North Korean Economy Watch

1. Alejandro Cao de Benos, head of the Korean Friendship Association,  did an interview for an Italian publication (Page 1, Page 2).  Josh is posting a translation: part 1, part 2, part 3, part 4.

2. Flower of Reunification: North Korean propaganda film about Im Suk Yong.  Lots of great footage of the 1989 World Festival of Youth and Students in Pyongyang.  Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7.

3. North Korea has launched a new propaganda campaign aiming to increase living standards.  See the new paintings in the Choson Ilbo here.

 4. Ice skating: Pyongyang might have the DPRK’s only indoor ice skating rink (as far as I know), but ice skating–particularly on frozen rivers and lakes–seems to be pretty popular in the DPRK.  Scenes like the one below (Hyangsan) can be easily found in North Korea on Google Earth:

5. Reunification fruit.

6. According to Google’s international dailing chart, North Korea and Cuba are the most expensive places to call!

7. North East Asia Matters posts interview with former member of KJI pleasure squad.

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 He has been replaced by his deputy, Jon Il-chun, Yonhap said, citing an unidentified source.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.

…

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.

According to Bloomberg: 

President Barack Obama said he’ll keep North Korea off the U.S. government’s list of states that sponsor terrorism.

North Korea “does not meet the statutory criteria” for inclusion on the list, that automatically imposes sanctions, Obama wrote in a letter to congressional leaders yesterday.

Former President George W. Bush removed North Korea in 2008 after the communist state agreed to inspections of sites suspected of being part of the regime’s nuclear program. It had been designated as a state sponsor of terrorism since 1988.

Last June, Secretary of State Hillary Clinton said the administration was considering re-designating North Korea after it conducted nuclear and missile tests earlier in the year.

Cuba, Iran, Sudan and Syria are classified as state sponsors of terrorism, according to the State Department.

Read the full story here:
Obama Keeps North Korea Off U.S. List of Terrorism Sponsors
Bloomberg
Hans Nichols
2/4/2010

According to the Korea Times:

Canada granted 66 North Korean defectors refugee status in 2009, which is almost 10 times higher than in 2008, a report said Saturday.

Radio Free Asia, quoting a report from the Canadian Immigration and Refugee Board of Canada, said that more North Koreans are expected to receive the status as there are 59 defectors currently under review.

The North American country’s first case of granting refugee status to a North Korean was in 2000. In 2008, there were seven more cases.

…

According to the radio, a total of 93 North Koreans had also settled down in the United States as of last December.

Read the full article here:
66 North Koreans Given Refugee Status in Canada
Korea Times
Kim Sue-young
1/31/2010

Institute for Far Eastern Studies (IFES)
NK Brief No.10-02-03-1
2/3/2010

In order to meet this year’s economic goals, North Korean authorities are calling on the people to launch an “all-out offensive”. Day after day, North Korea media outlets are calling for “continuing reform” and “continuing improvements,” even introducing a new motivational song titled, “It’s a war of attack.”

The slogan “all-out offensive” is designed to encourage the people of North Korea to pour all efforts into attaining the best results in each area of the economy. It is not uncommon for the North to use military terms such as this to motivate its citizens for non-military mobilization drives.

According to the (North) Korean Central News Agency (KCNA), the front page of the January 29 issue of the Rodong Sinmun carried an editorial titled, “Raise the fighting spirit of 10 million soldiers, and advance the all-out fighting spirit of this year,” while the second page of the same paper carried a political commentary titled, “Let’s practically demonstrate.”

The editorial called on citizens of the North to work toward improving the standard of living and improving the lives of the people, and stressed, “The on-going ideological campaign is an all-out offensive for remarkably increasing the speed of the advance for effecting a great surge with the might of the perfect unity of the leader and all the service personnel and people and a charge for giving fullest play to their mental power so that events adding luster to the era of Songun may take place one after another,” and, “The on-going general offensive is sure to triumph when all the people live and struggle as the brave, staunch and devoted vanguard in the advance for effecting a great surge.” On January 20 and 22, the same paper had run similar articles, calling for the “spirit of victors” and “marching forward as quickly as possible.”

That North Korean authorities have gone so far as to launch the song “It’s a war of attack” gives the impression that there is an air of urgency surrounding these ongoing efforts to mobilize the people. Also reflecting this urgency is the fact that this year, Kim Jong Il has carried out more public activities than during January 2009. As of January 26, Kim Jong Il had made 14 public appearances. This was 56% more than the first month of last year, during which Kim had made the most visits since launching the 1st Kim Jong Il regime in 1998.

Of those 14 appearances, 7 were on-site inspections of enterprises and other economic sites, while only 6 visits were military-related. The remaining visit was to the central court; There were no meetings with foreign dignitaries or other foreign diplomacy-related activities. One military-related visit of interest was to a self-sufficient pig farm run by the army. January’s visit was Kim’s third to the farm, where he advised managers to “raise more pigs and provide more pork and pork products to the soldiers,” an indirect reference to the seriousness of food shortages among the North’s military.

According to the Financial Times:

Orascom Telecom, the Egypt-based mobile network operator, says its subsidiary in North Korea, Koryolink, has acquired 100,000 subscribers in its first year and expects to add millions more in the next five years.

The expansion plans come as the isolated country of 24m, which says it wants to be considered a “mighty and prosperous nation” by 2012, steps up efforts to attract foreign investment.

Pyongyang’s economic ambitions come in the face of tough international sanctions on its nuclear arms programme.

“We see that there is a very big plan for an economic boom,” said Khaled Bichara, chief executive of Orascom. “They are really looking to have, by 2012, a much stronger economy. We believe that mobiles and eventually international communication will definitely be part of this.”

Koryolink, a pre-pay system, has been available in Pyongyang and Nampo, the capital’s port, since December 2008. To help expand the network from there, Mr Bichara said North Korea was laying fibre-optic cables in the provinces.

Orascom was installing its most technologically advanced 3G network in North Korea, he said. The 2010 target for user numbers was ambitious but Mr Bichara declined to put a figure on it.

“I think if we achieve the target of this year, that will be a big milestone,” he said. “The number will be big enough to make Koryolink look like a significant company for us because the revenues per customer are interesting and we believe that this business will have customers in the millions within the next four or five years.”

Mr Bichara said the subscription figures showed that mobile phones were not limited to elite members of the military and communist party, as many observers had speculated.

However, the handset price of €140 ($195) put a mobile phone out of most people’s grasp.

So far, Koryolink offers only a basic voice and text messaging service. International calls and roaming services are not provided but Mr Bichara said starting them would be simple given the sophistication of the network being installed.

Koryolink is a joint venture in which Orascom has a 75 per cent stake. The rest is owned by Korea Post & Telecommunications Corp, the state fixed-line provider.

Thanks to a reader for sending this to me. 

Read the full article here:
N Korea operator looks to millions of 3G users
Financial Times
Christian Oliver and Heba Saleh
2/3/2010

The particular regulations that seem to have been eased: the 10-day rule and price controls on rice.  No word on whether this easing is short-term or long-term in nature. 

From the Daily NK:

In an attempt to avert a food crisis and stem popular discontent, the North Korean authorities have reportedly bowed to pressure and started lifting market regulations across the country.

The decision, which apparently came into force at the start of February, may seem to be an abrupt one, yet it is largely inevitable. A food crisis has seemed to be on the cards for a while, while acts of violence against security officials have been occurring with increasing frequency and discontent among the people has been rising rapidly since the currency redenomination at the end of November.

An inside source reported the news to The Daily NK on Tuesday, saying, “Since February 1st, in Yangkang and Hamkyung Provinces, jangmadang regulations have been completely lifted. The price of rice, which had been more than 400 won, has now stabilized at between 250 and 300 won.”

The source added, “It is a good thing that the jangmadang is open. We were worried about a coming crisis as the rice price has been soaring and we have not been given any wages. That said, the people are watching the authorities’ next move, so they are still reticent to trade.”

Some foresee that, since the authorities have still not released state-designated price for rice in the jangmadang, they may be planning to allow it to just float with the market.

It is still unclear if the February 1st decree completely opened the market as it used to be or is just a temporary solution to avert a possible food crisis. Inside sources say they plan to wait and see.

Regardless, now that the jangmadang is open, exchange rates seem to be stabilizing as well. The dollar exchange rate, which was around 400 won, has fallen back to nearer 300 won in just two days.

Read the full story here:
Ban on Markets lifted
Daily NK
Jung Kwon Ho
2/3/2010

According to the Choson Ilbo:

The North Korean regime apparently sacked the Workers’ Party’s Finance Director Pak Nam-gi, letting him take the fall for the failed currency reform late last year. Pak was appointed finance director in July 2007 to oversee North Korea’s economic policies and has spent the past few years trying to root out a nascent market economy.

“Right now, North Korean officials are busy blaming each other for the failed currency reform and Pak, who spearheaded the revaluation, is believed to have been sacked,” said a diplomatic source in Beijing. “Markets have come to a grinding halt following the currency revaluation and prices have soared,” the source said. It seems North Korea hoped to stabilize prices through the currency reform and then credit the achievement to Kim Jong-il’s third son and heir apparent Jong-un to consolidate his grip on power, but this flopped, the source added.

Some North Korea watchers in China predict that the regime may perform a U-turn back to timid market reforms now that Pak, who led the crusade against capitalism, has been fired. One North Korea expert in Beijing said, “There is a strong possibility that high-ranking North Korean officials who led the drive to crush market forces since 2004 will be removed from office, while policies will shift toward market reforms starting in the second half of this year.”

Meanwhile, the new North Korean won is still plummeting against the U.S. dollar. North Korea valued the new currency to 98 won per dollar after the old won weakened to 3,500. But the new won has plunged since last month and is now being traded at between 300 and 500 won per dollar, according to people who trade goods with North Koreans.

According to the Daily NK:

In the tradition of dictatorial regimes worldwide, scapegoats have apparently also been chosen. South Korea’s Chosun Ilbo today claimed that Park Nam Ki, Director of the Planning and Financial Department of the Central Committee, has taken responsibility for the failed redenomination, which initiated a period of hyper-inflation, and been dismissed.

According to the report, Park was appointed to the top economic position in the North Korean government in July, 2005, where he began to pull up the green shoots of spontaneous market economy.

If the news is confirmed, Park will be following in the undesirable footsteps of Ministry of Agriculture head Seo Gwan Hee and Premier Park Bong Ju.

Seo was executed for his role in the 1990s famine. According to defector testimony, Kim Jong Il shifted responsibility for the famine onto him and had him publicly executed in 1997.

Meanwhile, Park Bong Ju became the Premier of the North Korean Cabinet in 2003, the year after the adoption of the July 1st Economic Management Reform Measure, and was responsible for introducing revised market economic elements according to the July 1st Measure. However, results were not sufficient and he was sent to manage the Suncheon Vinylon Complex in South Pyongan Province. 

Lets hope that the jangmadang come back with a vengeance. 

Read the full articles here:
N.Korean Finance Chief Sacked Over Currency Debacle
Choson Ilbo
2/3/2010

Read the full story here:
Ban on Markets lifted
Daily NK
Jung Kwon Ho
2/3/2010

Daily NK
Park Sung Kook
2/2/2010

There has been an explosion in the number of casualties resulting from popular resentment at harsh regulation of market activities by the security apparatus across North Korea, according to various Daily NK sources.

For instance, in Pyongsung, North Pyongan Province, normally one of the key distribution centers in North Korea, there have been several incidents of agents from the People’s Safety Agency (PSA), the organization charged with cracking down on the smuggling of food and other officially “immoral” acts, being attacked by unidentified assailants.

A Daily NK source reported on Monday, “A group of agents who had just finished doing the rounds of the jangmadang and alley markets in Naengcheon-dong, Haksu-dong, and Cheongok-ri in Pyongsung were attacked by a number of people, who assaulted them and immediately ran away. As a result, PSA officials are feeling very tense these days.”

Commenting privately on these incidents, some people savor them as acts of revenge, but others are worried about the situation, according to The Daily NK’s sources.

There have been more examples unearthed in recent days, too. For instance, North Korea Intellectuals Solidarity (NKIS), a Seoul-based defector group, recently received news that “a fight broke out between agents of the PSA, who monitor the Hyesan jangmadang, and some residents. As the fight turned serious, one resident snatched an agent’s gun and fired randomly into the crowd. One agent, Choe, is in a critical condition.”

According to NKIS, the fight began after the PSA agents beat up a trader who was trying to avoid the crackdown, and that made other residents angry, so they attacked the agents in return. As the fight grew more serious, agents threatened residents, but this only added fuel to the flames.

Finally, a Daily NK source from North Hamkyung Province released one other incident: Cho, who used to work for the Prosecutions Department of the National Security Agency in the region, was apparently killed by a Chongjin Steel Mill worker called Jeung Hyun Deuk.

The source explained, “Jeung’s father, the chief of a foreign currency-generating company, was interrogated last July on suspicion of embezzling enormous amounts of property and foreign currency, and in January was sentenced to life in prison. However, a few days after being imprisoned, he died. Thereafter, Jeung held a grudge against his father’s interrogator, Cho, and eventually killed him.”

The source concluded, “Traders and residents have lost their property due to the redenomination and are pretty much being treated as criminals as a result of the NSA and PSA’s ‘50-Day Battle.’ Therefore, people are taking revenge on agents, since they feel so desperate that, regardless of their actions, they will die. As a result, social unrest is becoming more serious.”

On January 2, the National Defense Commission released an order entitled “On completely sweeping away hostile factions who attempt to demolish our Republic from the inside,” initiating the “50-Day Battle” crackdown by the PSA and NSA in every city, county, and province which was referred to by the North Hamkyung Province source.

According to the AP (Via Boston Herald):

President Barack Obama’s top intelligence official said Tuesday that North Korea relies on its nuclear weapons program because of a crumbling military that cannot compete with South Korea.

Director of National Intelligence Dennis Blair described in testimony before the U.S. Congress a North Korean army that struggles with aging weapons, poorly trained, out-of-shape soldiers, inflexible leaders, corruption, low morale and problems with command and control.

North Korea, Blair said, has little chance of reversing a huge gap in military capabilities with South Korea and so “relies on its nuclear program to deter external attacks on the state and to its regime.”

…

Officials from South Korea, the U.S., Japan, Russia and China have been working to get North Korea back to nuclear disarmament talks after Pyongyang walked away from the negotiations last year. For more than a decade, the North has gained energy and aid concessions from the talks and then backed away from nuclear agreements.

Blair said the United States does not know whether the North had made nuclear weapons but that it has that capability. He said that while a 2006 nuclear test was a “partial failure,” the May test of last year was more successful.

Blair said North Korea has shipped missiles to Iran and Pakistan and helped Syria build a nuclear reactor.

The North is thought to have enough weaponized plutonium for at least half a dozen atomic bombs. North Korea argues that it was compelled to develop nuclear weapons to cope with a military threat from the United States, which has about 28,500 troops in the South.

Blair said North Korean leader Kim Jong Il wants recognition of his country as a nuclear weapons power, something he said the United States will not do.

Dennis Blair’s Annual Threat Assesment of the US Intelligence Commuity can be read here. Here is what it had to say about the DPRK:

North Korean WMD and Missile Programs

Pyongyang’s nuclear weapons and missile programs pose a serious threat to the security environment in East Asia. North Korea’s export of ballistic missiles and associated materials to several countries including Iran and Pakistan, and its assistance to Syria in the construction of a nuclear reactor, exposed in 2007, illustrate the reach of the North’s proliferation activities. Despite the Six-Party October 3, 2007 Second Phase Actions agreement in which North Korea reaffirmed its commitment not to transfer nuclear materials, technology, or know-how we remain alert to the possibility North Korea could again export nuclear technology.

The North’s October 2006 nuclear test was consistent with our longstanding assessment that it had produced a nuclear device, although we judge the test itself to have been a partial failure based on its less-than-one-kiloton TNT equivalent yield. The North’s probable nuclear test in May 2009 supports its claim that it has been seeking to develop weapons, and with a yield of roughly a few kilotons TNT equivalent, was apparently more successful than the 2006 test. We judge North Korea has tested two nuclear devices, and while we do not know whether the North has produced nuclear weapons, we assess it has the capability to do so. It remains our policy that we will not accept North Korea as a nuclear weapons state, and we assess that other countries in the region remain committed to the denuclearization of North Korea as has been reflected in the Six Party Talks.

After denying a highly enriched uranium program since 2003, North Korea announced in April 2009 that it was developing uranium enrichment capability to produce fuel for a planned light water reactor (such reactors use low enriched uranium); in September it claimed its enrichment research had “entered into the completion phase”. The exact intent of these announcements is unclear, and they do not speak definitively to the technical status of the uranium enrichment program. The Intelligence Community continues to assess with high confidence North Korea has pursued a uranium enrichment capability in the past, which we assess was for weapons.

Pyongyang’s Conventional Capabilities. Before I turn the North Korean nuclear issue, I want to say a few words regarding the conventional capabilities of the Korea People’s Army (KPA). The KPA’s capabilities are limited by an aging weapons inventory, low production of military combat systems, deteriorating physical condition of soldiers, reduced training, and increasing diversion of the military to infrastructure support. Inflexible leadership, corruption, low morale, obsolescent weapons, a weak logistical system, and problems with command and control also constrain the KPA capabilities and readiness.

Because the conventional military capabilities gap between North and South Korea has become so overwhelmingly great and prospects for reversal of this gap so remote, Pyongyang relies on its nuclear program to deter external attacks on the state and to its regime. Although there are other reasons for the North to pursue its nuclear program, redressing conventional weaknesses is a major factor and one that Kim and his likely successors will not easily dismiss. Six Party Talks and Denuclearization. In addition to the TD-2 missile launch of April 2009 and the probable nuclear test of May 2009, Pyongyang’s reprocessing of fuel rods removed from its reactor as part of the disablement process appears designed to enhance its nuclear deterrent and reset the terms of any return to the negotiating table. Moreover, Pyongyang knows that its pursuit of a uranium enrichment capability has returned that issue to the agenda for any nuclear negotiations. The North has long been aware of US suspicions of a highly enriched uranium program.

We judge Kim Jong-Il seeks recognition of North Korea as a nuclear weapons power by the US and the international community. Pyongyang’s intent in pursuing dialogue at this time is to take advantage of what it perceives as an enhanced negotiating position, having demonstrated its nuclear and missile capabilities.

…

North Korea and Venezuela possess more limited intelligence capabilities focused primarily on regional threats and supporting the ruling regime. North Korea continues to collect information on US technologies and capabilities. Venezuela’s services are working to counter US influence in Latin America by supporting leftist governments and insurgent groups.