Archive for December, 2008

Six party talks: energy aid update

Thursday, December 25th, 2008

In the last round of six party talks, the media focused on North Korea’s deteriorating relationships with Seoul and Tokyo and the DPRK’s reluctance to agree to a credible nuclear verification protocol.  When the talks failed to produce any forward momentum, it looked like energy aid was to be suspended:

After the meeting, U.S. State Department spokesman Sean McCormack said that Japan, Russia, China, the United States and South Korea had allegedly agreed that fuel would not be shipped until progress was made on specific steps to verify Pyongyang’s nuclear activities. (RIA Novosti)

Russia, however, disputes this claim—but likely for for its own economically rational reasons.  Russia has been very strategic in its relations with Pyongang—focusing on securing a stake in the Rajin Songbon port and leaning on Pyongyang to allow construction of a natural gas pipeline to South Korea.  As a result, they have refused to suspend their portion of energy aid:

Russia plans to complete fuel deliveries to North Korea as part of a denuclearization deal, the head of the Russian delegation at six-party talks on Korea’s nuclear problem said on Sunday.

“We expect that we’ll be able to supply our entire quota of 200,000 metric tons in the near future,” Russian Deputy Foreign Minister and chief North Korea negotiator Alexei Borodavkin said. (RIA Novosti)


[…]Russian Deputy Foreign Minister and chief North Korea negotiator Alexei Borodavkin, who said his country will proceed with a third batch of 50,000 metric tons of fuel oil this month in accordance with previous six-party talks agreements. (UPI)

Despite ending energy assistance, the US maintains it will continue food assistance:

North Korea will receive 21,000 metric tons of U.S. food aid this month as part of an assistance agreement, the State Department said.

“Our humanitarian program will continue,” spokesman Sean McCormacktold reporters in Washington yesterday. The aid will be delivered at the end of December, he said.

The U.S. in May agreed to resume food assistance to North Korea in a deal that will see the communist state receive 500,000 metric tons during the 12 months starting in June. The U.S. has so far provided 143,000 metric tons of aid, McCormack said. (Bloomberg)

Read more here:
Russia to complete fuel supplies to North Korea – envoy
RIA Novosti

Korea Gas Seeks Stakes in Australia, Oman, PNG Fields, CEO Says
Shinhye Kang

Russia to make N. Korea fuel shipment

North Korea to Get 21,000 Tons of Food Aid From U.S. This Month
Kevin Cho


About the leaflets…

Thursday, December 25th, 2008

As we have previously discussed, North Korean human rights groups are sending leaflets across the DMZ in balloons.  Dr. Petrov provides a link to what is written on these brochures, which can be read in Korean here.

I have aso put the flyer into a PDF which you can download here.

Here is the gist in English:

1st section: Starts off saying that FFNK intends to set the facts straight; that the people in the DPRK need to know the truth.  Key messages: the hunger and the poverty in DPRK is not due to SK or US but due to the habitual negligence and selfishness of Kim Jong il (They say “devil-like KJI”) and that the DPRK government was the puppet government of the Soviet Union, adding that a September 25, 1945 document containing the verification of this fact was released publicly in 1993.

2nd section: Titled, “The Truth about the 6.25 war (Korean reference to the Korean war),” states that it was in fact the DPRK who attacked the south.  In march 1949, Kim il Sung went to Moscow and “begged” Stalin for permission to attack the South to unify Korea under the socialist flag. After KIS’s 48th attempt, Stalin gave his consent in early February 1950 and Kim attacked on 6.25.1950. The leaflet stresses that this info has been verified by the US and Russia.

3rd section: Titled, “The Reason for the Fall of DPRK,” claims it wil be due to KIS and KJI depleting natural resources and exploiting the people as their personal banks and slaves. The leaflet claims that they disguise their greed/exploitation by pretending/lying that they are also the sons of the people and that what is good for the party is also good for the people.  A direct quote states: “While the NK people were starving, KJI dined like a king with meals prepared by his Japanese chef,”and that the DPRK is the only country in the world where laws are embodied by a man.  This section also lists many economic and social statistics that contrast the DPRK and RoK. Another direct quote: “In other words, KIS and KJI have made you a mindless drone/slave of the modern age mentally, physically and through your hunger. KJI is solely responsible for this atrocity/disaster.”

4th section: Titled, “What Kind of Human is KJI? Here’s the Truth (they use the Korean word for ‘human’ rather than ‘person’.” His birthday is actually 1941.2.16 but was changed to 1942 to coincide with the year his father came to power. His birthplace is not Mt. Baektu a hospital in the Soviet Union. When “Yura” graduated from his middle school, he announced that he was ‘issued’ a Korean name and would henceforth be called JI. His Siblings: unconfirmed older sister, younger brother “Shura,” who drowned while playing with JI in a river, younger sister kim kyung hyui. Wife: officially married to Kim Young Sook, but separated. He lived with a former movie actress Song Hae Rim, who gave him Kim Jong Nam, but when she committed adultery, he exiled her to Moscow.  She died in 2002. His next wife, Ko Young Hui, gave him 3 kids, but she died 2004.  Kim has probably lived with tens of women. The leaflet asks “are these the actions of the face of the respectable/high-minded communist country, the innocent, modest and loving leader of the people?” 


North Korean Revolutionary Merit Competition

Tuesday, December 23rd, 2008

Daily NK
Lee Sung Jin

North Korea, since December 3rd, has been holding a “Competition for Revolutionary Descendants” in each province, over two days. The competition is the third of its kind, following on from 1998 and 2002.

A source confirmed in a phone conversation with the Daily NK on the 21st, “In Hyesan, Yangkang Province, from December 3rd, there was a “Competition for Revolutionary Descendants.” This competition took place simultaneously in each province.”

Another source said, “There was a competition in Chongjin, North Hamkyung Province in early December and many gifts, including clothing, were given out to the participants.”

The competition was held to stabilize the volatile state of affairs, spurred by rumors of Kim Jong Il’s illness, issues of food shortages, and the distribution of flyers in North Korea, by intercepting in advance any possible unrest among the core class.

(* North Korea categorized the population into the “core class (3,915,000),” the “unstable class (3,150,000),” and the “hostile class (7,935,000)” in 1971)

The Yangkang-based source said, “The competition was held with participation from the Party Chief Secretary of the province, the key officials in the province, city and county and chairpersons of the Peoples’ Units, descendants of revolutionaries and war veterans were invited to the competition.”

He then said, “Rather than being a real competition, it was a gathering to provide meals and distribute gifts. On the morning of the third day, after a flower-basket presentation ceremony at the Kim Il Sung memorial at the Bocheonbo Combat Victory Monument, a meeting was held at the Kim Jong Suk Arts Theater.”

He further noted, “At the meeting, there was a political lecture given by the new Propaganda Secretary of the Party in the Province Kim Bong She, after the congratulatory address by the Chief Secretary of the Province. Kim closed the event with a speech urging emulation of the lofty example of the first generation of revolutionaries, who devoted everything to the General.”

According to the source, after the event wrapped up its main events on the afternoon of the 3rd, it continued until the evening on the 4th with a special performance by the Yangkang Provincial Performing Arts Troupe, a special banquet, a visit to the Yangkang Province Revolutionary Historical Site, and a ceremony for presenting gifts.

The source said, “The authorities put in a lot of preparation for the event. They even brought beer, luxury alcohol and cigarettes from Pyongyang for the competition participants. Also, there were special performances at the Yalu Restaurant, a famous restaurant in Hyesan, at the Hyesan Shopping Center restaurant, and at restaurants in various train stations.”

The source explained, “The officials went out of their way to shake hands with the competition participants and urged, ‘In such difficult times, we have to submit to the guidance of the General.”

He said, “At the competition, the issue of the Party’s active support for the children of deceased revolutionaries and needing to look after their needs was raised more than once. In particular, the provision for and subsistence of the descendants, due to difficult economic conditions, had been neglected, but the promise was made that, from now on, the Party in Yangkang Province would take an interest in and resolve the issue.”


North Korea Releases New Paintings Of Healthy Kim Jong Il

Sunday, December 21st, 2008

The Onion made me laugh with this one…


 Quoting from the article: 

“As anyone can see from these new murals, our Dear Leader is the very picture of health,” Foreign Ministry spokesperson Lee Myong Choi said of the 30-foot-high paintings, the artful brushstrokes of which showed the North Korean ruler confidently reading the current day’s newspaper. “Note his radiant, youthful complexion, the sheen of his jet-black hair, the glorious starburst which appears to radiate from the very center of his being. Our supreme commander will undoubtedly be with us for many centuries to come.” Lee later added that Kim was in such robust health that he was able to complete all of the new self-portraits in under an hour.

The “picture” above was taken at the Yonggwang Metro Stop near Pyongyang’s Central Train Station.  Original paintings at this location can be seen here and here. (h/t Omar)


Inter-Korean trade falls for second straight month

Saturday, December 20th, 2008

Quoting from the Korea Times:

Inter-Korean trade fell 27.7 percent in November from a year earlier to $142.72 million, according to the ministry data posted on its Web site.

“Payments to North Korea are mostly made in dollars or euro, so the weak Korean currency has been the primary reason behind the falling trade,” a ministry official was quoted as saying.

More than 80 South Korean firms produce watches, shoes, clothes and kitchenware at a joint industrial complex in the North’s border town of Gaeseong. North Korea also exports sand to the South.

In October, South and North Korea traded goods and services worth $163.06 million, down 23.2 percent from a year earlier.

Meanwhile, inter-Korean trade from January to November reached $1.69 billion, an increase of 3.7 percent from the same period in 2007.

And According to the Hankyoreh (h/t OneFreeKorea):

According to a report, seven companies have canceled their contracts to build facilities at Gaeseong complex since October. Three of the seven bought space at a site reserved for machinery and metal cooperatives in June, and were in the process of constructing or designing factories. The report was submitted to Rep. Chun Jung-bae of the main opposition Democratic Party by the division supporting the Gaeseong Industrial Complex at the Ministry of Unification.

Two companies are in situations unrelated to the breakdown in inter-Korean relations, one had a fire last summer and another is suffering from losses incurred as a result of investment in KIKO, “knock-in knock-out” currency options trading.

The remaining five companies were believed to have abandoned their plans because of the deterioration in inter-Korean relations. An official at one of the five companies, which canceled its investment contract in December, said, “Although the economic crisis was one of the reasons why we canceled the contract, the main reason was that business prospects have darkened due to strained inter-Korean ties. Other companies that moved to (the Gaeseong complex) at the same time also decided to cancel their contracts for the same reason.”

In canceling their contracts, the seven companies forfeited their initial investments, which ranged from 17 million won (US$12,500) to 70 million won each. Land at the Gaeseong Industrial Complex was sold at 45,000 won per one square meter and the companies paid 10 percent of that price as part of their deposit.

Seven other companies also canceled their contracts last year, but they did so after an on-site feasibility study was conducted and it was determined that their businesses were not financially viable. All seven companies were able to receive their deposits under a special provision on contract cancellation, which allows companies to receive their deposits if the contract is canceled within six months of when it was signed.

The companies that canceled their contracts this year were not able to take advantage of the provision because they canceled over six months after signing their contracts.

There are growing concerns that more companies may be canceling their contracts as well. The head of Company “H,” who signed a contract to build a facility at the Gaeseong complex last year, said, “Though I would lose my initial investment of several millions of won, I’m considering canceling the contract because the tensions inter-Korean relations are likely to continue for another five years.”

Read the full story here:
Inter-Korean Trade Falls for Second Straight Month
Korea Times

More companies cancel contracts at Gaeseong complex


Lets Learn (North) Korean

Saturday, December 20th, 2008

On my second visit to North Korea in 2005, I purchased a copy of Let’s Learn Korean (Chosonmal Baeunun Chaek, 1989) by the Pyongyang Foreign Languages Books Publishing House. 

In its pages you will find many phrases which will facilitate your visit to the DPRK:

“This camera is for my personal use” 

“Please get me a porter”

“Give me a first-class, one-way ticket to Pyongyang”

” I want to see the Tower of the Juche Idea”

“Let us drive the US imperialists out of south Korea”

“Abolish nuclear weapons”

“The new era of socialism and communism”

“The children are the reliable successors of our revolution who will brighten the future of our fatherland”

“Man must become a revolutionary before becoming a doctor”


“In a nutshell, the idea of Juche means that the masters of the revolution and construction are the masses of the people and that they are also the motive force of the revolution and construction”

I have divided the book into four parts to make it easier to download (although each part is rather large):

Download: Part 1
Download: Part 2
Download: Part 3
Download: Part 4


North Korea between collapse and reform

Friday, December 19th, 2008

Asian Survey Vol. 39, No. 2 (Mar. – Apr., 1999), pp. 287-309
Kongdan Oh and Ralph Hassig

Download PDF here or download from here

The refusal of North Korea’s letters to institute serious economic reforms has frustrated those who study the country and those who seek to alleviate the suffering of the North Korean people.  Two French medical aid organizations have withdrawn from the country complaining that the Pyongyang government interfered with their work.  This is but one sign of a growing donor fatigue.  The muddling through plan that the Kim regime has adopted involves soliciting foreign aid, bargaining with its military and nuclear products, making minimal unofficial changes in the domestic economy, and waiting for the international environment to become more favorable—perhaps even expecting a resurgance of international communism.  Equally important, Kim and his ruling cohorts are willing to sacrifice the economic health of their nation for the security of their regime, just as other dictators, both communist and non-communist have done.  The painful difference in North Korea’s case is that it is half of a divided nation, posing an immediate humanitarian dilemma for the millions of Koreans in the Southern half of the penninsula whose families are suffering in the north.  For this reason more than any other, the future of North Korea cannot be ignored.  


Assessing the economic performance of North Korea,1954–1989: Estimates and growth accounting analysis

Friday, December 19th, 2008

Journal of Comparative Economics, 35 (2007) 564–582
Kim, Byung-Yeon, Kim, Suk Jin, and Lee, Keun

PDF of paper here

Abstract: This paper adjusts the official data from North and South Korean sources, taking into account hidden inflation to estimate North Korea’s GNP growth rates from 1954 to 1989. The factors of economic growth are decomposed subsequently into changes in inputs and factor productivity. Finally, a panel cointegration technique is used to assess the level of productivity in the North Korean economy in comparison with that of the former Soviet Union. We find that the average of annual growth rates of North Korean GNP and GNP per capita from 1954 to 1989 was 4.4 and 1.9%, respectively. The results from decomposition suggest that the prime cause of slow economic growth was extremely low or even negative total factor productivity. According to the panel cointegration estimation, productivity in North Korea was lower than that of the Soviet Union by 33%.

JEL classification: P27; E01; O47
Keywords: North Korea; Growth; Growth accounting; Panel cointegration


Lessons in insurance

Friday, December 19th, 2008

In September 2006 the first questions about North Korean reinsurance contracts hit the media (Joong Ang Daily, Sept. 20).  North Korea’s Minjok Insurance General Company filed claims in London and Moscow for two railway crashes, a ferry sinking, and a helicopter crash.  The Joong Ang Daily reported that that the accident sites were examined by industry representatives—though the checks had not been cut.  At the time the filings were interpreted in the west as a sign of tough financial times in the DPRK. Others suggested Pyongyang was learning how to manipulate global financial systems.

By December 2006, many underwriters began to (publicly) suspect fraud in these cases.  

North Korea Suspected of Collecting Millions in Reinsurance Fraud
Monday , December 04, 2006
By George Russell

[Excerpt] The central focus of concern is the absolute control of ownership and information in North Korea by Kim Jong-Il and his regime. All North Korean insurance is controlled by one state-owned firm, the Korea National Insurance Corporation (KNIC), formerly known as the Korea Foreign Insurance Company, which in turn purchases reinsurance coverage abroad for risks that it has assumed in its domestic market.

The alleged fraud involves a wide variety of North Korean industrial and personal calamities where insurers have been presented with perfect government-controlled documentation of accidents, including deaths, along with carefully gathered photographic evidence, all compiled in a startlingly brief time.

That paperwork is coupled with a resistance to letting foreign insurance adjusters examine some of the most crucial physical evidence, except after long delays and under a watchful eye, if at all.

The growing concern in the reinsurance industry is that the property damage being claimed is vastly overstated, and the circumstances of some alleged accidents may have been altered, or that deaths for which insurance payment is claimed may have had nothing to do with the accidents.

The number of apparently ordinary people in the dictatorship who have suddenly been found to have foreign-backed life insurance is raising insurers’ eyebrows.  The chief concern is that only the Kim Jong-Il regime controls the information required to trigger the payments.

So what specifically looked suspicious?

Suspicions in London began to gel in July 2005, when North Korea reported that a medical rescue helicopter had crashed into a government-owned warehouse that authorities said was crammed with disaster relief supplies.

The entire contents of the warehouse, which ran to hundreds of thousands of items, were destroyed, KNIC said, submitting within 10 days a list compiled by the relief center of every single commodity that it said had been lost.

Along with the lengthy list came a reinsurance claim for more than 40 million euros, or almost $50 million at then-current rates, for 95 percent of the damages. The reinsurance was placed through London, but the risk was spread among reinsurers worldwide.

“They provided details including tens of thousands of children’s gloves, handkerchiefs, leather gloves, toilet soap and washing soap, within 10 days,” Payton said. “In the chaos which follows an accident of this kind, that is unheard of.

“A similar loss report in Britain might take months to compile.”

The North Koreans also supplied photos of the devastation, which insurers turned over to leading experts at photographic estimates of fire damage. The experts concluded that the volume of debris remaining within the warehouse, as assessed from the photographs, did not support the high volumes of relief supplies that were claimed to be there before the fire.

“The North Korean claims are supported by meticulous paperwork, something at which the North Koreans excel,” Payton (senior partner in the London-based international law firm of Clyde & Co.) said.

“For example, where death certificates and hospital reports are required, the regime’s attitude is ‘tell us what you want, we’ll give it to you.’”

In the case of a ferry accident that allegedly took place last April, near the coastal city of Wonsan, North Korean authorities declared that 129 people had died aboard the vessel after it struck a rock about 1,000 yards off the Korean coast, and only about 100 yards from an island. All of them, the Koreans claim, had been automatically covered with life insurance when they bought their ferry ticket, and that insurance risk had been passed on to the London market through a common reinsurance product known as “excess loss personal accident reinsurance.” Here the claims from reinsurers totaled about 5 million euros, or roughly $6 million.

The North Koreans claimed that most of the victims had died of hypothermia in the freezing water. Industry sources say that when insurance investigators discovered that weather conditions were warmer than claimed at that time, the North Koreans responded that severe winds were blowing from Siberia in the spring, making the water unusually frigid.

When insurers asked for permission to send an independent diver to inspect the ferry wreck, they were refused.

Britain’s Foreign Office says the lack of firm proof of fraud is why it hasn’t taken action on the reinsurance issue, although British diplomats say they are aware of it.

Apparently, these circumstances led the insurers to refuse payment, and the North Koreans took them to court in London. Quoting from the Times of London (January 2007): 

The state-owned Korea National Insurance Corporation (KNIC) is demanding €44 million in a London court from a group of reinsurers, including Lloyd’s syndicates, for damage caused in a catastrophic helicopter crash in 2005.

The North Koreans have supplied exhaustive documentation and their claims have been authenticated by independent loss adjusters and upheld in a North Korean court. But the reinsurers argue that the nature of the regime makes it impossible to trust and that the claim is a fraudulent one intended to bring in desperately needed foreign exchange.

The accident took place in April 2005 when, it is claimed, a helicopter owned by Air Koryo, the North Korean state airline, was dispatched from Pyongyang, the capital, to collect a woman who was in labour with triplets from a remote island. On the return flight it crashed into a warehouse on the outskirts of the city, causing a fire that destroyed a large amount of humanitarian relief goods.

The KNIC settled an insurance claim by the airline, which had compensated the owner of the warehouse, and claimed this back from its London reinsurers. According to the contract, disputes were to be settled under North Korean law and last month a court in Pyongyang ordered the reinsurers to pay the North Korean company the €44 million. They refuse to do so.

Lawyers for the KNIC say that, having pocketed premiums for the previous nine years without any claims, the reinsurers are simply reluctant to pay out such a large sum.

“There is no evidence at all to suggest that the helicopter claim is fraudulent,” says Tim Akeroyd, of the law firm Elborne Mitchell, which is acting for the KNIC. “All the evidence available, including the reports of loss adjusters appointed by Mr Payton’s clients, clearly established that this was a bona fide claim.”

The contract also states that claims in North Korean won will be converted at a rate of 160 won to the euro, close to the Government’s exchange rate. But the black market rate, which is used for all practical purposes in North Korea, is closer to 2,000 won to the euro. If this were applied it would reduce the reinsurers’ bill from €44 million to €3.5 million.

This month the European reinsurers settled the case–delivering the DPRK’s KNIC nearly totoal victory in the suit pertaining to the helicopter crash. Quoting from the Financial Times:

Court proceedings in London have ended after a group of re­insurers, including Allianz of Germany, Generali of Italy, [Misr Insurance of Egypt], and three Lloyd’s of London syndicates, agreed to pay 95 per cent of the reinsurance claim, or €39.2m ($58.2m).

[One member of the reinsurance consortium, Aviabel of Belgium, has refused to accept the settlement and legal proceedings are continuing.]

The reinsurers also agreed to retract and withdraw all allegations of fraud and impropriety made against the Korea National Insurance Company.

It is not unusual for reinsurers robustly to contest claims. But it is thought this is the first victory of its kind in an overseas court for [North Korea’s monopoly insurance provider].

Apparently the other cases (particularly the ferry sinking) are still pending. Quoting from Reuters:

The lawsuit is one of several which North Korea is pursuing, with claims exceeding $150 million dollar according to some estimates, involving several calamities.

Why did the European insurers settle the case?

[L]awyers representing the North Koreans argued that the insurance claim was a legitimate commercial debt owed to KNIC by reinsurers who were fully aware of the nature of the contract when they signed it, and had even agreed to let a North Korean tribunal adjudicate the claim.

English judges evidently agreed. The reinsurer’s position was first rejected in England’s High Court of Justice in August, 2007, and again on appeal two months later. Another trial began on November 12, 2008 before the Commercial Court in London before the two sides came to their agreement.

The settlement amounts to roughly 95 percent of what KNIC had originally demanded. It includes a specific confirmation that the reinsurers “have retracted and withdrawn all allegations of fraud and impropriety against KNIC.”

Settlement here (via Fox News): dprk_settlement_agreement.pdf

UPDATE: Aidan Foster-Carter issued a personal comment on the case.  You can read a PDF of it here.

Read articles here:
North finds reinsurance a source of hard cash
Joong Ang Daily
Lee Young-jong, Shin Eun-jin, Sohn Hae-yong

North Korea Suspected of Collecting Millions in Reinsurance Fraud
Fox News
By George Russell

North Korea ‘trying £30m insurance scam’
Times of London
Richard Lloyd Parry

N Korea state insurance group wins case
Financial Times
Sundeep Tucker

Reinsurers pay North Korea claim, drop fraud case
Nadine Jakobs


The (Non) Impact of UN Sanctions on North Korea

Friday, December 19th, 2008

Working Paper (Download PDF here)
Marcus Noland, Peterson Institute for International Economics

Abstract: This study finds that North Korea’s nuclear test and the imposition of UN Security Council sanctions have had no perceptible effect on North Korea’s trade with its two largest partners, China and South Korea. Before North Korea conducted an underground nuclear test, it was widely believed that such an event would have cataclysmic diplomatic ramifications. However, beginning with visual inspection of data and ending with time-series models, no evidence is found to support the notion that these events have had any effect on North Korea’s trade with its two principal partners.

In retrospect, North Korea may have calculated quite correctly that the direct penalties for establishing itself as a nuclear power would be modest (or, alternatively, put such a high value on demonstrating its nuclear capability that it outweighed the downside risks, however large). If sanctions are to deter behavior in the future, they will have to be much more enthusiastically implemented.

Keywords: Sanctions, North Korea, Nuclear, United Nations, Trade equations
JEL codes: F51, P2, D74

This subject was covered in the Washington Times this morning.