North Korean Economy Watch

From the joong ang:

WASHINGTON – North Korea’s deputy ambassador to the United Nations, Han Song-ryol, dismissed the effect of U.S. financial sanctions on his country, saying that it is cooperating economically with China and Russia. Mr. Han spoke with the Joong Ang Ilbo correspondent here by phone, and said Washington was simply patting itself on the back in claiming the sanctions were effective.
“We have endured sanctions by the United States for 50 years. More sanctions won’t bring any special changes,” Mr. Han said, repeating that North Korea would step up its nuclear deterrence.
Told that there was a perception here that the North’s external financial resources had been drained, Mr. Han replied with a reference to his country’s juche (self-reliance) philosophy. He said the North’s economy was not export-oriented, but was fully self-sufficient. If foreign banks stopped dealing with the North, he said, it wouldn’t matter much.
Washington has threatened to impose financial sanctions on a Macao bank it says has engaged in money laundering for North Korean drug and cigarette smuggling. The bank has frozen assets in some accounts linked to North Korea. And despite Mr. Han’s professed indifference to those sanctions, Pyongyang has refused to return to nuclear negotiations until they are lifted, and specifically until the reported $24 million at the Banco Delta Asia is returned.
Mr. Han said Washington was accusing the North of counterfeiting U.S. currency and imposing sanctions without proof. “The assertion that there are secret funds in Swiss bank accounts is also of the same substance. Hasn’t the Swiss government announced that Washington’s claim is groundless?” asked Mr. Han. (It has not gone that far publicly, but the Swiss ambassador in Seoul said recently that evidence of questionably obtained assets in Swiss banks would be required for authorities to act.)
He said that Washington was raising human rights issues and financial sanctions because it saw no chance of getting favorable results in the North Korean nuclear talks. Mr. Han said that the recent acceptance by Washington of six North Korean defectors was also a move to press Pyongyang.
When asked what he thought on Washington’s claim that photographs existed of North Korean diplomats exchanging counterfeit money, the deputy ambassador said that if that were the case, CNN would already have aired them. He said Pyongyang’s policies would not be affected even if U.S. officials favoring negotiations saw their influence weakened and hardliners gained the upper hand.

from Yonhap:

The U.S. Treasury’s ban on owning or operating North Korea-flagged vessels took effect as of Monday, the latest punitive action against a state accused of counterfeiting American currency and cigarettes.

The amendment to the Foreign Assets Control Regulations (FACR), announced on April 6, prohibits “U.S. persons” from owning, leasing, operating or insuring any vessel flagged by North Korea.

U.S. persons refers to U.S. citizens and permanent residents, U.S. entities, including their foreign branches, and any person in the U.S.

The move is in addition to an action taken last September designating Macau-based Banco Delta Asia as a primary money-laundering concern abetting North Korean front companies.

These companies are suspected of circulating bogus U.S. dollars and exporting items used for weapons of mass destruction.

The U.S. has had broad economic sanctions imposed against North Korea since 1950, when the Korean War (1950-1953) broke out, under the Trading with the Enemy Act.

The sanctions were eased in June 2000 when the U.S. amended FACR in return for Pyongyang’s moratorium on missile tests.

At least 11 U.S. vessels are affected by the new measure, and they had all been notified to take appropriate steps before Monday.

From Hankyoreh:
Why Is Danchon in North Korea Important?
South Korea Proposes Joint Developments with North Korea

South Korea suggested to the North a plan to designate Dancheon, South Hamgyeong Province, as a “special joint resource development district” in the 18th South-North ministerial talks held at Pyeongyang at the end of April. According to a statement, the South and North agreed to “consider a program to jointly develop resources,” but it is obvious that Dancheon is a candidate to become the third joint special economic zone, after the tourist district of Mt. Kumgang and the Kaesong Industrial zone.

In the early stages of the 1994 Agreed Framework regarding the curtailing North Korea’s nuclear program in exchange for investment, North Korea proposed to the U.S. that it invest in two mines and a port in the Dancheon area. Peter Hayes, executive director of the U.S.-based public policy think tank Nautilus Institute, expressed regret that the U.S. missed an opportunity to make the North dismantle its nuclear weapons program, in an article published May 2 on the institute’s web site. Is it possible for Dancheon to become another symbol of South-North cooperation? Since the North has suggested the development of the zone to the U.S. in the past, the North will surely accept the South’s interest in the project.

Why Dancheon?

If the two Koreas designate a special district for joint resource development, government officials and experts agree that Dancheon is an ideal place. In short, the area has infinite potential. Dancheon has deposits of 25 kinds of minerals, including zinc, magnesite, lead, gold, silver and asbestos.

There also are mining industry-related factories. The Dancheon refinery, which came into operation in 1985, produces 100,000 tons of zinc in a year, and the Ryongryang plant processes the raw slag that can be supplied to brick factories.

Many experts say that Dancheon has a better distribution infrastructure than other mining areas. Dancheon has its own port, and Cheongjin and Sinpo ports are just 40km and 80km away from Dancheon, respectively.

Benefits for both Koreas

The South imports all of the zinc and magnesite it uses. If the special economic zone program succeeds, the Dancheon area will provide the South with a steady flow of needed minerals.

Politically, the success of the project could bring about a certain degree of ‘restraint effect’ against foreign capital in the North, including putting a check on China, which has been of late coveting the mineral resource potential of the North.

If the North increases the operating status of its mines, currently between 20 and 30 percent of total employment capacity, with the help of capital and technology from the South, the project will both generate more jobs and help the North earn foreign currency. With this kind of success, a “special district” would mean a win-win economic cooperation.

Obstacles remain

The largest problem is whether the North Korea will accept the program. Fortunately, Dancheon is known to have no military facilities. But it is not clear if the military will agree to the terms of a special economic district, which means a near-complete opening of the area to the South. Due to this, the statement issued in the recent ministerial meeting regarding further development did not specify the Dancheon area, analysts point out.

Experts forecast that even if the two Koreas agree to develop another special district, it will take a long time before goods can be produced. In addition, the North will have to settle a few problems before the project can get underway, such as legislation concerning foreign investments and ownership.

A cost problem exists, as well. In light of the previous cases of Kaesong and Mt. Kumgang, the South will have to provide almost all the infrastructure necessary to develop the special district. An industry official has estimated the cost at more than one trillion won (about one billion US dollars), due to the condition of the North’s transportation routes and electricity grid.

From the Washington Post:

Senator Sam Brownback has announced the arrival in the US of the first North Korean refugees admitted to the US under the North Korean Freedom Act. 

The six person group, including four women who say they were victims of sexual slavery or forced marriages, came from an unnamed south east Asian nation (Vietnam, Laos, Thialind, Cambodia).

Jay Lefkowitz, U.S. special envoy on North Korean human rights, “We will press to make it clear to our friends and allies in the region that we are prepared to accept North Korean refugees for resettlement here.”

From the Korea Herald:

The 39th annual meeting of the board of governors of the Asian Development Bank will be held at Hyderabad International Convention Center in Hyderabad, India’s fastest growing high-tech corridor, for four days ending on Saturday.

The meeting this week will bring together more than 2,500 delegates from around the world to discuss issues including governance, poverty reduction, development finance, international finance architecture as well as economic and social development.

The ADB, which is dedicated to fighting Asian poverty, does not make any investments in North Korea, which could benefit from various education and training projects.  The prospect of membership would also encourage the nation prepare for it by reforming their economy.

Strong U.S. and Japan led-opposition has kept North Korea from becoming an ADB member nation so far, the insiders said.

From the Korea Times:

Rising dramatically from the East Sea, Mt. Kumgang _ about 20 miles (32 km) north of the Demilitarized Zone (DMZ) in North Korea _ is considered by most to be the most scenic area on the Korean Peninsula. The Japanese colonists even built a direct railway line to the area for sightseeing.

I didn’t comprehend the gravity of my excursion to Mt. Kumgang with my colleagues until the South Korean military escort pulled off the side of the road for our caravan of buses at the south end of the DMZ. We crossed the four-kilometer desolate and barbed-wire covered expanse, and picked up the North Korean military escort on the other side. As we approached North Korean immigration, a soldier goose-stepped into the road in front of the bus and held out a red flag to signal the buses to stop.

Upon entering North Korea the stark change in landscape was surprising. Unique clusters of rock formations rose up from flat, treeless, sandy plains. Looming dramatically and endlessly in the distance was the epitome of all Asian mountain images _ Mt. Kumgang.

But other changes were evident, too. The area was quite rural, with small, weathered clusters of traditional Korean homes that may in fact have been quite old. Instead of cars, there were pedestrians on dusty trails, bicycles instead of motorbikes and horse-pulled carts instead of trucks.

Citizens worked the fields with their bare hands and oxen pulled plows. My immigration stamp said “Choson,’’ the name by which North Korea refers to itself and the name of the Korean Kingdom that ruled the peninsula from 1392 until 1910. I had in fact stepped back to that time.

More striking still was the abundance of North Korean soldiers _ along the road, in the farm fields and on the sides of hills. They were stationed at every road and dirt path intersecting the tourist road, which was entirely separated from the rest of the world by continuous fences. Checkpoints were everywhere, both along our road and the ordinary North Korean roads.

The North Korean hotel and park workers were shy, modest, and polite with noticeably different accents and intonation. They often gazed at me innocently, with curiosity about the presence of a Caucasian American. In one conversation a woman who knew surprisingly little about other places in North Korea mentioned that it was her dream to go to Pyongyang.

“Why haven’t you been there?” my colleague asked.

She responded with three reasons: not enough money to travel; poor conditions of transportation making it a difficult journey; and difficulty in acquiring permission to travel.

Despite her having one of the more coveted jobs in North Korea, the 200-kilometer journey from Mt. Kumgang to Pyongyang was fundamentally impossible.

According to Yonhap:

The number of North Korean workers at a South Korean-run industrial complex in the North Korean border city of Kaesong rose 22 percent every month over the past one and a half years, the South’s Unification Ministry said Wednesday.  Production increased 36 percent every month due largely to a rise in the number of South Korean factories operating in the complex, according to the ministry.

As of Friday, a total of 6,859 North Korean workers, including 1,047 construction workers, were registered at the complex.

South Korea hopes to promote the Kaesong complex as a role model for inter-Korean economic partnership, while officials in Washington express concern over its possible negative impact on the multilateral efforts to end North Korea’s nuclear weapons program.

The US Secret Service, which is part of the Treasury Department, has the responsibility to track down counterfit US currency, and becuase of a quirk of history, also protects the President of the USA.

According to Yonhap, the Secret Service has collected up to $50 million of “supernotes,” first discovered sixteen years ago and believed to come from North Korea….

But the latest trend shows the communist regime depends heavily on counterfeiting cigarettes for major income, smuggling at least one 40-foot container every month into the U.S., they said.

Testifying before the Senate in the first Congressional hearing on Pyongyang’s illicit financial activities, Michael Merritt, deputy assistant director of the U.S. Secret Service, gave statistics gathered from a global investigation.

There were more than 170 arrests involving more than 130 countries since the supernote was first detected in 1989 by a Central Bank cash handler in the Philippines, he said.

“Our investigation has revealed that the supernote continues to be produced and distributed from sources operating out of North Korea,” he said.

“These new versions show corrections or improvements in the flaws which are used by banking and law enforcement to detect them,” he said.

“A major source of income to the regime and its leadership, we believe, is the counterfeiting of cigarettes,” he said.

The U.S. government is seeking $5 million in criminal forfeitures in several of these indictments, according to the official.

I was told on my last visit to the DPRK that Marlboro Reds were popular in the DPRK and many astute smokers could taste the difference between the American and European versions–and prefered the American product. 

According to Yonhap, the US State Department has reported to the US Senate (who controls its funding) that it does not have “sufficient information to designate North Korean individuals or organizations under the Kingpin Act, a legislation that denies foreign drug traffickers access to American financial institutions.”

According to the Article:

Peter Prahar, a director at the [State] [D]epartment’s bureau for international narcotics and law enforcement, told a Senate hearing that the U.S. does not yet have sufficient information to designate North Korean individuals or organizations under the Kingpin Act, a legislation that denies foreign drug traffickers access to American financial institutions.

He said indictments are unlikely at this point, since they require “a certain level of evidence that I don’t believe exists,” he said.

Asked if North Korea might be put on the major drug trafficker nation list, Prahar said it is something his department considers “on a regular basis.”  But he cited inability to confirm reports of massive opium cultivation in North Korea, or find evidence that the country’s drug transiting is impacting the U.S.

“But this is something…that we consider regularly within the Department of State, and if we have information that will substantiate that finding, that is a recommendation we are going to make,” Prahar said.

Kim Seong-min, a former North Korean director, claimed it is certain that Pyongyang continues to produce opium.  “Youngsters are used to collect extract from opium,” he told the hearing.  As much as 70 percent of three North Korean counties are set aside to cultivate poppy seeds, totaling some 30,000 hectares, he claimed.

Prahar also stressed alarm at North Korea’s counterfeiting of pharmaceuticals which is “still sketchy” so its magnitude cannot be measured.

From the Asia Times: 

The only currency used in the complex is the US dollar.

No foreign investors have yet signed up for the zone

Washington requires high-tech products destined for North Korea that include US intellectual property to undergo stringent export controls. This has irritated many in the South – particularly after the process delayed the transfer of telecommunications equipment. It also appears highly unlikely that Kaesong-built products will be included in a free-trade agreement between Seoul and Washington that is under negotiation.

Officials of the complex say they have assisted local villagers with heating briquettes and rice, but there is otherwise neither trade nor contact across the fence, indicating that the experience of capitalism is strictly insulated. This assumption is buttressed by relations inside the complex: despite talk of inter-Korean fraternity, social contact between Northern and Southern workers is non-existent.

While the railways between the two Koreas were reconnected in early 2004, theoretically linking Seoul and Sinuiju on North Korea’s Chinese border, it is uncertain when trains will start to run through Kaesong.

“There will be talks on opening the line in July, but it is not certain,” said a South Korean official at Dorasan Station, a giant steel-and-glass edifice on the southern side of the border. The lack of rail transport complicates his firm’s logistics costs, said Stafild’s Moon, whose head office is on the south coast of the peninsula, in Busan.