North Korean Economy Watch

RIA Novosti (Hat Tip DPRK Studies)
1/29/2007

A suspect in the case of a North Korean national beaten to death in a Russian Far Eastern city has been arrested, an aide to the regional prosecutor said Monday.

The man’s body was found in a hostel housing North Korean construction workers in the Pacific port of Vladivostok, near the North Korean border, Friday. Forensic experts said the man died of a brain injury.

“A forensic psychiatric expert examination has been ordered for the suspect in the case, to determine whether he is sane,” Irina Nomokonova said, adding that the suspect was a Russian citizen.

Witnesses said Friday the victim had returned to the hostel with bruises on his face, saying he had fallen accidentally. But several hours later, his North Korean colleagues found him dead.

Two other people from the Communist nation were battered to death in Vladivostok in December in an attack investigators said was carried out by a group of teenagers.

Local police say attacks on foreigners have become more frequent in the Primorye Territory, which borders on China and North Korea and is home to thousands of migrant workers from those countries.

In 2006, 247 attacks were made on people of foreign appearance in the region, compared to 181 the previous year. The statistics reflect a rise in xenophobic sentiment in the country as a whole.

Bloody interethnic clashes in northwest Russia last fall prompted authorities to impose restrictions on the number of foreign workers, effective as of this year.

UNFAO
10/30/2003

Despite better harvests this year, the Democratic People’s Republic of Korea (North Korea) will have another substantial food deficit in 2004, requiring a large amount of external assistance, two United Nations agencies said today.

A combination of insufficient domestic production, the narrow and inadequate diet of much of the population and growing disparities in access to food as the purchasing power of many households declines, means that some 6.5 million vulnerable North Koreans will require assistance next year, according to a joint report by the UN Food and Agriculture Organization (FAO) and World Food Programme (WFP).

The situation remains “especially precarious” for young children, pregnant and nursing women and many elderly people, the Rome-based agencies warned.

The report projected domestic cereal availability in the 2003/04 marketing season (November-October) at 4.16 million tonnes, 4.7 per cent up from the revised 2002/03 estimate of 3.97 million tonnes.

The 2003 rice and maize harvests each rose by an estimated 4.5 per cent over 2002, to 1.48 million tonnes (milled basis) and 1.73 million tonnes respectively. The improvements were attributed to favourable weather, a relatively low incidence of crop pests and diseases, increased application of donated fertilizer andbetter irrigation.

Forecasting total cereal needs – food, animal feed and seeds – for 2003/04 at 5.1 million tonnes, the FAO/WFP report projected an import requirement of 944,000 tonnes. Given anticipated commercial imports of 100,000 tonnes, concessional imports of 300,000 tonnes, and food aid expected to be in stock or to arrive after 1 November, 2003 of 140,000 tonnes, the uncovered gap will be 404,000 tonnes.

Despite evidence of improved nutritional levels in recent years, malnutrition rates remain “alarmingly high”, the report said. Four out of ten young children suffer from chronic malnutrition, or stunting, according to a large-scale, random sample survey conducted in October 2002 by UNICEF and WFP. Continued, targeted food aid interventions are essential to prevent a slippage back towards previous, higher levels of malnutrition, the UN agencies said.

The economic policy adjustment process initiated in July 2002 has led to many factories being unable to pay full wages. Combined with food price increases that were higher than increases in wages, this has caused a further deterioration in the already inadequate purchasing power of many households, especially in urban areas.

Rations from the Public Distribution System (PDS) – a primary source of food for the 70 per cent of North Korea’s 23 million people living in urban areas- are set to decline to no more than 300 grams per person per day in 2004, from 319 grams this year, according to government authorities. The present allocation ensures only half of an individual’s caloric requirements.

Low as the PDS rations may be, industrial workers and elderly people now spend up to 60 per cent of their income on these rations alone. After paying for non-food necessities, they can ill-afford staples such as rice and maize in private markets, where prices are as much as 3.5 times higher, let alone more nutritious foods.

As the situation may worsen in the immediate future, the report recommended that attention also be given to the low-income PDS dependents in urban areas rendered increasingly under-employed by economic adjustment process.

The FAO/WFP report urged that 484,000 tonnes of commodities, including 400,000 tonnes of cereals, be sought as food aid for 2004 for the most vulnerable North Koreans. Three-quarters of the total is earmarked for children in nurseries, kindergartens, primary schools, orphanages and hospitals, pregnant and nursing women and elderly people.

Despite improvements in the operating environment for aid agencies, the report noted that there are still restrictions on access to the needy and to marketsand shops, reducing the scope for monitoring and the timely detection of newly emerging food-insecure groups. But it also says that the North Korean government has been more forthcoming with information needed to assess household food security.

The report recommended that “in addition to providing urgently needed food aid, the international community enter with the government into a policy dialogue to set an enabling framework to mobilise the economic, financial and other assistance needed to promote sustainable food production and overall food security.”

Donga
1/27/2007

Recently, rumors have been spreading in North Korea that Jeong Ha Cheol (74-year-old), the propaganda secretary of the Workers’ Party, has defected from North Korea, stirring public sentiment.

Party officials have been going door-to-door to remove traces of Jeong from publications without giving any reason. Officials are painting over Jeong’s face with black ink on any pictures that show Jeong accompanying North Korean leader Kim Jong Il or its former leader Kim Il Sung. They are also censuring his name with black ink if there are any passages that include his name and sealing the book. Moreover, writings by Jeong have been torn to pieces. All households which have a few dozens of those books now are required to get rid of them since most North Korea publications are propaganda books.

Jeong Ha Cheol, who studied philosophy at the Kim Il Sung University, was one of the most successful propaganda officials. He served as the editorial chief of the state-run newspaper Rodong Sinmun and the chairman of the Central Broadcasting Station before becoming the propaganda secretary of the Workers’ Party. It is a key post that oversees all the propaganda activities in North Korea, and Kim Jong Il also served in this post before being named as Kim Il Sung’s successor in the mid 1970s.

Jeong, who was considered as one of the closest aides of Kim Il Sung, accompanied Kim every time he paid a state visit to China and even received the Kim Il Sung Decoration, the most highly recognized medal in North Korea at that time.

In fact, rumors about Jeong erupted in December 2005. Some media outlets reported that Jeong has stopped appearing in public since October 2005. There were no news reports on his exile.

Some sources said that he was imprisoned at a concentration camp in North Pyongan Province because his faults were revealed during an intensive investigation into the staff of Central Broadcasting who was caught drinking during the daytime.

According to the sources, Jeong was sentenced as “a traitor against the party and revolution,” and was ordered to be erased from all the records, including publications. In short, he is unlikely to regain his power since he has been completely shunned by North Korean society.

All these people were involved in the so-called, “August Clan Incident.” The names of the children of Kim Sung Ae, Kim Il Sung’s third wife, who fell from political power and Seo Gwan-hee, former agricultural secretary of the Workers’ Party, who was shot to death on charges of espionage, were also removed from publications. You can see black marks quite often on North Korean political books. In North Korea, it is a principle that if one is accused of a serious crime, his or her family members and relatives (father’s side: up to second cousins, mother’s side: up to first cousins) are also sent to concentration camps or deep in the mountains, as it happened in the feudal age.

The most common cause that North Korean committee officials consider as a serious crime is a drinking bout. Criticizing Kim Jong Il or the communist regime after having some drinks can not be tolerated in the North, and that is likely the case with Jeong. It is a felony to shake the regime. Recently, Joo Dong Il, a high ranking official in charge of electricity, was dismissed for suggesting to Kim Jong Il on a private occasion, “How about we use the electricity used for unattended guest houses all across the country for the economic sector?”

However, some analysts speculate possibilities of Jeong’s involvement in serious corruption considering that North Korea lavishly spend money to purchase equipment from overseas for propaganda purposes every year.

Choi Yong Hae, the chairman of the League of Socialist Working Youth and who prepared the 13th World Festival of Youth and Students, was also found guilty of grave corruption. Although Choi was dismissed, his name was not censured with black ink. Chang Sung Taek, a senior official of the Workers’ Party, was also blamed of serious corruption, but he was recently pardoned. Corruption charges are far more lenient compared to criticizing the regime or Kim Jong Il.

Jeong’s case is a good example that illustrates how insecure the power that top North Korean officials have once they lose the trust of Kim Jong Il. If North Korean officials are not cautious all the time, like walking on thin ice each day, they can be out of Kim Jong Il’s favor.

NK Secretary Jung Ha Chol Politically Banished
Daily NK
Han Young Jin
1/29/2007

A rumor has spread alleging that a former secretary for the Propaganda Department of the Chosun Worker’s Party Jung Ha Chol (74) has escaped North Korea, reported the Donga Ilbo on the 27th.

A source told Donga Ilbo “Though the reason has not yet been revealed, North Korean elite officials have recently been erasing remnants of Secretary Jung in published materials” and informed “Secretary Jung’s face has been deleted from all photos taken with Kim Il Sung or Kim Jong Il.” In addition, Secretary Jung’s name is being erased from all written materials and sealed with tape, and materials directly written by Secretary Jung are being deleted altogether.

With Kim Il Sung’s May 25th teaching in 1967, “North Korea’s revolutionary culture” arose and excluding statements and instructions of Kim Il Sung, any foreign editions and all publications displaying anti-authority or conflict with Kim Il Sung were either burned or erased.

Hence, we can surmise that secretary Jung has already been purged from North Korea’s political arena based on the evidence that his photo and name is being obliterated from published materials.

Secretary Jung graduated from the Kim IL Sung University majoring in Philosophy and worked as an editor for the Rodong Newspaper and Head of the Central Broadcast Agency. In 2001, he became the director and secretary for the propaganda department which following the secretary for the Chosun Workers Party is the next best position. Secretary Jung was even selected as Kim Jong Il’s entourage on his visit to China and was even awarded the Kim Il Sung honorary medal.

However, in December 2005 inspectors discovered one of Secretary Jung’s private parties held at a rural village during an agricultural supporting activity. In addition, there had been rumors that the First Minister for the Chosun Workers Party Lee Jae Kang and Secretary Jung had been in conflict. Whatever the unknown reason, whether it was Secretary Jung conducting parties, occurrences or comments made at the party or personal feuds, Secretary Jung was ultimately imprisoned at a concentration camp in South Pyongan, Buk Chang province.

The Donga Ilbo informed “Secretary Jung has been condemned as an anti-revolutionist and is being banished from North Korean society. His existence being deleted from all records indicates that his power will not be reinstated to him.”

“One the main reasons elite officials are ostracized in North Korea is for reproaching Kim Jong Il or the system at parties” and “It is likely Secretary Jung fell into this category” prospected the newspaper.

Another speculation suggested that Secretary Jung had been corrupted. As North Korea carelessly spends vast amounts of foreign currency on propaganda every year, it is possible Secretary Jung made a foolish decision.

However, even Choi Young Hae, former director for Socialist Youth League who swindled vast amounts of foreign currency while preparing for the 13th International Youth and Students Festival in 1989 did not get “deleted” from all publication but just simply demoted. This was the same for Jang Sung Taek who was once overthrown but his position eventually reinstituted. To criticize or compare Kim Jong Il or the regime is an enormous criminal offense. Hence, for Secretary Jung’s existence to be deleted from all published materials denotes that he could never return to the political areana.

Though there is no real evidence to prove that Secretary Jung Ha Chol has defected overseas, he has undeniably been obliterated from politics.

At present, Jung Ha Chol’s position as secretary of the Chosun Worker’s Party has been reassigned to Kim Ki Nam.

Joong Ang Ilbo
1/27/2007

Washington said Thursday it will withhold all contributions to the United Nations Development Program (UNDP), an agency accused of mismanaging its North Korea activities that led to a large, steady influx of cash into a regime suspected of seeking nuclear weapons.

The United States would also consider proposing that the UN stop all programs in the North except those for humanitarian assistance, said Ambassador Alejandro Wolff, acting U.S. envoy to the United Nations. He said the U.S. was satisfied with UNDP’s announcement of steps to remedy the situation, including an audit and readjustment of its 2007-2009 North Korea program.

“In the meantime, until we get the results of that audit and the program is reviewed, we would defer approval of the new program for the DPRK.,” the envoy said. “The U.S. also withholds its contribution in part to UNDP to the DPRK program,” he said. DPRK stands for Democratic People’s Republic of Korea, North Korea’s official name.

Japan went further, its envoy suggesting the UN stop all programs in North Korea except for direct humanitarian aid. Mr. Wolff said the Japanese argument “is quite compelling” and added the U.S. will consider the proposal.

At the State Department, spokesman Sean McCormack denied that the UNDP probe is targeted at Pyongyang. “This is not a U.S.-North Korea issue,” Mr. McCormack told reporters. “This is not directed at North Korea. This is simply an issue of management and oversight of UN programs. The secretary-general and executive director of UNDP understand it as such.”

The UNDP has been accused by Washington of mismanaging its aid in North Korea, resulting in a massive cash flow into the Pyongyang regime through hard currency payments to the North Korean government and local employees and vendors.

Ban Ki-moon, the new UN leader, asked for an overall audit of all UN funds and programs, starting with the first report on North Korea to be completed within 90 days.

Pyongyang in a statement claimed strict conformity with UN regulations.

Washington Post
Robert Carlin and John W. Lewis
1/27/2007

Those who think that dealing with North Korea is impossible are wrong. Unfortunately, those who think that it is, in fact, possible to deal with North Korea often are not much closer to the truth. The basic problem is that people of both views simply haven’t figured out what it is that the North really wants.

We tend to confuse North Korea’s short-term tactical goals with its broader strategic focus. We draw up list after list of things we think might appeal to Pyongyang on the assumption that these will constitute a “leveraged buyout,” finally achieving what we want: the total, irreversible denuclearization of North Korea.

But this list of “carrots” (energy, food, the lifting of sanctions) does not include what the North thinks it must have. It can, of course, help keep the process on track and moving ahead, and it could help cement a final deal and hold it together through the inevitable political storms. But these things are not the ends that North Korea seeks.

North Korea feeds our misperceptions by bargaining so hard over details and raising its initial demands so high. For our part, we tend to be taken in by Western journalists’ repetition of stock phrases about it being “one of the poorest nations,” “one of the most isolated,” “living on handouts.” Accurate or not, these factors are irrelevant to Pyongyang’s strategic calculations.

Those who realize that North Korea does not have visions of grand rewards sometimes move the focus to political steps that many see as “key” to a solution. These include replacing the armistice with a peace treaty, giving the North security guarantees, discussing plans for an exchange of diplomats. But these, like the economic carrots, are only shimmering, imperfect reflections of what Pyongyang is after.

What is it, then, that North Korea wants? Above all, it wants, and has pursued steadily since 1991, a long-term, strategic relationship with the United States. This has nothing to do with ideology or political philosophy. It is a cold, hard calculation based on history and the realities of geopolitics as perceived in Pyongyang. The North Koreans believe in their gut that they must buffer the heavy influence their neighbors already have, or could soon gain, over their small, weak country.

This is hard for Americans to understand, having read or heard nothing from North Korea except its propaganda, which for years seems to have called for weakening, not maintaining, the U.S. presence on the Korean Peninsula. But in fact an American departure is the last thing the North wants. Because of their pride and fear of appearing weak, however, explicitly requesting that the United States stay is one of the most difficult things for the North Koreans to do.

If the United States has leverage, it is not in its ability to supply fuel oil or grain or paper promises of nonhostility. The leverage rests in Washington’s ability to convince Pyongyang of its commitment to coexist with the Democratic People’s Republic of Korea, accept its system and leadership, and make room for the DPRK in an American vision of the future of Northeast Asia. Quite simply, the North Koreans believe they could be useful to the United States in a longer, larger balance-of-power game against China and Japan. The Chinese know this and say so in private.

The fundamental problem for North Korea is that the six-party talks in which it has been engaged — and which may reconvene soon — are a microcosm of the strategic world it most fears. Three strategic foes — China, Japan and Russia — sit in judgment, apply pressure and (to Pyongyang’s mind) insist on the North’s permanent weakness.

Denuclearization, if still achievable, can come only when North Korea sees its strategic problem solved, and that, in its view, can happen only when relations with the United States improve. For Pyongyang, that is the essence of the joint statement out of the six-party talks on Sept. 19, 2005, which included this sentence: “The DPRK and the United States undertook to respect each other’s sovereignty, exist peacefully together, and take steps to normalize their relations subject to their respective bilateral policies.”

And that is why the North so doggedly seeks bilateral talks with Washington. It desires not “drive-by” encounters, not a meeting here and there, but serious, sustained talks in which ideas can be explored and solutions, at last, patiently developed.

Robert Carlin, a former State Department analyst, participated in most of the U.S.-North Korea negotiations between 1993 and 2000. John Lewis, professor emeritus at Stanford University, directs projects on Asia at the university’s Center for International Security and Cooperation. Both have visited North Korea many times, most recently in November.

Korea Times
1/26/2007

The number of undernourished people in North Korea has more than doubled over the past decade with a diminishing dietary energy supply despite the country’s increased food production, the Yonhap News Agency said Friday citing a Food and Agriculture Organization (FAO) report.

FAO said in its annual report in Rome on Wednesday that it estimated the number of undernourished in North Korea at 7.9 million for 2001-2003, more than twice as many as the 3.6 million recorded for 1990-1992.

The dietary energy supply, measured in daily calorie intake per person, dropped to 2,150 in 2001-2003 from 2,470 in 1990-1992, marking a 1.25 percent decrease, according to the report.

The proportion of undernourished subsequently grew from 18 percent of the total population to 35 percent, the report said.

North Korea’s per capita food production, however, was growing at an annual average of 1.9 percent during the 1996-2005 period, compared to a drop of 1.8 percent from 1986 to 1995.

Yonhap, a semiofficial South Korean news agency, quoted the report as saying that the North exported $22 million worth of agricultural products in 2002-2004, accounting for 2 percent of the country’s total exports.

The figures compare with $354 million in agricultural imports during the same years, representing 17.1 percent of North Korea’s total imports.

Plagued by repeated floods and droughts, North Korea subsisted on international food donations for nearly a decade from the mid-1990s. But the U.N. World Food Program (WFP), the main coordinator of the donations, was told to leave the country, which claimed it was producing a bumper crop and receiving aid outside of the U.N. relief agency.

The WFP curtailed much of its presence and activities in the North last year as a result.

Yonhap quoted FAO’s report as stating that North Korea has been the biggest recipient of food aid in recent years and still receives more than 1.1 million tons of grain equivalents per year on average. This equaled 31 percent of the country’s total cereal production in 2002 and 22 percent in 2003.

The report said the number of undernourished in South Korea stayed the same at 800,000 in 1990-1992 and 2001-2003, with the dietary energy supply increasing 0.12 percent between the two periods.

Daily NK
Kim Min Se
1/26/2007

The “first-runners” are first-tier wholesalers who connect Chinese manufacturers and North Korean market owners in large cities such as Sinuiju, Hyesan, Hamheung or Chongjin. The goods transported by the first-runners to metropolitan markets in NK are met by second-runners in smaller cities.

South Pyongan province’s Pyongsong, Sunchon and Nampo are the hub for those second-runners, who move imported commodities to further deep into countryside of North and South Pyongan provinces and Hwanghae province.

Moon, a 38-year old shopkeeper in a market in Sunchon, South Pyongan, said “As soon as we hear the news that first-runners brought goods, we go to them with money right away. Since they run a huge amount of money, ordinary buyers can’t even meet them.”

Moon said that for second-runners including herself it took about half million NK wons (180 US dollars) to buy goods for one time. She buys merchandise from first-runners and sells it back to local storeowners.

For second-runners, it is crucial to procure enough high-quality goods with low price. If one buys bad products, he or she loses money. Same rule applies to first-runners.

Second-runners also hand over raw materials to manufacturers. The diminutive North Korean industry relies partly on them.

Chinese sugar and flour turn to bread and candy, and imported clothing materials are manufactured in home factories. Most of the manufacturers who buy raw materials from second-runners are individual handicraftsmen.

Lee, a clothing producer in Hamheung, sells her homemade clothes in market. Lee has had good relationship a number of second-runners, who trade Chinese fabric, so she can even buy stuff on credit.

Throughout the March of Tribulation in late 90s, North Korean people had depended on home industry for their basic necessities. And now it is estimated that significant amount of industrial products in North Korean markets are home-produced.

Those with little capital or without a stand in local market go to the most remote regions in high mountains or countryside and sell their handicrafts via train. Although it is not North Korean business slang, such activity can be classified as “third-running.”

The so-called “third-runners” trade their home-manufactured goods with country people’s corn, bean or rice, since it is rare to own a lot of cash in rural area.

In sum, once persecuted North Korean private markets are now reflecting every aspect of capitalist economy.

Korea Times
Lee Jin-woo
1/26/2007

Unification Minister Lee Jae-joung Friday told European businessmen active in South Korea that the government would try its best to guarantee stability and predictability at an inter-Korean industrial complex in Kaesong, North Korea.

“Construction of the Kaesong industrial complex has fallen behind schedule but will proceed as planned,’’ Lee said at a luncheon meeting held by the European Union Chamber of Commerce in Korea (EUCCK) at a Seoul hotel.

The speech was given in English. Lee, who gained his master’s degree from the University of Manitoba in Canada and his doctorate from the University of Trinity College in Toronto in 1988, enjoys delivering speeches in English.

The minister said a power grid with the capacity of transmitting 100,000 kilowatts of electricity will be established at the Kaesong site in the first half of this year. Seoul has discussed the construction of a communication center with Pyongyang to expand the communication network there.

“The South Korean government will foster the best environment to make the Kaesong an attractive investment site,’’ he said. “We’re looking forward to seeing many European enterprises join the upcoming expansion of the complex.’’

Lee said the flow of exchanges and cooperation between the two Koreas has continued and even expanded despite the North’s nuclear test on Oct. 9 last year.

“You may wondering why South Korea is focusing on economic cooperation with the North while putting aside many better investment chances,’’ Lee said. “That’s because we believe economic cooperation is a short cut to ensuring peace on the Korean Peninsula.’’

EUCCK plans to carry out its second visit to the site in March. The chamber’s trip in 2005 was the first visit by foreign enterprises.

“Seeing is believing,’’ Lee said. “If you go and see the factories there, you’ll fully understand what I’ve told you today. I promise to assist your visit to the utmost to ensure that you have a memorable and rewarding experience.’’

On Wednesday, Lee, who took office on Dec. 11, made his first visit to the site.

About 11,200 North Korean men and women are working together with 800 South Koreans at the joint inter-Korean industrial complex. The total production in the complex last December alone was worth more than $10 million.

The complex plans to house 300 companies, which would hire as many as 70,000 workers, when power and water supply grids are completed in the first half of this year.

Currently, the EU accounts for more than half of foreign investment in South Korea and is the nation’s second-largest export market after China. It has provided humanitarian assistance worth about $430 million to North Korea since 1995.

Korea Times
Na Jeong-ju
1/26/2007

If at least one member of a North Korean household moves to South Korea after reunification, more than 3 million from the North may head south if the two Koreas are reunited, the Bank of Korea (BOK) said Friday.

According to the BOK’s Institute of Finance and Economy, if such an exodus takes place in North Korea after reunification, the South may face serious economic consequences, the report said.

If Koreas adopt a German model, in which West Germany extended financial support to East Germany before and after reunification, South Korea would shoulder a total of $500-$900 billion in reunification costs. If the money is spent appropriately, it will take 22-39 years for North Korea to top $10,000 in gross national income, the report said.

The institute proposed South and North Korea try to reduce economic gap through economic cooperation programs. If the South supports the North through development programs, using its capital and the North’s cheap labor, it can reduce reunification costs considerably, it said.

“It is desirable for the two Koreas to designate special economic zones to reduce their economic gap and conduct programs to develop the North Korean economy,’’ the report said.

With the development programs, the South can spend much less than adopting the German model, the report said. The reunification costs will be cut to $300-500 billion, while the period for North Korea to see a GNI of $10,000 will be shortened to 13-22 years, it added.

Yonhap
1/25/2007

The U.N. Development Program (UNDP), recently accused of unmonitored activities in Pyongyang that led to a large, unintended influx of cash to the regime there, announced Thursday that it will adjust the North Korea program and delay its implementation until approved.

But the US$17.91 million resource allocation made in the original 2007-2009 program will be maintained, it said.