North Korean Economy Watch

From the Choson Ilbo:

The UN World Food Program is asking Seoul to send food aid to North Korea. North Korea asked the WFP for food aid in mid-May, and the WFP sent a letter to South Korea last Monday, the Ministry of Unification said on Sunday.

-and-

Seoul gave about 100,000 tons of corn to North Korea every year through the WFP from 2001 to 2004. In 2007, Seoul sent about 32,000 tons of food, including soybean and corn, to the North through the WFP.

Read the full article here:
WFP Asks Seoul for Food for N.Korea
Choson Ilbo
6/2/2008

UPDATE: 
North Korea acknowledges US aid in domestic media.  From the Choson Ilbo:

North Korea on Saturday said through its official Korean Central News Agency (KCNA), “The food aid of the U.S. government will help settle the food shortage in (North Korea) to a certain extent and contribute to promoting the understanding and confidence between the peoples of the two countries.” This announcement came 12 hours after the U.S. offer of 500,000 tons of food aid to the Stalinist country.

On Sunday, North Korea also reported on the U.S. offer of food aid through North Korea’s state-run Korean Central Broadcasting Station, a broadcaster designed for domestic audience, and Radio Pyongyang, a broadcaster designed for overseas audience.

Full story here:
Pyongyang Reacts Promptly to U.S. Food Aid Offer
Choson Ilbo
5/19/2008

ORIGINAL POST
The USAID press release is below.  USAID is supplying 500,000 metric tons of aid to North Korea.  This comes in at 12.5% of the approximately 4 million tons needed to support the population per year (according to Noland, Haggard, Weeks).

Supposedly USAID and the DPRK have reached an agreement on monitoring the distribution of aid – to make sure it gets to where it is needed most.  The specifics of this deal have not been made public as far as I am aware (if any readers know the procedures, please pass them along). 

USAID press release:
Resumption of U.S. Food Assistance to the North Korean People
May 16, 2008
Press Office: 202-712-4320
Public Information: 202-712-4810

WASHINGTON, D.C. – The United States and the Democratic People’s Republic of Korea (DPRK) have reached an understanding on the parameters of a program for the resumption of U.S. food assistance for the North Korean people. International organizations and experts have expressed concern about a severe food shortage in North Korea, and the DPRK has explained to the United States that it faces a major shortfall in food supplies. In response, the United States has pledged significant assistance. The two sides have agreed on terms for a substantial improvement in monitoring and access in order to allow for confirmation of receipt by the intended recipients.

The United States intends to provide the DPRK with 500,000 metric tons in food commodities over the course of a 12-month program beginning in June 2008, with the World Food Program (WFP) to distribute approximately 400,000 tons and U.S. NGOs approximately 100,000 tons. The United States and the DPRK have agreed on a framework to allow WFP and NGO staff broad geographic access to populations in need and the ability to effectively monitor the distribution of U.S. commodities. The food aid will come from the Bill Emerson Humanitarian Trust. The exact commodity mix and delivery schedules will be based on the outcome of a joint needs assessment to be conducted in coming weeks.

An experts’ meeting will be convened in Pyongyang in the near future to work out operational matters and commence detailed implementation of the program. Premised on a successful outcome of those discussions, the United States will deliver a first shipment in June, in light of the urgency of North Korea’s food shortfall. This program has developed through close coordination and extensive consultation with experts in the South Korean government.

According to the Choson Ilbo:  

While the World Food Program says the North is facing a food crisis, exact statistics appear to be tough to gauge. Returning from food aid talks in the U.S., a ranking Seoul diplomat told reporters, “The U.S. also seems to be experiencing difficulties figuring out the exact food condition in North Korea, as it has to rely on remarks by North Korean officials [but] the North appears to have become more flexible on monitoring issues in the last couple of months.”

In all honesty, North Korean officials probably have no idea how much food their country needs either. Why? 

1.  North Korea’s statistical apparatus broke down a long time ago.  Production records are still kept on-site in paper notebooks. There is no comunications or computing technology to measure actual production. Throw in a few fires, floods, etc. and you are running blind.  But even if such technology existed, collective farmers, as with most factory workers in socialist systems, routinely inflate their production numbers, and the regime’s ability to detect and punish this kind of behavior is very weak–and they know it.

2. There is no commodities market in the DPRK to tell officials how much food is being produced privately.  Additionally, the paucity of communications and transportation infrastructure, combined with severe barriers to entrepreneurship, prevents North Korea’s agricultural markets from becomming as integrated as they could be.  Higher price volatility and short term scarcity are the results.  Rumors can send prices through the roof because nothing can be confirmed.

3. There has been no audit of the DPRK’s population since before the last famine, so we don’t even know how many of them there are or where they live.

In all honesty, I think we (the international community) can do a better job of determining how much food they need than they can.  Here is a great place to start.

According to the Financial Times (h/t One Free Korea):

The US has agreed to give North Korea 500,000 tonnes of food aid under a new deal that would allow monitors unprecedented access to oversee distribution in the Stalinist state.

Washington will supply 400,000 tonnes via the United Nation’s World Food Programme, while US non-governmental organisations will distribute another 100,000 tonnes, according to people familiar with the agreement. One US official told the Financial Times that President George W. Bush would approve the deal “within days”.

In order to ensure the food reaches ordinary North Koreans, Pyongyang has agreed to extensive monitoring, including random inspections that several observers said were “unprecedented”. It would also allow “port to mouth” inspections to reduce concerns that food would be siphoned off for the elites that support Kim Jong-il, the North Korean leader.

Pyongyang will also allow more monitors into North Korea than under previous food programmes, and will allow them to visit a greater number of areas.

North Korea will receive an initial shipment of 50,000 tonnes in early June. Once Mr Bush formally approves the deal, US experts will meet counterparts from North Korea, the WFP and NGOs to decide what kind of food is needed.

…And contrary to its previous report on 5/11/08 that South Korea was preparing to donate a nearly USD$10 million aid package to the DPRK, despite never being formally asked for it, Yohnap today reports that Seoul is doing no such thing.  The trial balloon carrying the aid must have popped somewhere over the DMZ.

Read the full stories here:
US to send food to N Korea under new deal
Financial Times
Demetri Sevastopulo
5/13/2008

Seoul set to approve 10 bln won in aid for N. Korea: official
Yonhap 
5/11/2008

Gov’t denies rice aid to be sent to N. Korea via int’l body
Yonhap
Shim Sun-ah
5/13/2008

Via Yonhap:

North Korea’s new envoy to the United Nations presented his credentials to U.N. Secretary-General Ban Ki-moon here Wednesday, along with envoys from several other nations, to officially begin his service, Ban’s office said.

Ambassador Sin Son-ho replaced Pak Gil-yon, who had been at his country’s U.N. mission since 2001. He served as deputy chief of the mission from 2000 to 2003.

From Bloomberg: 

The country has a grain shortfall of 1.66 million metric tons this year, the United Nations agency said in a statement today, citing figures from the Food and Agriculture Organization. The shortfall was the highest since 2001, it said.

“It takes a third of a month’s salary just to buy a few days’ worth of rice,” Jean-Pierre de Margerie, the WFP’s country representative in North Korea, said in the statement. The situation is “not yet” on the scale of the 1990s famine but “yellow lights have to be flashed,” he added in an interview.

The Asian nation’s food deficit may exacerbate a global grain crisis that has driven prices of wheat and rice to records, stoking inflation and sparking civil unrest. International Monetary Fund Managing Director Dominique Strauss-Kahn said April 12 that “hundreds of thousands” may starve worldwide.

Prices of staple foods in the North Korean capital have doubled over the past year following floods last August that reduced agricultural output, the WFP statement said. Last year’s harvest was a quarter less than that gathered in 2006, it said.

The WFP assists about 1.1 million North Koreans at present, while 6.5 million people suffer from “food insecurity,” it said. That “figure can be expected to rise if action is not taken,” the statement said.

Even in normal years North Korea has a deficit of 800,000 to 1 million tons of grain, de Margerie said in today’s interview.

The gap is greater this year because of the flooding and as external assistance has fallen since 2005, when North Korea declared that it could do without humanitarian aid, he said.

People will “resort to any means they can to cope” from growing food at home and trading in the country’s private markets to skipping meals, as many did for long periods in the mid-to-late 1990s leading to high malnutrition rates, de Margerie said.  (Bloomberg)

From Time (AP):

The North’s annual food deficit is expected to nearly double from 2007 to 1.83 million tons, according to U.N. projections.

Reflecting the situation, prices for key staples at food markets have also doubled to reach their highest level since 2004, the World Food Program said. Although the communist North provides some food rations to its people, those who can resort to markets to help make up for lacking state handouts.

The WFP also called on the North to allow aid groups to operate more freely in the country. Countries giving food distributed by the WFP require monitoring by aid workers to ensure that those most in need are being fed.  (Time )

Read the full articles here:
North Korea Faces Food Crisis, UN Agency Warns
Bloomberg
Bradley Martin
4/16/2008

UN: North Korea Faces Food Crisis
Time
Burt Herman
4/16/2008

News of the DPRK’s food shortages began to surface several weeks ago when Good Friends reported:

North Korea’s chronic food shortage has worsened to affect even some of the country’s elite citizens in the capital, a South Korean aid group said Thursday.

The communist nation has not given rice rations to medium- and lower-level officials living in Pyongyang this month after cutting the rations by 60 percent in February, the Good Friends aid agency said in its regular newsletter.

Pyongyang citizens are considered the most well-off in the isolated, impoverished country, where the government controls most means of production and operates a centralized ration system. Only those deemed most loyal to Kim Jong Il’s regime are allowed to live in the capital.

The food situation is more serious in rural areas, with residents in many regions in the country’s South Hwanghae province living without food rations since November, the aid group said. (AP)

Why was this the case?

Floods last August ruined part of the main yearly harvest, creating a 25 percent shortfall in the food supply and putting 6 million people in need, according to the U.N. World Food Program.

Over the winter, drought damaged the wheat and barley crop, according to a recent report in the official North Korean media. That crop normally tides people over during the summer “lean season” until the fall harvest.

North Korea’s ability to buy food, meanwhile, has plunged, as the cost of rice and wheat on the global market has jumped to record highs, up 50 percent in the past six months.

China also appears to have tightened its food squeeze on North Korea for domestic reasons. In order to meet local demand and control inflation, Beijing slapped a 22 percent tariff on grain exports to the North. (Washington Post)

So North Korea’s domestic agricultural production has fallen and so have commercial food imports (international inflation, OECD government subsidies for bio-fuels, and increasing fuel prices have combined to raise the prices of commodities such as rice and pork up to 70% in the course of a year). 

Compounding this problem, however, agricultural aid from North Korea’s two most reliable benefactors (China and South Korea) has dried up.

[China] has quietly slashed food aid to North Korea, according to figures compiled by the World Food Program. Deliveries plummeted from 440,000 metric tons in 2005 to 207,000 tons in 2006. Last year there was a slight increase in aid, but it remained far below the levels of the past decade. (Washington Post)

And strained relations with the new Lee government in South Korea have not helped:

The South typically sends about 500,000 tonnes of rice and 300,000 tonnes of fertiliser a year. None has been sent this year and without the fertiliser, North Korea is almost certain to see a fall of several tens of tonnes in its harvest (Reuters)

So what will be the mitigating factors that prevent another humanitarian emergency?

“The reason for the mass starvation that occurred in late 90s is that North Korea faced natural disasters without expanding the market’s capability to substitute for the broken planned economy capability, and so the damage to North Korean citizens was inevitably large.”

“The market in North Korea has expanded in the last 10 years. The supply and demand structure of daily necessities, including food items, has been formed.”

“Because the market capacity has expanded, the possibility of a mass-scale starvation occurring is no longer high. In actuality, the change in food prices is being monitored at the market.”

-Dong Yong Seung, the Samsung Economic Research Institute’s Economic Security Team Chief, speaking at the 19th Expert Forum sponsored by the Peace Foundation (Daily NK)

Mr. Dong’s analysis addresses the improved efficiency of DRPK’s market supply chains but does not address the effects of an adverse supply shock. 

The UN seems ready to help, although it has not been asked:

Institutionally, mechanisms are in place in North Korea to ring the international alarm bell before hunger turns into mass starvation. The World Food Program monitors nutrition in 50 counties, and the Kim government has become expert in asking for help.

“The North Koreans know that they are facing a difficult situation and have made it increasingly clear in the past few weeks that they will need outside assistance to meet their growing needs,” the U.N. official said, asking not to be identified because of the sensitivity of the issue.

North Korea, which even with a good harvest still falls about 1 million tonnes, or around 20 percent, short of what it needs to feed its people, relies heavily on aid from China, South Korea and U.N. aid agencies to fill the gap.

The UN official said it was clear from a variety of sources that the food security situation was worsening in North Korea and that it needed to be addressed.

Last month Kwon Tae-jin, an expert on the North’s agriculture sector at the South’s Korea Rural Economic Institute told Reuters that if South Korea and other nations did not send food aid, the North would be faced with a food crisis worse than the one in the 90s.

The U.N. Food and Agriculture Organisation said in late March it sees the North having a shortfall of about 1.66 million tonnes in cereals for the year ending in October 2008.

The North will start to feel the shortage the hardest in the coming months when its meagre stocks of food, already depleted by flooding that hit the country last year, dry up and before the start of its potato harvest in June and July. (Washington Post)

The UNWFP, however, will be under pressure from its donors to monitor food aid and make sure it is not diverted to non-emergency uses.  Under these conditions, it is not likely that they will be asked to provide much aid until a catastrophy is already underway.  So with the UN out of the picture, who is best positioned to prevent the reemergence of a humanitarian crisis in North Korea today? China.  

Despite China’s own food probelms, however, it is always likely to capitulate, at least in part, to North Korea’s emergency requests.  China does not want to deal with another North Korean famine, particularly during the Olympic season, and they certainly do not want to deal with any political instability that could result. 

Yonhap reports that the DPRK has asked the Chinese for 150,000 tons of corn this year.  Chinas says they will give 50,000 tons–and that is just initially. (Yonhap)

UPDATE 4/14/2008: I still have not seen any reports in the media of Noth Korea seeking suport from Russia.

UPDATE 6/9/2008: China increases grain export quota to North Korea to 150,000 tons

(more…)

More politicization of the Beijing Olympics…

The United Nations has withdrawn its staff from the Olympic torch run in North Korea amid concerns that the relay will be used as a propaganda stunt.

The decision followed a heated internal debate among foreign donors, who face a constant battle with Kim Jong-il’s government in their efforts to get food and aid to impoverished people.

It is believed to be the first acknowledgment by the world body that the Olympic torch relay is a political event that can be exploited by unscrupulous governments, diplomats said.

and…

“Unicef originally decided to participate in the Pyongyang leg of the Olympic torch run in response to a request from, and as a demonstration of support for, the International Olympic Movement,” said Christopher de Bono, a spokesman for the organisation.

“However, we are no longer convinced that Unicef’s participation in the run will support the aim of raising awareness of the situation of children in the DPRK [Democratic People’s Republic of, or North, Korea] and elsewhere,” he said.

“Unicef has decided, in concert with other UN family entities, to withdraw from the Pyongyang relay.”

Read the full article here:
UN pulls out of North Korea Olympic torch ceremony amid fears of propaganda coup
Times of London
Michael Sheridan
4/6/2008

Institute for Far Eastern Studies (IFES)
NK Brief No. 08-2-5-1
2/5/2008

Kim Jong Il’s first visit of the year was reported on January 6 to have been to the Ryesonggnang hydro-electric power plant. Generally, the leader’s visits in the first months of the year, along with the New Year’s Joint Editorial, which focused on economic recovery, set the tone for the coming year’s policies. His second inspection of the year was to a military unit.

Defectors claim that prostitution is on the rise in North Korea, and on January 9, the aid group ‘Good Friends’ reported that the DPRK has begun to close massage parlors as part of a crackdown on prostitution. The agency reported that in the DPRK there was a “steady campaign to weed out decadent foreign culture,” and that in September, DPRK soldiers were ordered to avoid alcohol, sex, and money.

On January 16, it was reported that Kim Jong Il had instructed all DPRK institutions to reduce their bureaucracies, including senior staff, by thirty percent.

Figures released by North Korea’s Korean Central News Agency indicate that the DPRK’s population had increased to 23.6 million in 2004, the latest available figures. According to DPRK figures, the population has grown from 22.1 million in 1996.

North Korea announced the closure of its Australian embassy on January 22. While the DPRK will continue to maintain diplomatic relations with Australia, it apparently can no longer afford to maintain an embassy in Canberra.

According to a report released by the International Red Cross, North Korea has the largest number of people in the world killed by natural disasters over the past decade. The report states that 458 thousand North Koreans have died from natural disaster, 38 percent of the disaster-caused deaths in 220 countries from 1997-2006.

A U.S. Senate investigation reported that the DPRK funneled as much as 2.7 million USD through a bank account set up from UN development projects. The report stated that North Korea used the UN account due to fears that the United States would block its ability to transfer money internationally.

DPRK Nuclear Negotiations

2008 opened with the United States and Japan releasing statements expressing their disappointment at North Korea’s failure to meet its December 31 deadline to fully disclose the extent of its nuclear programs, while North Korea’s New Year’s Joint Editorial called for “stability on the Korean Peninsula and peace in the world” as well as an end to hostile U.S. policies. A U.S. White House spokesman stressed that there was still opportunity to move forward with negotiations, stating, “the important thing is that we get a declaration that…needs to be full and complete,” not whether the declaration is made by the deadline.

On January 4, North Korea claimed it had met its obligations to come clean on its nuclear programs, and that it had provided Washington with a list of its nuclear programs in November. Pyongyang also threatened to bolster its “war deterrent” because Washington had failed to provide promised aid following the declaration. Washington denied that any complete declaration had been made.

A senior Russian diplomat was quoted on January 11 as saying that while Russia regrets the slowed state of progress in talks on DPRK nuclear issues, Russia will fulfill its promise to provide the North with fuel oil. 50,000 tons of fuel oil were delivered on January 20~21.

According to a book of figures recently published by the National Statistical Office, ”Comparison of North and South Korean Socio-economic Circumstances”, the DPRK”s crude imports over the past several years bottomed out at 2,325,000 barrels in 1999, then rose to 4,244,000 barrels by 2001. Since 2001, imports have steadily fallen until only 3,841,000 barrels were imported in 2006, recording the least imports in the last five years.

North Korea opened its first online shopping mall in January. The site offers items from fourteen categories ranging from machinery and building materials to stamps and artworks. The site, www.dprk-economy.com/en/shop/index.php, is based in China.

Orascom Telecom, a Cairo-based phone operator, has been granted the first commercial license for provision of mobile phone services in North Korea. The license was granted to CHEO Technology, a subsidiary that is 25 percent-owned by the state-run Korea Post and Telecommunications Corporation.

DPRK Abduction Issue

The Cambodian Foreign Minister announced on January 16 that his country had been working behind the scenes to find a resolution to the DPRK-Japan abduction issue. The minister stated, “Cambodia is in a position where it can hold high-level meetings with North Korea, and it has the ability to persuade North Korea.”

Inter-Korean Affairs

The incoming Lee Myung-bak administration announced on January 4 a plan to develop an international cooperative fund to support North Korea’s economy. The plan is said to call for World Bank and the Asia Development Bank to help, and for South Korea to provide 40 billion USD.

On January 7, it was reported that Lee Myung-bak’s presidential transition team had asked the ROK Unification Ministry to slow the pace of inter-Korean economic projects and to link them to progress in the six-party talks. The incoming administration has promised not to link humanitarian projects such as rice and fertilizer aid to nuclear negotiations.

The Lee Myung-bak administration announced plans for downsizing the South Korean government, including disbanding of the Ministry of Unification. Opposition to the plan points out the role played by the ministry in improving inter-Korean relations, while proponents to the plan of relegating the ministry’s duties to the Ministry of Foreign Affairs and Trade applaud the move to align North Korea policy with standing foreign policy directives.

On January 14, it was reported that Lee Myung-bak had asked the United States to further engage in talks with DPRK military leaders, while presenting a balanced approach, stating that “our people don’t support the idea of giving lavish aid to the North nor do they want to irritate it too much, I believe.” He went on to add that the United States holds the key to easing DPRK fears of opening up.

The net worth of inter-Korean exchanges totaled 1,797,890,000 USD in 2007, up 33% from the 1.35 billion USD in the previous year. The almost 1.8 billion dollars in trade recorded in 2007 is the highest to date, and is equal to 65 percent of the DPRK”s non-Korean trade volume of 2.996 billion USD in 2006.

The Seoul-based International Vaccine Institute announced on January 14 that it will soon begin inoculating approximately six thousand North Korean children against bacterial meningitis and Japanese encephalitis.

The two Koreas began working-level military talks on January 25, marking the first talks of the year. During talks, the North proposed reducing the frequency of the inter-Korean rail services, citing a lack of cargo. The Southern delegation felt that the frequency was an important indication of inter-Korean cooperation. The two sides agreed to continue daily runs, but to reduce the number of empty carriages in the future.

North Korea is still not as attractive to businesses as other Asian neighbors. A survey released by the (South) Korea Chamber of Commerce and Industry on January 28 indicated that China and Vietnam are more attractive to ROK businesses. According to the survey, 80 percent of businesses have difficulties starting or operating businesses in North Korea.

An ROK special envoy returned on January 23 from Moscow after proposing a joint ROK-DPRK-Russian cooperative project in eastern Siberia. President-elect Lee Myung-bak sent a letter to Russian President Vladimir Putin pushing for cooperation of “North Korea’s workforce, Russia’s resources and capital, and [South] Korean technology.”

U.S.-DPRK Relations

On January 9, amidst reports concerning possible DPRK-Syria nuclear connections, it was reported that in 1991 Israel was posed to strike a ship suspected of delivering missiles from the DPRK to Syria, but was dissuaded by Washington.

A U.S. State Department official stated on January 22 that North Korea had met the legal criteria to be removed from the U.S. list of state sponsors of terrorism. This came just after reports of conflicting opinions within the Bush administration, with Secretary of State Condoleezza Rice sharply rebuking Special Envoy on North Korean Human Rights Lefkowitz, who stated that North Korea is not serious about nuclear disarmament. Rice went so far as to say that Lefkowitz “certainly has no say on what American policy will be in the six-party talks,” dismissing his negative position on the failure of North Korea to meet its obligations. The White House later stated that North Korea must make a full declaration of its nuclear activities before being removed from the list.

Five officials from the DPRK recently visited the United States in order to learn how to treat and prevent tuberculosis, a serious concern for the North that is “practically non-existent in most developed countries.” The officials were invited by The Korea Society, which is based in New York.

DPRK-PRC Relations

According to the PRC General Administration of Customs, China’s oil exports to North Korea were the same in 2007 as they were in 2006. China sent 523,160 tons of oil to North Korea in 2007.

A senior PRC Communist Party official traveled to Pyongyang for a meeting with Kim Jong Il on January 30. Wang Jiarui, director of the International Liaison Department of the Chinese communist party, was to convey a message to Kim, inviting him to the opening ceremony of the Beijing Olympics. While Kim reportedly told Wang that there would be no change in the DPRK stance on nuclear negotiations, he also assured the Chinese envoy that North Korea had no intention of harming DPRK-PRC relations.

Yonhap
Shim Sun-ah
1/28/2008 

North Korea will conduct its first national census in 14 years this fall with help from a U.N. agency, the Unification Ministry said Monday.

“South Korea signed a memorandum of understanding with the United Nations Population Fund (UNFPA) on Dec. 11 to finance part of the cost of the national census in North Korea,” the ministry said in a statement.

The project will be launched in October. A pilot census already began last year, according to the statement.

The project will cost around US$5.6 million, of which South Korea will provide $4 million, the ministry said, adding the remaining funds will come from the UNFPA’s own fund and donations from other countries. No complete census has taken place in North Korea since 1994 when the UNFPA helped the communist state conduct a national census. Pyongyang announced after the survey that its population was 21.21 million people as of 1993.

According to an almanac released Sunday by the North’s official Korean Central News Agency, North Korea’s population increased gradually to 23.6 million in 2004 despite the chronic economic plight of the isolated communist state.

The World Factbook released by the U.S. Central Intelligence Agency last year put the North Korean population at 22.6 million in 2004.

“We decided to finance the census from the inter-Korean cooperation fund considering that the census will help us understand North Korea’s overall social situation and the lifestyle of the country’s people,” the statement said.

“The population data can also be used to establish comprehensive measures to deal with the North, including inter-Korean economic cooperation projects,” it added.