucratically elevated and placed directly under the National Defense Commission, from where Kim Jong-il runs the state. This is not the behavior of a confident or competent government.

The recent missteps are particularly damaging because they are so obviously self-inflicted and nakedly incompatible with the regime’s narrative that ascribes all the nation’s challenges to hostile foreign forces. A survey of 300 North Korean refugees conducted in November 2008 by Stephan Haggard of the University of California San Diego found that respondents were increasingly accessing foreign sources of news and disinclined to accept the government’s explanations, instead holding it responsible for their plight. The currency fiasco will accelerate these trends.

Widespread disillusion, even dissent, does not guarantee mobilization, however. The same survey found that the population remains atomized and mostly fearful of communicating these views, even to friends and family. But the state can justify its hatred of the market in one respect: People participating in market activities are significantly more likely to communicate their dissent to their peers.

There is no reason to expect that this attempt to revive orthodox communism will succeed. But an influx of aid, which would allow the state to keep goods on the shelves and satisfy key constituencies, would make it easier. It is rumored that Kim Jong-il will visit China later this month and that the Chinese will extract a commitment by the North Koreans to rejoin the stalled Six Party Talks over its nuclear program.

If North Korea does agree, economic distress and the opportunity to wheedle more aid out of China and the United States may explain this change of heart. China has effectively taken up the mantle of the previous South Korean government’s “sunshine policy,” and within the US government there are already discussions of another “food for talks” swap to bring the North Koreans back to the table.

North Korea’s retrograde moves are wrecking its economy and propagating discontent among the masses. But the country is bereft of civil society institutions capable of channeling that discontent into constructive political action. Aid and repression may permit the regime to pursue anachronistic communism for some time, but the next leader will inherit an ultimately untenable situation.

According to GPI:

In the current financial and economic situation, companies face many challenges. They must cut costs, develop new products and find new markets. In these fields, North-Korea might be an interesting option. Since a few years, it is opening its doors to foreign enterprises. The labor costs are the lowest of Asia, and its skilled labor is of a high quality. It established free trade zones to attract foreign investors and there are several sectors, including textile industry, agro business, shipbuilding, logistics, mining and Information Technology that can be considered for trade and investment.
  
European Business Mission to Pyongyang: May 2010
In order to explore these business opportunities, we will organize again a business mission to North-Korea (15-22 May). We will also visit the annual Pyongyang Spring International Trade Fair (see photo). This fair can be used by European companies to come in contact with potential buyers and suppliers in North-Korea. Information abouth both events has been attached. In case this date is not convenient for you, individual business trips are possible as well. Later this year, another trade mission will visit Pyongyang from 11-18 September. 
       
With best regards, Paul Tjia (director)  
GPI Consultancy, P.O. Box 26151, 3002 ED Rotterdam, The Netherlands
E-mail: paul@gpic.nl
Tel: +31-10-4254172 
Fax: +31-10-4254317
Website: www.gpic.nl

Here is the program flyer (PDF) 

According to Yonhap:

North Korea’s market prices and currency exchange rate appear to be stabilizing after severe fluctuations from an abrupt government-led currency reform last year, the Seoul government said Tuesday.

North Korea carried out a currency revaluation last November, a measure it said was to curb inflation. Analysts here linked it to a power transition from North Korean leader Kim Jong-il to his third and youngest son, Jong-un. The currency redenomination is said to have fueled inflation and severe food shortages, causing social unrest in the tightly controlled nation.

In its latest North Korea report submitted to parliament’s foreign affairs committee, the Unification Ministry said that market prices in the country were on a “downward path” following recent measures by the North Korean authorities.

A kilogram of rice, which cost around 20 North Korean won immediately after the revaluation, soared to 1,000 won in mid-March but dropped to the 500-600 won range in early April, the ministry said.

The value of the North Korean won against the U.S. dollar, which nosedived to the 2,000-won range in mid-March from the 30-won range, also rose to the 600-700 won level in early April, according the ministry.

On Kim Jong-il, the ministry said the reclusive leader has made 43 public appearances this year as of Monday, about the same as last year during the same period, and added he is “actively continuing public outings.” Kim is believed to have suffered a stroke in 2008, which spawned speculation of an imminent power transfer.

Read the full sotry here:
N. Korea’s inflation, exchange rate stabilizing after currency reform shock: Seoul
Yonhap
Tony Chang
4/13/2010

According to Yonhap:

Chinese travel agencies are selling tour programs to North Korea’s Mount Kumgang amid Pyongyang’s announcement that it will find a new partner in retaliation for Seoul’s reluctance to resume cross-border tours, tourism sources said Sunday.

Two Chinese agencies in the city of Tongcheng and the southern province of Guangdong are taking reservations for tour programs that include the scenic mountain and other sights, including Pyongyang, the ancient city of Kaesong and the border with South Korea.

However, it was unclear if the programs are related to the North Korea’s decision last week to dump South Korea’s Hyundai Asan for an unidentified new partner for the mountain tours. Sources in Beijing said that the link appears to be weak, as the Chinese programs had been under preparation before Pyongyang’s announcement last week.

North Korea is angry over South Korea’s reluctance to resume tours to the mountain, which had been a key source of foreign currency for the impoverished nation since 1998. They were suspended in 2008 following the shooting death of a South Korean tourist near the resort.

South Korea demands the North agree to a joint on-site investigation into the death and safety measures for tourists.

Some South Korean media reported last week that the North formed a partnership with a Chinese tour organizer to run tours to the mountain, but Seoul’s Unification Ministry said the reported partnership has not been confirmed.

North Korea’s already serious economic troubles have deepened in the wake of U.N. sanctions for its nuclear test last year, while the regime’s failed currency reform has fueled inflation, food shortages and even rare social unrest.

Meanwhile, about 400 Chinese people are scheduled to embark on a tour of key sights in North Korea. In February, Beijing formally granted permission to its citizens to go deep into the communist neighbor, lifting its previous policy of limiting tourism to the border area.

Read the full story here:
Chinese agencies sell tour programs to N. Korea’s Mount Kumgang
Yonhap
4/11/2010

According to the Wall Street Journal:

As severe hunger looms, the question for donors is whether to resume food aid to North Korea and, if so, how to ensure the assistance reaches the people most in need and is not diverted to the military. Proper monitoring is essential. Some critics think it would be impossible to monitor food deliveries, as the North Korean government would simply reject such a condition, fearing foreigners would learn too much about the world’s most secretive state.

But there is some precedent for meaningful, if not optimal, monitoring of food aid. For instance, the United Nations’ World Food Program conducted an average of 388 monitoring visits a month in 2005, and 440 a month in 2004. For much of these two years, U.N. employees had access to 160 of the country’s 203 counties and districts. More than half of the World Food Program’s international staff, numbering 32 at the end of 2005, were directly engaged in food aid monitoring during the year, and some of them spoke Korean. Such monitoring meant at least some of the young children, the elderly, the disabled, and pregnant and nursing women received food aid.

The North Korean government can hardly afford another period of severe nation-wide hunger. The country’s leaders know that at some point a social explosion is possible as people become desperate. During the years of the famine in the 1990s, North Koreans were still so brainwashed by government propaganda that they died in massive numbers at home, waiting for rations that never came, not letting go of their faith in Pyongyang to save them. North Koreans are now better informed about the outside world, and know whom to blame for their hunger. The survivors have learned that it is foolish, even dangerous, to blindly depend on the government to deliver food.

This means renewed massive hunger could pose a risk to the continuity of the North Korean government. As the Dear Leader, Kim Jong Il, works to ensure another leadership succession to his youngest son, Kim Jong Un, he should consider that North Koreans may not endure another epoch of massive hunger as quietly as they did the last one.

That political imperative may force Pyongyang to act sooner, rather than later. Given that, the foreign-aid community can—and should—insist that aid workers be allowed to properly monitor aid distribution according to standard international protocols for transparency and accountability. The North Korean government must also pledge to end discrimination in government distribution of food in favor of ruling party officials, the military, the intelligence services and the police—and against the “hostile” classes deemed politically disloyal to the government. Otherwise, most donors will remain reluctant to give food aid to North Korea. And that would be a tragedy, on a truly massive scale.

The DPRK  has yet to ask for assistance. 

Read the full story here:
Handling the Next North Korean Famine
Wall Street Journal
Kay Seok
4/13/2010

According to the Associated Press via the  Straits Times:

A South Korean man has been arrested for allegedly spying for Pyongyang and working with its military to kidnap activists who helped North Koreans defect, officials said on Monday.

The 55-year-old man, who was arrested last week and who denies the charges, is accused of taking up the spy job after meeting a female North Korean agent in 1999 in China’s eastern Shandong province, where he was believed to be engaged in drug trafficking, the official said on condition of anonymity because an investigation was ongoing.

The man, surnamed Kim, allegedly traveled to Pyongyang in 2000 for 15 days of spy training and received US$10,000 (S$13,904) and 2 kilograms of narcotics from the North, the official said.

The suspect was sent back to China and started abducting South Korean activists who were helping North Koreans defect from their impoverished, authoritarian homeland. The kidnapped Koreans were sent to the North in cooperation with the female agent, the official said.

The man also kidnapped North Korean defectors hiding in China and forced them back to the North. He also tried to gather information on South Korean intelligence officers operating in Chinese towns near North Korea, the official said.

Prosecution spokesman Oh Se-in confirmed the man’s arrest, saying he allegedly violated the National Security Law, which carries the death penalty as a maximum sentence. The suspect denied the charges, Mr Oh said.

Read the full story here:
S Korean held for spying
Straits Times (AP)
4/12/2010