Posts Tagged ‘Economics’

The sanctions relief that North Korea might be asking for

Thursday, February 14th, 2019

By: Benjamin Katzeff Silberstein

Some interesting reporting by Hankyoreh, citing South Korean government sources familiar with the US-North Korea negotiations, suggests that North Korea is pushing for two concessions from the US:

According to a South Korean government source closely acquainted with the North Korea-US talks, Kim reaffirmed the North’s willingness to dismantle its Yongbyon nuclear facilities during the first round of working-level talks in Pyongyang on Feb. 6–8, while demanding the partial loosening of sanctions as a corresponding measure for allowing inspections of the facilities. The North Korean side said it “could offer more generous steps” if the US were to even partially loosen sanctions as a corresponding measure, the source reported.

Politically,  this makes a great deal of sense. Yongbyon dismantlement would make for great photo-ops and video clips, regardless of the actual substantive meaning of such actions. For North Korea, partially loosened sanctions would be highly beneficial for several reasons. For one, it could be a tacit signal to China and Russia that the US will no longer be as vigilant on sanctions monitoring as it has been in the past. Moreover, should North Korea push for the ceiling on its oil imports to be lowered, that would likely save the regime substantial amounts of hard currency that it now has to put towards more expensive, illicit transfers and the like. Gas prices in the country have stabilized over the past few months, but are still higher than in normal times. (I dig into this more in a new working paper published by the Stimson Center, click here to read it.)

And not least, any sanctions exemptions on Mt Kumgang and the like could – hopefully, from the regime’s point of view – be a first step to more South Korean investments and cash flows to tourism in North Korea, one of Kim Jong-un’s hallmark industries.

According to Hankyoreh, none of this is out of the question:

Biegun stated in no uncertain terms that the US would not be able to loosen or lift sanctions. At the same time, he reportedly suggested it may consider loosening sanctions if North Korea were to offer the Yongbyon dismantlement “plus something extra.”

And:

Accordingly, they suggested that if North Korea adopts a more forward-thinking approach on the Yongbyon dismantlement issue during negotiations, the US may grant priority consideration to projects involving inter-Korean cooperation, including partial resumption of the Kaesong Complex and Mt. Kumgang tourism. This prediction was based on the limited range of measures available to the US without touching the current sanctions framework. Indeed, many Korean Peninsula experts have noted that the Mt. Kumgang tourism venture individually would not be in violation of UNSC resolutions and suggested that it should be quickly resumed.

I’m no judicial sanctions expert, but I suspect that this might not be entirely accurate. If sanctions are strenuous enough to prevent South Korean reporters to bring in laptops into North Korea, it’s easy to wonder how large-ish-scale tourism to North Korea through Kumgangsan wouldn’t risk violating sanctions. In a way, the multilateral UN sanctions are easier to loosen in practice. A strong, even informal signal from the US to China could make the latter re-interpret its sanctions interpretations, and make monitoring and enforcement much more loose. Truck traffic has reportedly already increased across the border compared to a few months ago, and it’s a trend that’ll likely become increasingly more pronounced the less vigilant the US is about pushing for rigid sanctions implementation.

Article source:
N. Korea demands partial relaxation of sanctions in exchange for Yongbyon inspections
Kim Ji-eun
Hankyoreh
2019-02-14

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The problem with the Red Cross narrative of North Korea’s floods

Wednesday, October 5th, 2016

By Benjamin Katzeff Silberstein

I had originally intended to use this post solely to encourage readers to check out this story by the International Federation of Red Cross and Red Crescent Societies Asia Pacific. But as I was reading through the story, I realized there are several issues with it that need to be pointed out. It offers a comprehensive narrative of this year’s flooding in northern North Korea, which has devastated parts of North Hamgyong province. The photographs add a crucial human dimension to the ghastly figures for the damage. But unfortunately, the IFRC casts blame in all the wrong directions and fails to point out the core of the problem.

First, the key passages of the piece:

On August 29 the rains began. They continued for the next two days, swelling the Tumen river as it coursed along the northeast border of the Democratic People’s Republic of Korea (DPRK).  The heavy downpour was a consequence of the tail end of Typhoon Lionrock which had collided with a low pressure weather front as it tracked across China.  In just 24 hours up to 300 mm of rain fell over parts of DPRK’s North Hamgyong Province.

Streams of water flowed down barren mountains. They merged in ravines to become raging torrents of water – flash floods – which carved through rural communities in the valleys below, demolishing everything in their path.  The River Tumen also burst its banks, swallowing entire settlements in the dead of night.

The floods are considered to be the worst in decades yet this has been a silent disaster, largely unnoticed outside DPRK.  Hundreds of lives have been lost and the scale of devastation has been immense.

Now, one month on, the full extent of what happened is still emerging. According to the government some 30,000 homes have been damaged, submerged or completely destroyed and 70,000 people rendered homeless.

[…]

For days villages across Musan and Yonson Counties remained cut off as thousands of rescuers were mobilised to the area to repair roads and bridges and remove the earth and rocks deposited by landslides.

In the Sambong Bo area of Musan County,  the water level of the River Tumen had risen by over four metres in a matter of hours. When it broke its banks 500 homes were swept away.  At least 20 other communities further along the river suffered the same fate. It is still not clear how many died.

Reaching the flood-affected area requires a three-day drive from the capital Pyongyang but it only took 24 hours for the DPRK Red Cross to mobilize over 1,000 of its volunteers from the area to respond to the disaster. They supported local authorities in search and rescue efforts and also provided first aid services to the injured. Trained disaster response teams were deployed and within days emergency relief supplies for 28,000 people had been released from the Red Cross regional disaster preparedness stocks which were stored in warehouses in South Hamgyong and Pyongyang.

Items such as tarpaulins, tents and tools to make emergency shelters were distributed to flood-affected families. People also received other essentials such as warm bedding, kitchen sets, water containers and toiletries.

[…]

But there are other vulnerabilities. According to the UN, North Hamgyong Province has some of the highest levels of stunting and wasting among under five children. The Public Distribution System, upon which 78 per cent of the population of the province relies, is well below target levels (300 grams compared to the target of 573 grams) and not sufficiently diverse to cover nutritional requirements.

The floods damaged over 27,000 hectares of arable land. The rice and corn were ready to be harvested but now, many families’ food has been washed away along with crops, livestock and food gardens.

To make matters worse, more than 45 health clinics have been damaged by floodwaters and there is a critical shortage of basic equipment and essential medicines. Water supply to 600,000 people across the province has been disrupted and for clean water, some communities are now dependent on a few hand pumps and dug wells, which are most likely contaminated by the floods.

On 21 September, the IFRC launched a 15.2 million Swiss Francs emergency appeal (USD 15.5 million, Euros 13.9 million) to reach more than 330,000 people affected by the floods.

The appeal aims to provide a variety of emergency assistance over the next 12 months. Emergency water supply will be installed and teams will be mobilised to avert communicable diseases by improving sanitation and promoting good hygiene. Medical supplies will be provided for health teams on the ground and technical support provided to help with the reconstruction of permanent homes.

The appeal will also be used to purchase winterization kits that will help thousands of families through the hardship of the coming months. These include supplies of coal for heating and cooking, toiletries, winter clothes and quilts, basic food stocks and water purification tablets.

But according to Chris Staines international help needs to scale up.

“This is a disaster on a scale that that no-one seems to have acknowledged. When you add up all the threats that people are facing today in DPRK there is a very real risk of a secondary disaster unfolding in the months ahead if we don’t get the help that is needed immediately”.

Full article here:
Suffering in Silence
IFRC Asia
Shorthand Social
2016-09-29

Undoubtedly, this is a tragedy on a scale that is difficult to fathom even with the accompanying pictures of some of the devastation. Readers who wish to donate to the IFRC disaster relief efforts can do so here.

But the narrative lacks a crucial component, namely the government’s responsibility in disaster management and prevention, and the connection between the economic system and North Korea’s recurring floods. Now, readers familiar with the North Korean NGO context will be well aware that this is a sensitive political topic that NGOs and aid organizations are often reluctant to discuss, for good reasons. They depend on maintaining good relations with the North Korean government in order to continue operating in the country, and these relations are sensitive at best.

That said, the way in which the IFRC narrative seems to fault only one party — the international community, for not giving the disaster more attention — is strange, to say the least. For it is not the international community that has created the systemic deficiencies that contribute to making floods a yearly recurring phenomenon. Rain clouds do not gather only over North Korea. Anyone who has spent late summer and fall in South Korea will be familiar with the torrential rains that sweep across the country on the same regular basis that they hit North Korea. And yet, we never hear about human suffering and disasters in South Korea on an even comparable level with those that hit North Korea. Some landslides tend to happen, and sometimes the rains even claim lives. But they do not paralyze whole regions of the country and they do not cause humanitarian disasters on the southern side of the border.

The reasons that North Korea is hit with such particularly great damage from the rains, year after year, largely stem from its economic system. To name only a couple of examples: trees have been felled en masse due to a lack of fuel, causing erosion as not enough trees are left to suck up the rainwater, and the population has had to resort to clearing hills from trees to generate more farmland, particularly during the “Arduous March” of the 1990s. Moreover, in command economies, quotas for both wood and food need to be filled no matter what methods have to be employed — I am unable to find a source for the historical evolution of tree felling in North Korea prior to the 1990s, but most likely, such a logic has also contributed to the barren hillsides around the country. To be fair, Kim Jong-un has focused a great deal of attention on reforestation, which is arguably one of the most important but least noted policy focuses during his tenure. But thus far, not much seems to have happened in practice.

Barren and eroded hillsides in Namyang, North Hamgyong Province, as seen from Tumen City in China, June 2016. On the Chinese side, the equivalent hills are covered with trees. Photograph by Benjamin Katzeff Silberstein

Barren and eroded hillsides in Namyang, North Hamgyong Province, as seen from Tumen City in China, June 2016. On the Chinese side, the equivalent hills are covered with trees. Photograph by Benjamin Katzeff Silberstein

So: on the one hand, the IFRC may well be right that coverage of North Korea’s humanitarian disaster should render more media coverage. But on the other hand the late summer floods are such a regular occurrence that they should hardly count as news anymore. NGOs and aid organizations need to air on the side of political caution in their dealings with the North Korean regime, but their failure to call out the government for not rectifying the problems causing the damage in the first place may well be doing more harm than good in the long run.

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China shuts down part of Dandong-Sinuiju bridge [UPDATE: Delayed]

Wednesday, August 17th, 2016

UPDATE 1 (2016-8-23): Whether true or not, the Daily NK now reports that the bridge closing has been delayed. According to the article:

Necessary repair work on the North Korean side of the bridge connecting the country with China over the Amrok (Yalu) River has been delayed following a last-minute plea by the North Korean authorities, Daily NK has learned.

A source in North Pyongan Province close to the issue told Daily NK on August 22 that Pyongyang cited pressing foreign-currency shortages in its request to the Chinese authorities to put off the month-long maintenance period, scheduled to commence on August 20.

“The Chinese Railway Ministry warned of ‘imminent and severe accidents’ if the bridge [on the North Korean side] remains in its current state of disrepair, ” the source said, “but the North Korean side refused to give in [and begin the repairs] and so customs is still operating normally.”

It is not yet known when the repair work will get underway. “Trading companies were told to operate normally, and affiliated vehicles are increasingly ignoring imposed freight loads limits in a bid to transport the greatest volume of goods possible, the source said.

According to a source close to the issue in China, notwithstanding the maintenance delay, China will continue to exert pressure on North Korea to carry out the repairs on its end. As such, trading companies are overloading vehicles with goods to hedge against the economic losses expected during the repair period.

“Trading companies interpret the ambiguous start date for repairs as an ominous sign. They know that the ax could drop at any time, and that obviously makes it difficult to plan. This notion has ushered in a flurry of trade activity, which in turn evokes a very different environment to the restrictive one palpable following the sanctions implementation,” the North Pyongan-based source concluded.

ORIGINAL POST (2016-8-17): by Benjamin Katzeff Silberstein

A small reminder that border traffic flows can be impacted by other factors than sanctions and policies:

On the heels of a fleeting reopening, China has suspended road traffic and customs operations on the Sino-North Korean Friendship Bridge until critical risks are mitigated on the North Korean side. The move will greatly challenge North Korea’s foreign-currency operations, which lean heavily on Sino-North Korean trade, 70 percent of which flows through the connecting overpass.

“China ordered the repairs after discovering additional risk factors on the North’s side despite the construction work carried out from July to earlier this month,” a source from North Pyongan Province said, adding that construction will begin August 20.
“China’s railway officials detected these dangers, and, in no uncertain terms, demanded the cessation of vehicular transport and the commencement of large-scale restorations.”
This news was corroborated by additional sources in North Pyongan Province.
Saddled with rigid foreign-currency quotas, this is most distressing for North Korean trading companies, she added. And with the prohibitive costs involved in sea transport, these entities are left with little in the way of viable transport alternatives; the railway connection adjacent to the road will remain operational for the duration of the repairs but only for small loads.
The looming trouble Pyongyang faces is, in many respects, self-inflicted– the culmination of securing leadership funds at the expense of vital safety regulations. The recent decision to haphazardly patch over problem areas, rather than administering thorough repairs, despite compelling precedent, being a case in point.
When a truck overturned last year, weight limitations were introduced but remain rarely enforced, particularly for mineral-laden trucks, the most frequently overloaded vehicles.
“Overloading is of little concern the North Korean leadership,” the source asserted. “Their focus is solely on securing enough money, and because they don’t bat an eye about violating customs regulations, trade companies load on as much as they can.”
By unilaterally calling for a traffic block on the bridge, China may be hoping to wrangle North Korea into finally upholding its end of a mutually-beneficial deal sitting just downstream. China invested 340 mil. USD for the new bridge, completed in 2014, but North Korea has yet to build the necessary connecting infrastructure on its side.
Full article:
China shuts down road traffic on Sino-NK bridge
Seol Song Ah
Daily NK
2016-08-17
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North Korea and taxation: some possible causes

Friday, March 18th, 2016

By Benjamin Katzeff Silberstein

As this blog noted yesterday, South Korean daily Joongang Ilbo claims that the North Korean government may formally reintroduce a tax system before May this year, when a Worker’s Party convention will be held.

The goal, according to Joongang’s source, is primarily to formalize the private economy further. The latest UNSC sanctions are forcing the government to seek out more sources of revenue, and the growing private economy is seen as a resource that can still be tapped further.

Moreover, the source says, the state is planning to expand trading permits for private merchants, both on the formal markets and in private business in general. Under the new system, the state would essentially let merchants get access to land, water and electricity in exchange for a fee, much like in other countries where the state holds a monopoly on goods that often fall into the category of natural monopolies.

This is all interesting for several reasons. First, since the notion of North Korea as a tax free society might appear puzzling to some, it is worth taking a look at why the government decided to abolish taxes in the first place.

Ironically, had Joongang waited a few weeks before publishing the news, they would have hit the 42nd anniversary of the decision to make North Korea formally tax free. For it was on March 21st in 1974, at the Third Session of the Fifth Supreme People’s Assembly that Kim Il Sung officially announced that taxes were abolished. According to a KCNA-piece published in 2009, highlighting the occasion, the decision was taken as a step towards full socialism and framed in a historical context.

Taxation was a vestige of the past: the Japanese colonial power had instituted a “predatory” tax system that Kim Il-sung had vowed already in the 1930s that he would get rid of.  (The Choson Dynasty (1392-1910), too, of course, had a tax system that could at times well be called predatory, but the KCNA piece does not mention this).

The ideological rationale, of course, is that under socialism, you don’t need taxation because private property has been abolished. In North Korea, collectivization of agriculture, for example, occurred only gradually. According to KCNA, agricultural taxes-in-kind were fully abolished by 1966. Given recent policy changes where farmers supposedly now get to keep a more significant share of their production than before, one could argue that taxation has in effect already been brought back to agriculture, and that the tax-in-kind-rate is around 70 percent.

So why could the government want to bring back taxation? Aside from the reasons given by the Joongang article, one could speculate about a possible connection with the remarks cited by KCNA earlier this year about party officials “seeking privileges, misuse of authority, abuse of power and bureaucratism manifested in the party” (February 4th, 2016).

Corruption is often an integral part of everyday life for anyone involved in business in a country that lacks a functioning rule of law. Corruption is known to be strongly institutionalized in North Korea, and when news of discontent come out of North Korea, it often has to do with arbitrary rule changes and regulations regarding market trading and business. A formalized tax system doesn’t itself guarantee a transparent set of rules and regulations, or that these rules are followed. But it is an almost necessary prerequisite.

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The drought that didn’t matter, North Korea says – thanks to agricultural reform?

Monday, August 10th, 2015

By Benjamin Katzeff Silberstein

During the past few months, the World Food Program (WFP) has made reoccurring pleas for increased food assistance to North Korea to alleviate the food shortages expected from a severe summer drought. The North Korean government made similar statements and claimed that the drought was the worst one to occur in 100 years. Aid to the country was subsequently increased from the originally planned level, due to the drought. But now, one North Korean official is saying that food production ended up increasing, after all, thanks to agricultural reforms.

A recent brief by the Institute for Far Eastern Studies at Kyungnam University (IFES) cites a July issue of Tongil Sinbo, a North Korean state-run weekly newspaper. There, Chi Myong Su, director of the Agricultural Research Institute of the Academy of Agricultural Sciences in the country, says that

“the effectiveness of field management system (pojon) from cooperative farm production unit system (bunjo) is noticeable and succeeded in increasing grain production despite the adverse weather conditions.”

The article cited by IFES highlights the smaller work-team structure as key to the success of the reforms. Also, it almost outright states that greater economic incentives were the main factor (although they call it “enthusiasm” and “patriotism”):

“Despite the adverse weather conditions last year, the high grain yield was possible due to implementation of scientific farming methods and field management system to increase enthusiasm of farmers,” and “based on this experience, many cooperative farms across the country will expand subworkteam management system to field management system.”

This is interesting for several reasons.

First, the agricultural reforms seem increasingly pronounced. Though other reforms were reportedly backtracked earlier this year, the government seems eager to claim success for the road travelled in agriculture.

I have written elsewhere that the data doesn’t necessarily support a claim that reforms are working. There is still reason to be skeptical – after all, a North Korean government official claiming that his government’s policies are working is not surprising – but even the claim itself is interesting.

Second, the statement raises questions about monitoring and data gathering capacities, both of the regime and relief organizations in Pyongyang. Again, just a few months ago, alarm bells were ringing about a potential food shortage, and now, a regime official claims that food production has increased. What was the basis of the WFP and regime claims that a food shortage was imminent a few months ago, and what has changed since those claims were made?

Another recent IFES brief also deals with North Korean press reports about the agricultural reforms. It quotes a Rodong Sinmun article from earlier in the summer that brings up some adjustment problems that farmers have had, such as learning how to properly use fertilizers. The most interesting part in my opinion is the following:

The newspaper stressed that “when all farmers claim ownership of their field and subworkteam, one can create innovation in the farming operations.”

Thus, it seems like Pyongyang wants to encourage experimentation and diversity in production methods. This would be a potentially important step towards more efficient agriculture. Perhaps it is part of a pattern. Provinces have reportedly gotten significant leeway in setting up their respective special economic development zones, which could also be a way to encourage experimentation in policies and management methods.

According to the Tongil Sinbo article, reforms are set to expand further in the country given the alleged success. Perhaps it won’t be too long before we can learn more about them through assessments by multilateral organizations like WFP.

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Aid to North Korea up by 110 percent in July

Tuesday, August 4th, 2015

According to UPI citing World Food Program sources, aid to North Korea increased by more than 100 percent from June to July of this year:

Food aid to North Korea more than doubled from June to July and over 3,000 tons were distributed to pregnant women and children, according to the World Food Program.

Damian Kean said Monday the July delivery of 3,231 tons of highly nutritional food items for infants and expectant and nursing mothers is this year’s largest, Voice of America reported.

In June, the World Food Program said 1,528 tons of food was sent to North Korea, and aid reached a low in February when only 1,187 tons of food reached the reclusive country.

South Korean news agency Yonhap reported the July food aid package was the biggest in 19 months, but the number of aid recipients decreased from 632,000 to 620,000 between June and July.

The World Food Program’s fundraising goal of $168 million – needed to provide highly nutritional food packages to 1.8 million hungry North Koreans – has only reached half, or $82.9 million, of its target number.

The U.N. organization has postponed the termination of its North Korea food aid program, due to an ongoing drought in the country that is posing risks to the food supply.

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