North Korean Economy Watch

Washington Post
William Foreman
3/27/2007

A British investor who is buying a North Korean bank said Tuesday he is trying to block the transfer of money it holds in a Macau bank in a move that might complicate a deal with the North to shut down its nuclear programs.

North Korea refused last week to return to nuclear disarmament talks until about $25 million of its funds frozen at a Macau bank is transferred to the Bank of China.

The transfer was supposed to occur last week, but was delayed for reasons that have not been fully explained.

The British investor, Colin McAskill, told The Associated Press he “would take whatever steps necessary” to stop the unauthorized transfer of $7 million of the funds held in Macau’s Banco Delta Asia. He said he has written twice to the territory’s bank regulator, the Macau Monetary Authority, without receiving a reply.

McAskill has agreed to buy North Korea’s Daedong Credit Bank, which is majority foreign-owned, and is representing it in discussions with Macau authorities.

He denied a report that he threatened legal action but said that is an option.

Asked whether the money came from legitimate ventures, McAskill said in an e-mail, “I have answered this question many times and been widely quoted as saying, Yes it is.”

The $25 million was frozen in September 2005 after the U.S. accused Banco Delta Asia of helping North Korea launder money and handle counterfeit U.S. currency.

The move enraged the North Koreans, who boycotted the nuclear talks for more than a year. They recently returned to the negotiations after the U.S. agreed to settle the banking issue. The funds were to be transferred to a North Korean-owned account at the Bank of China to be used for humanitarian purposes in North Korea.

McAskill said Daedong wants to be allowed to move the money to a temporary account at another Macau bank and later move it one of Daedong’s correspondent banks.

The U.S. has decided to cut off Banco Delta Asia from the American financial system, and McAskill said Daedong wants to move its money before that ban takes effect in mid-April, making it difficult to transfer money out of U.S. dollar accounts.

On Monday, a senior Treasury Department official held talks with Chinese officials to try untangle the dispute over North Korea’s frozen funds.

Daniel Glaser, deputy assistant secretary for terrorist financing and financial crimes, met officials from China’s Foreign Ministry to discuss the money held at Banco Delta Asia, said Glaser’s spokeswoman, Molly Millerwise.

Glaser’s meeting was “positive and cordial,” with officials focused on “solutions to the implementation matters and our common interest in addressing this issue as quickly as possible,” Millerwise said in an e-mail.

A statement from the U.S. Embassy in Beijing said Glaser met with officials from the People’s Bank of China and the China Banking Regulatory Commission, but it gave no details.

The U.S. agreed to let the money be transferred to a North Korean account at the Bank of China in Beijing, but the release was delayed by the Chinese bank’s concerns about accepting money that had been linked to counterfeiting and money-laundering.

Korea Times
Kim Rahn
3/27/2007

Peaceful resolution of the North and South Korea situation will bring more American travelers to Korea, said Walter Keats, president of Asia Pacific Travel.

Keats, founder of the American travel agency, came to Korea to participate in the American Society of Travel Agents (ASTA) International Destination Expo that began in Cheju on Sunday.

Korea is not a familiar travel destination to Americans, partly because they do not know much about the country but also because they think the divided country is unsafe, said the head of the one-on-one tourism operator in an interview with The Korea Times.

“The problem is that right now in the back of everybody’s mind, there’s North Korea, there’s a war. Million soldiers along the line, missiles and a nuclear test _ these are bad things for tourism. The sooner the North and South situation can be resolved peacefully, the more interesting stuff there will be for all kinds of people,’’ Keats said.

The 61-year-old travel expert with a 30-year career has visited South Korea about 20 times and North Korea, three times. His company arranges trips to North Korea, mainly Mt. Kumgang and even Pyongyang when Arirang performances are presented, but not many Americans know they can visit the Stalinist state, he said.

Asia Pacific Travel plans a trip in May first to Beijing to get visas for North Korea, to Pyongyang for an Arirang performance, and back to Beijing to head for Seoul. Travelers will then visit North Korea’s Mt. Kumgang from the South Korean border, and will travel around South Korea.

“We can’t visit Mt. Kumgang from the North. What we are trying to do is to have people go to North Korea and come across the Demilitarized Zone (DMZ) by land to South Korea. That will be a good tour, a real tour of Korea,’’ Keats said.

The company provides custom itineraries, using its knowledge and experience to make a tour just for each customer.

“Our main customers are 50-75 years old people, who are experienced travelers. Most Americans start traveling domestic cities, and then they go to Canada, Mexico, and then Europe. When they grow more experience and confidence that they can go anywhere, they are ready to go to Asia,’’ the tourism veteran said.

He said Korean tourism’s advantage is the compact size of the country. By driving for seven to 10 days, tourists can have a really good trip in Korea, Keats said.

The president added that the Cheju promotion will be more effective to Americans in Korea and other Asian countries rather than to Americans in the United States.

Reuters
Paul Eckert
3/23/2007

The diplomatic deal that promises to bring North Korea aid in exchange for scrapping its nuclear weapon programs might allow the government to resist meaningful economic changes, an expert on the secretive communist country’s economy said on Friday.

Marcus Noland of the Peterson Institute, a Washington economic think tank, said research for his new book on North Korea’s deadly 1990s famine showed Pyongyang was “at best, ambivalent” about changing policies that led to that disaster.

“The great hope is that reassurances in terms of external security will give the North Korean regime the political room to engage in greater political and economic liberalization at home,” the economist told Reuters in an interview.

But the diplomacy playing out in Beijing could have the opposite effect, said Noland, co-author of “Famine in North Korea: Markets, Aid and Reform” with Stephen Haggard of the University of California, San Diego.

“It could well be that a nuclear deal that resulted in greater amounts of aid would actually allow the North Korean government to intensify activities that are essentially reestablishing economic and political control over the population,” he said.

Negotiators from North and South Korea, China, the United States, Japan and Russia were in Beijing this week, seeking to begin implementing a Feb. 13 deal that would give the North aid and security assurances in return for shutting down a nuclear reactor and preparing other disarmament steps.

Noland’s 368-page study of the famine that killed an estimated 1 million North Koreans in the late 1990s shows how the rigid central planners of Pyongyang were forced to allow markets to feed people and to give farmers some limited freedoms, but then pulled back when the disaster eased.

“When things look better … the North Korean government tries to pull back on this process of marketization and reform,” Noland said.

“One of the saddest things is that as food aid began arriving in North Korea, the regime systematically cut the amount of food it bought on commercial terms,” he said.

The author of three books on North Korea decries what he says are “truly reckless” food policies since the end of the famine. Pyongyang has banned trading in grain on markets that people rely upon for food, confiscated grain in rural areas and reneged on policy promises to farmers, he said.

“In a variety of ways, it seems to want to put the genie back in the bottle,” he said.

Reuters
Lindsay Beck
3/26/2007

North Korea has admitted for the first time to food shortages of a million tonnes, the World Food Programme said on Monday, adding that in the absence of better donor support, millions are vulnerable to hunger.

In the past that food gap — which represents about 20 percent of North Korea’s needs — was met by a combination of bilateral aid, WFP support, loans and commercial interests, but those sources are all drying up, the WFP said.

“This is a very significant development that they themselves are confirming they have a gap of 1 million tonnes,” WFP Asia director Tony Banbury told Reuters.

The figure, which is in line with U.N. estimates, was given in a meeting with the vice-minister of agriculture, Banbury said in an interview from North Korea, where he met officials at the Agriculture Ministry and Foreign Ministry and spent three days in the field.

“There is a real food security problem in the country that is now not being met either by domestic production or external sources.”

North Korea suffered a famine in the mid-1990s that killed as many as 2.5 million people, and has since suffered chronic food shortages.

The WFP began working there in the aftermath of the famine and grew into its biggest humanitarian agency, but was forced to radically scale back its programme last year after the government said it no longer wanted handouts.

Under its new programme, the U.N. agency aims to reach about 1.9 million people, but Banbury said a lack of donor support meant it was only reaching 700,000 of a total population of about 23 million.

North Korea, which tested its first nuclear device last year and is at the centre of diplomatic efforts to dismantle its atomic programme, has made incremental improvements in the nutritional status of children, but that could be reversed.

“There is a real risk that we’re going to see backtracking on the improvements, and people who are just on the edge and vulnerable could find themselves in a very difficult situation from a food and nutritional standpoint,” Banbury said.

Despite the close government watch maintained throughout the visit, Banbury said that for the first time WFP officials were granted a spontaneous request to see government warehouses that store WFP-donated food.

“On the one hand, it was very innocuous — it was just a warehouse with sacks of food in it. On the other hand, it was symbolically, quite important and welcome,” he said.

There were also moments of frankness from officials in the country known for its reclusiveness during Banbury’s visits to a paediatric hospital, a boarding school and orphanages in the west of the country.

“In every institution we visited there were malnourished children, according to the officials there themselves, not just our observations,” Banbury said.

Some of the children were severely malnourished, he said.

“It was my impression that the person on the street — the woman riding the bicycle, the kid walking along the side of the street — was thin and hungry and needed more food than they were getting.”

Joong Ang Daily
Lee Sang-il
3/26/2007

North Korean bank allegedly gave counterfeit U.S. $100 notes to a foreigner working for the United Nations Development Program when he cashed a check at a bank in Pyongyang in 1995, a diplomatic source in Washington told the JoongAng Ilbo.

A spokesman for the UN agency confirmed the suspicion, adding that the bills will be handed over to the U.S. Treasury Department for verification.

In 1995, the UNDP’s Pyongyang office issued a check to an Egyptian consultant for his services on a North Korea project.

The consultant claimed that he cashed the check at the Foreign Trade Bank in Pyongyang and that the bank gave him 35 $100 bills.

After returning home, the consultant attempted to exchange the bills for Egyptian currency, but the bills were rejected as fakes, the source said.

The Egyptian sent the bills back to the UNDP office in Pyongyang, and the UN officials confronted the Foreign Trade Bank and asked for real money, the source said. The request was turned down, and the UN agency has been holding the bogus bills for 12 years.

The revelation of the incident highlights charges by the American government that North Korea has been passing so-called “supernotes” ― fake $100 bills ― for many years. Washington’s claim that Banco Delta Asia in Macao was a conduit for the release of the notes was one reason for the freezing of $25 million in North Korean funds in September 2005.

That money is now due to be released as a precondition for progress in the six-party talks. The U.S. has cut the suspect bank’s access to the American financial system.

In an e-mail interview with the JoongAng Ilbo, David Morrison, spokesman for the United Nations Development Program, said the agency is in the process of giving the notes to the Treasury Department. Mr. Morrison said he was not aware of any other incidents.

Mr. Morrison added that the Egyptian consultant has not provided further evidence that the bills were passed by the Pyongyang bank. He also said that UNDP had used Banco Delta Asia to send money to the North to finance projects from January 2000 to December 2002. He said they chose the bank for its convenient financial services.

Asked if North Korea asked the agency to use Banco Delta Asia, Mr. Morrison said it was an independent decision. He said the UN body stopped transactions with the Macao bank when the settlement currency was changed from dollars to euros.

UNDP opened its office in Pyongyang in 1980 and has carried out public hygiene, agricultural, energy and environmental projects.

Dail y NK
Park Choel Yong
3/26/2007

Even in Pyongyang, entering into a top university is like picking a star from the sky. Not only must you be an A+ student, your family record must be clean.

Growing up in an ordinary family, I was luckily accepted into my preferred university based on my abilities. On receiving my results, I thought that I could achieve anything in the world. However, my sweet dream did not last long. Soon after beginning my tertiary studies, I felt as if I had gotten a big splash on the face. The reason being, marching parade training.

Three days into the semester, I was selected to participate in the marching parade, where the saying, tertiary students once “normal people become stupid” referring to post-training for the marching parade, became a reality. When people think of a marching parade, they think of school parades in South Korea. However, the marching parade in North Korea resembles a years worth of rigorous military training.

In North Korea, participants of the marching parade include students, workers, the military and average citizens who are trained for celebratory events such as Kim Il Sung and Kim Jong Il’s birthday, the anniversary of the establishment of the People’s Army and the Worker’s Party. The audience? Kim Jong Il. For the mere pleasure of one man, Kim Jong Il, hundreds and thousands of people must spend every day of the year working their bodies until exhaustion.

There is one criteria in which university students are selected for the marching parade and that is height. Students gather and their height examined. Compared to others, I was not short. I was also a freshman and so was instantly selected to participate in the marching parade. Occasionally I had seen the marching parade on television but was completely unaware of the intense and arduous training that awaited me.

Our university was assigned to one battalion. There are 12 lines in each battalion and 25 people in each line. The tallest person stands at the head of the line with the shortest at the end.

Elite officials excluded from training

A commander is responsible for each battalion, followed by the political commander and civilian commander. Next is the captain and political captain followed by the line leader, group leader and secretary. Each line is divided into 3 groups with the group leader in charge. This exclusive role normally goes to students in their 3rd, 4th year. Other students in the battalion who are not assigned to such jobs are mostly freshmen.

On the first day of training, many of the students gathered around laughing and talking, “Do you think the Great Leader will really come to see our parade?” However, the following day, a handful of people began to drop out.

At the time, we thought that these people had legitimate reasons for being unable to partake in the training. Only to soon discover that those people had been closely affiliated with elite officials who gave a common excuse that they were physically ill. Ultimately, the selection process which entailed measuring height ended with a group of freshmen and poor students living in the dorms from the country.

Each battalion is represented by one university. Students who are selected for the marching parade attend lectures in the morning and then training in the afternoon. After spending an afternoon training on a dirt field amidst dirt, your mouth practically becomes a small clusters of dirt itself by evening.

The first stage of training is warm-up and stretching. Every day, we had to replicate positions made by professional performers and showcase our days training. If we were unable to succeed in doing this, training continued.

During the first month, we trained on the university fields, but in the second month, we began training at the Juche Statue Education Square and here is where students began to show symptoms of arthritis. Unable to restrain myself from lack of sleep during class, I was frequently scolded by the lecturer and the number of patients increased. Regardless of how ill one was, strict punishment awaited those who missed training.

Wanting to smash the street lamp at Juche Statue

Every day, training began at 2PM and usually finished around 7PM. Once training was over, battalion commanders came and gave lectures. People who are late to training, people who participate in training disrespectfully and people pointed out throughout the training are severely criticized. Once the lecture is over, smaller, tutorials begin.

Naturally, tutorials aren’t any better. The tutor or divisional commander closes the lecture by stressing the importance of being on time and participating sincerely in the training. The lectures normally last an hour and half, but this does not mean that the day’s training is over.

The students criticized in the lectures must undergo re-training. There has never been a time where the street lamp at the Juche Statue has been more spiteful. The thought that training would end if only the lighting was lost would not escape my mind. Whether or not someone was looking we did not care. We only wanted to smash the street lamp.

When training is finished, exhausted students are finally dismissed and another 30~1 hour walk back to the dorms awaits them. There are no buses at that hour and so students do not have an option but to walk home. As for dinner, meals have long been served at the dormitories.

Korea Times
Kim Sue-young
3/25/2007

South Koreans will now be more easily able to visit the Kaesong area in North Korea as an invitation from the North is not required, officials of the Unification Ministry said.

For visit to the joint inter-Korean industrial complex in the city, the North Korean association on economic cooperation used to issue an invitation but an admission ticket from the Kaesong Industrial District Management Committee (KIDMC) is now sufficient, they said.

“Recently, North Korean authorities which manage the complex and the committee agreed to abolish the invitation system during a discussion over rules on entry and stay,’’ an official said on condition of anonymity. “Instead, visitors should get a pass from the committee and long-term visitors who will stay for more than seven days should register at North Korea’s immigration office.’’

The two Koreas are talking over details to simplify the entry but have difficulties narrowing differences on the amount of charges that visitors should pay for the pass and registration, he said.

Officers of South Korean companies in the area, however, expressed worries over North Korea’s possible demand for expensive fees.

“Under the previous rules, visitors had to pay some amount of money when they obtained documents for stays, extended expiration dates or changed their addresses,’’ another official said asking to remain anonymous.

“Companies in the complex, however, may face problems doing business in the complex if the burden from those fees are heavier than the convenience brought by dropping the invitation system.’’

As for the worries from resident companies in Kaesong, the ministry official said, “It is unavoidable to impose some amount of money for guaranteeing a person’s identity.’’

Both sides are still discussing reasonable charges, he added.

Meanwhile, the North is pushing to establish a special economic zone on two islets located near the border of China. The zone is aimed at gaining China’s investment and reviving the declining economy, another source said.

Pyongyang is seeking to create a free trade zone on the Bidan and Wihwa islands on the Yalu River bordering China and has sounded out South Korean companies on their investment plans for the project, the source said.

The economic zone would specialize in areas such as trade, distribution, light industries and tourism, it added.

Yonhap
3/25/2007

South Korea will begin preparations for the development of a 2.5-million-pyeong area in the inter-Korean industrial complex in Kaesong, North Korea in the second half of this year, the Unification Ministry said Sunday. One pyeong equals 3.3 square meters.

The government will measure and conduct a geological survey of the land in the western North Korean border town for the second-stage construction of the industrial complex, the ministry said.

The construction project aims to build a 20-million-pyeong industrial base in three stages for South Korean companies by 2012. The complex, if completed, is expected to employ as many as half a million North Koreans to work for about 2,000-3,000 South Korean manufacturers.

The government originally planned to embark on the second-stage project last year, but had to put it off amid inter-Korean tension caused by the North’s missile and nuclear tests.

The ministry also said it plans to parcel out a 530,000-pyeong lot for South Korean manufacturers late next month. The land is the remainder of the 1-million-pyeong lot the South and North Korean governments have been jointly developing in the industrial complex.

The Kaesong industrial complex is one of the two major cross-border projects that South Korea has kept afloat in spite of U.S. opposition. The two Koreas also run a joint tourism project at the North’s scenic Mount Geumgang.

In the industrial complex, South Korean businesses use cheap but skilled North Korean labor to produce goods. Currently, 21 labor-intensive South Korean factories employ about 11,160 North Korean workers.

But U.S. hard-liners criticize the complex, claiming that the factories where North Korean workers earn about US$60 a month are actually channels to funnel much-needed hard currency to the tyrannical North Korean regime.

Chris Gelken has an interesting insight into the Banko Delta funds…

“It was quite a rude awakening to hear on the news that my money was going to be used for charity,” the holder of an account with the Macau-based Banco Delta Asia told me on the condition that I didn’t reveal his identity.

“What needs to be understood,” he said, “is that not all the funds belong to the North Korean government, but that a substantial amount belongs to private customers.”

Bloomberg quoted Colin McAskill, chairman of the London-based fund Koryo Asia Ltd, as saying he contacted the Macau Monetary Authority warning them that the money held by private businesses based in Pyongyang did not belong to the North Korean government and must not be included in the proposed transfer to settle the 18-month dispute between the North and the U.S. Treasury.

Joong Ang Daily
Brian Lee
3/24/2007

The messy knot of North Korean funds frozen in a Macao bank is proving difficult to untangle despite Washington’s assurances that the money will be returned to Pyongyang.
As a result, the six-party nuclear talks, which recessed Thursday over the issue, remain on hold while a solution is sought. North Korea demands that it have the money in hand before sitting down again.

South Korean Foreign Minister Song Min-soon said yesterday that the problem of returning the $25 million in funds frozen in Macao’s Banco Delta Asia would be resolved next week and the talks would resume soon. Seoul’s top negotiator, Chun Young-woo, however, said on the same day that resolving the issue will be difficult.

“Next week we will resolve it and expect to move forward in implementation measures,” Mr Song said in a news conference.

Mr. Chun said that the Bank of China, despite pressure by the Chinese government, has refused to put the money into North Korean accounts but is working with Washington to find a way to relay the money to a bank in a third country.

A government official said yesterday that the Bank of China, which is listed on the Hong Kong Stock Exchange, has foreign shareholders and is not willing to risk alienating itself from the international financial community by associating itself with money branded illicit by Washington.

In September 2005, Washington declared Banco Delta Asia a prime money launderer on behalf of North Korea, a move which caused the funds to be frozen.

Furious, North Korea backed away from nuclear negotiations and demanded the money back as a precondition for substantive talks. Recently, Washington agreed to the release of the funds but it has ordered all ties between the rogue bank and the U.S. financial system cut.

Meanwhile, the U.S. State Department said that Treasury Department official Daniel Glaser will go to Beijing soon to consult with the Bank of China on the issue.

Sources said that providing written assurances to the bank from American regulators that it would not face scrutiny over relaying the money might be one way to resolve the issue.
Mr. Chun said that finding a bank willing to accept the money is the key. “North Korea has to designate a bank in a third country,” said the official. “North Korea does not want cash.”

A government official said yesterday that Pyongyang wants contact with an overseas bank and is also unwilling to have the money wired to a North Korean bank.

“Any bank will think that there could be problems with its credit rating when dealing with money stamped illicit by Washington,” the official said. “Finding a bank to receive the money will be a difficult task.”

Mr. Chun remained cautiously optimistic. While he admitted that little progress was made in the latest round of talks, he said that from a long term perspective Pyongyang has learned a lesson that would help it understand its current position of isolation in the international community. “Even if there is the political will to resolve the issue, North Korea has seen the cold reality of the international financial world,” he said.