Archive for the ‘Energy’ Category

The Nautilus Institute primer on the DPRK

Tuesday, November 26th, 2002

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The Nautilus Institute has created the DPRK Briefing Book to enrich debate and rectify the deficiencies in public knowledge. Our goal is that the DPRK Briefing Book becomes your reference of choice on the security dilemmas posed by North Korea and its relations with the United States. The DPRK Briefing Book is part of the Nautilus Institute’s “US-DPRK Next Steps: Avoiding Nuclear Proliferation and Nuclear War in Korea” project.

The completed DPRK Briefing Book will cover approximately two-dozen “Policy Areas,” each containing issue briefs, critical analyses from diverse perspectives, and key reference materials, some of which are available as PDFs. (To view the PDFs, you will need to download and install the free Adobe Acrobat Reader). We will post additional Policy Areas over the coming months. If you would like to be notified as they are completed, please sign up for NAPSnet, if you haven’t already.

The Nautilus Institute seeks a diversity of views and opinions on controversial topics in order to identify common ground. Views expressed in the Briefing Book are those of the authors and do not necessarily reflect the official policy or position of the Nautilus Institute. The information contained in these pages may be downloaded, reproduced and redistributed as long as it has not been altered and is properly attributed. Permission to use Nautilus Institute materials for publications may be attained by contacting us.

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About DPRK, Agriculture, China, Economy, Energy, Transition

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Pakistan denies N Korea nuclear deal

Sunday, November 24th, 2002

BBC
11/24/2002

Pakistan says there is “no truth whatsoever” in a US newspaper report that says it has been co-operating with North Korea on nuclear weapons technology.

The New York Times said on Saturday that North Korea had given Pakistan missile parts to enable its nuclear arsenal to reach “every strategic site in India”.

Pakistan, the paper said, had given North Korea designs for machinery and gas centrifuges that could be used to make highly enriched uranium for the country’s nuclear weapons programme.

Pakistan Government spokesman, Major-General Rashid Qureshi dismissed the report: “I do not know where the New York Times gets its information from,” he told Reuters news agency.

“I am convinced they [the New York Times] need to update their intelligence gathering system.”

‘Murky’

The New York Times estimated that nuclear arms cooperation between Pakistan and North Korea could “put at risk South Korea, Japan and 100,000 American troops in north-east Asia”.

It says the two countries began sharing military technology as early as 1993 when the Pakistani Prime Minister at the time, Benazir Bhutto, visited Pyongyang.

And it quotes unnamed US officials as saying that Pakistan has continued its “murky” relationship with North Korea even after Pakistan sided with the United States in its war against terrorism last year.
Nuclear ambitions

The North Koreans were reported to have acknowledged in October that they had a secret uranium enrichment project for making nuclear weapons. Last week the US intelligence agency, the CIA, released a report saying that North Korea was building a plant that could produce enough uranium for two or more nuclear weapons a year.

The New York Times says the US Government “has never publicly discussed the role of Pakistan in supplying that effort”.

It quoted American and South Korean officials as saying that the US administration regards Pakistan’s role “so critical” in its war against Osama bin Laden’s al-Qaeda network that it has chosen to remain quiet on Pakistan’s role in nuclear proliferation.

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North Korea admits nuclear arsenal

Sunday, November 17th, 2002

BBC
11/17/2002

North Korea has said for the first time that it has nuclear weapons.

A commentary broadcast on state radio said North Korea had developed “powerful military counter-measures, including nuclear weapons” to cope with what it called mounting nuclear threats from the United States.

Last month, Washington announced that North Korea had admitted to having a programme for producing highly-enriched uranium – a key ingredient in nuclear weapons.

But this is the first time the communist state has made such an acknowledgement.

A foreign ministry statement in October said only that the country was “entitled” to have nuclear weapons.

President George Bush has repeatedly called on Pyongyang to eliminate its nuclear programme, saying it is the only way the country can have a viable future.

The BBC’s Charles Scanlon says state media often contains hostile rhetoric and it is not clear how literally the broadcast – which was not attributed – is meant to be taken.

He says for years North Korea has tried to keep the world guessing about its nuclear capabilities.

Pyongyang’s demands

Sunday’s broadcast accused Washington of “slandering and injuring” North Korea.

America’s “reckless manoeuvres”, it said, were threatening the country’s right to existence and sovereignty.

“Under these circumstances we cannot sit idle with our arms folded,” the radio said.

It also repeated Pyongyang’s demands that the US must sign a non-aggression pact, insisting it was the only way to resolve the nuclear issue.

The timing of the broadcast fits in with a pattern of North Korean “confession”, according to Michael Yahuda, professor of International Relations at the London School of Economics and Political Science.

He told BBC News Online, it appeared they wanted to clear the way for talks.

“The US is threatening and, by responding, Pyongyang is sending out a message: ‘We have nuclear weapons as well, so lets find a way to negotiation’,” he said.

Aid stopped

The US defence secretary, Donald Rumsfeld, said last month that North Korea might have one or two nuclear weapons.

Earlier this week, the US, South Korea, the European Union and Japan agreed to halt fuel aid to North Korea until Pyongyang moved to dismantle the programme.

Under a 1994 accord, North Korea agreed to freeze its nuclear programme in return for 500,000 tonnes of fuel oil a year in aid.

But Washington considers that Pyongyang nullified the 1994 pact when it reportedly admitted to a US envoy that it was trying to build nuclear weapons.

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No more oil aid for N Korea

Friday, November 15th, 2002

BBC
11/15/2002

South Korea has pressed North Korea to scrap its suspected nuclear programme, welcoming a decision by the US and its allies to stop deliveries of oil to its impoverished neighbour.

Diplomats from South Korea, the US, the European Union and Japan agreed that a 42,000 tonne shipment of fuel, currently on its way to North Korea, should be the last.

The US had called for the aid to be stopped, unless the Communist regime dismantled its alleged nuclear weapons programme.

South Korea and Japan had both argued for continuing the fuel shipments over the winter, and analysts say they faced several weeks of pressure from the US over the issue.

But on Friday South Korea said it was “quite united” with its allies and “pleased” with the decision to cut off supplies.

“I hope this message will be heard by North Korea,” a senior government official told reporters.

The South Korea Deputy Foreign Minister Lee Tae-shik said the government would continue to holds talks with Pyongyang.

Deadlock

The fuel decision was announced as the allies met in New York as part of the Korean Peninsula Energy Development Organisation (Kedo), which administers a 1994 accord designed to limit North Korea’s nuclear ambitions.

Under the plan, North Korea agreed to freeze its nuclear programme in return for 500,000 tonnes of fuel oil a year in aid.

Washington considers that Pyongyang nullified the 1994 pact, after confessing to a US envoy last month that it was trying to build nuclear weapons with enriched uranium.

“Future (oil) shipments will depend on North Korea’s concrete and credible actions to dismantle completely its highly enriched uranium programme,” said the Kedo statement.

North Korea says it will only scrap its nuclear programme if the US signs a non-aggression treaty.

Both South Korea and Japan have expressed doubts that stopping oil deliveries would persuade North Korea to terminate its nuclear weapons programme.

They fear it would instead lead to a revival of an earlier, plutonium-based nuclear programme.

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North Korea: A Nation in the Dark

Saturday, October 19th, 2002

Time
Donald McIntyre
10/19/2002

Lee Mi Young crossed the Tumen River from North Korea into China a month ago. Now she is hiding in a safe house in China, getting help from a Chinese-Korean missionary, and hoping to start a new life. She is terrified to be talking to the first foreigner she has ever seen, more so because she is painting a negative picture of her country. She could be executed in North Korea for this conversation (Lee Mi Young is a pseudonym).

In her mid-30s, with pretty, bright brown eyes and carefully stenciled eyebrows, Lee says she left North Korea because she was tired of never having quite enough to eat. Things are better than they were during the famine of the mid-’90s, but they have begun to deteriorate since July when North Korea announced a series of economic reforms that many observers said signaled the start of a serious effort to fix the country’s collapsed command economy. The government raised the salaries of workers such as miners and teachers, increased the cost of state rations such as rice and allowed the North Korean won to fall to about 150 to the dollar, much closer to its real black-market value than the 2.5 won to the dollar at which it had previously been pegged.

Lee says that in her hometown north of Pyongyang (she prefers we don’t name it) the price of grain in the black market has risen, but people can’t afford to buy it: Although salaries have been raised, the government has only actually paid them once since July. People need to supplement meager government rations with rice bought at exorbitant prices on the black market. “This was a reform for the rich,” says Lee. “Things are worse than before.”

Kim Jung Il is still fully in control of the country, analysts say. There are periodic reports of small signs of dissent — anti-government leaflets and graffiti, for example. Some defectors say family members will complain among themselves and possibly with friends. But North Korean defectors say that everyone is aware that anybody caught protesting publicly will be sent to a harsh prison camp, where they will be joined by members of their family. Lee, the young woman who fled last month, says she saw an old lady standing in line waiting for rations in August who suddenly said: “It is so difficult to live here. I can’t stand this.” Almost immediately, a man came up, tapped her on the shoulder and led her away. Other members of her family later disappeared without explanation.

What has changed in the past few years is the amount of knowledge about the outside world flowing into the country. Hundreds of aid workers have been in and out of the country in recent years, bringing with them new ideas and information. Thousands of North Koreans have crossed across the Tumen River into China attempting to flee or simply looking for food. Many come back not only with food, but also bearing tales of the wonders of China’s booming cities and stores brimming with goods. According to one defector, Chinese-Koreans are bringing cell phones into North Korea, using them along the border and even leaving them behind for relatives to use — in a country where ordinary people don’t have landline phones in their homes.

For impoverished North Koreans, China’s flashy modern cities seem like paradise and many dream of going there. There is much more knowledge about South Korea as well. North Korean propaganda for years portrayed the South as a land of beggars oppressed by a rich elite. Many average North Koreans now know that isn’t true, according to defectors. One reason: North Korean sailors, traders and workers who have been to places like Cuba and Libya come back with video tapes of American action movies. These are secretly circulated, with eager audiences gathering at the house of the very rare family rich enough to have a VCR player, sometimes with an English-speaker on hand to translate the dialogue. A record 600 North Korea defectors arrived in Seoul last year — this year’s figure could top 1,000.

Some analysts argue the clash in the West Sea on June 29 (in which North Korea patrol boats fired on South Korea naval vessels, killing five sailors) was the work of disgruntled military leaders trying to warn Kim Jong Il to keep a lid on change. The conventional wisdom has always been that North Korea is afraid to open the door a crack because the system could unravel so quickly. Some defectors and aid workers report that there is a sense of instability and uncertainty in the country right now. Rather than the start of reform, we may be seeing a country starting to unravel already.

When I visited Pyongyang in August, it looked better than it had even six months earlier. There were open-air restaurants offering grilled meat — just like in Seoul — and people looked healthy and even vibrant. But the capital has always been an oasis reserved for party members and North Koreans loyal to the regime. Aid workers and diplomats say smaller cities lack regular electricity and people still can’t get enough to eat. They probably aren’t starving but malnutrition remains widespread.

North Koreans who live in the countryside may be marginally better-off than their urban cousins, because they are able forage for wild plants in the mountains and are allowed to grow vegetables on small private plots. Life is harsh for city dwellers dependent on the industrial economy. On the road from Pyongyang to the northeast corner of the country, you pass mile after mile of rusting factories — probably less than one third of the country’s factories are actually running.

A Korea-American businessman who visited the city of Kaesong recently was shocked to learn it had had no electricity for 10 days. The only electric lights shining at night in Kaesong those illuminating monuments to the late “Great Leader” Kim Il Sung. Many city have electricity at certain times of the day. Foreign reporters who visited Shinuiju last month, for the unveiling of a plan to turn it into a free economic zone designed to lure investors, were struck by the contrast with the neighboring Chinese city of Dandong. Dandong at night is a blaze of lights; across the river, Shinuiju is in near-total darkness. Apartment blocks in Pyongyang are lit at night these days, but there are few lights outdoors — except, of course, those illuminating the gigantic statue of the “Great Leader.”

To make a go of “special economic zones” such as Shinuiju, North Korea needs to massive foreign investment to rebuild its electrical grid and other key infrastructure. The country has never been self-sufficient in food and needs an industrial economy to make fertilizer to boost agricultural yield and to finance food imports to make up the shortfall. But the disappearance of foreign subsidies following the collapse of the Soviet Union saw a rapid de-industrialization — until the late 1960s, it had been ahead of South Korea economically. North Korea is now dependent on international food aid and donations of fertilizer, and desperately needs to get on the right side of the U.S. in order to get the loans it desperately needs from the World Bank — loans that the U.S. is now blocking. That has many South Korean analysts suggesting that the reason Pyongyang sudden nuclear confession is precisely that it hopes to put its nuclear weapons program on the table and trade it away for economic gains and security guarantees from Washington.

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Light from the North?

Sunday, August 11th, 2002

Time
Donald MacIntyre
8/11/2002

Richard Savage kneels in the rich brown earth of a field on the outskirts of Pyongyang and reverentially spreads out the broad, green leaf of a young paulownia tree. The saplings have been in the ground for only a month but already they are a meter high; the first harvest could take place in just five years. Eyes shaded by his black cowboy hat, the Singaporean native gazes down the rows of juvenile trees, each worth thousands of dollars at maturity, with a satisfied grin. The experimental lumber crop has survived the harsh North Korean winter and is flourishing in the loamy soil. “The paulownia loves this,” he says. Glancing at another leafy plant, a new hybrid, he confides, “We’re going to let the Dear Leader name it.”

Hermit state, international pariah, charter member of the “axis of evil”?North Korea is hardly an obvious place for long-term investments like tree farms. The decrepit Stalinist economy depends on international handouts to prevent widespread starvation. The Dear Leader, strongman Kim Jong Il, runs the country like a medieval fief. But Savage is confident that his $23 million, 20,000 hectare Paulownia plantation south of Pyongyang will pay off. His Singapore-based company, Maxgro Holdings, is investing $5 million in North Korea this year, and he even has plans to build a resort there, complete with a 70-room hotel, horseback riding, trout fishing and all-terrain vehicles. “This is a mega-growth area,” he says. “If you don’t move now, you will have missed the boat.”

Whether Savage has boarded the Titanic remains to be seen, but there are increasing signs that North Korea at last may be opening its barbed-wire gates, economically and diplomatically. Last month, the authoritarian leadership increased food prices, set artificially low by the government, by as much as 50 fold, while increasing miners’ and scientists’ salaries by almost as much. Many observers say the reforms, including the elimination of some manufacturing subsidies, signal that Kim is edging toward a market economy instead of perpetuating a system in which North Koreans rely on virtually free handouts from the government.

Just as intriguing is the sudden burst of sunshine out of Pyongyang diplomats, the normally reclusive North Koreans are now clamoring to talk to Seoul, Tokyo and Washington all at once. Senior North Korean government officials are scheduled to travel to Seoul this week for ministerial-level talks, the first such tete-a-tete in nine months. Says Yim Sung Joon, a senior advisor to South Korea’s President Kim Dae Jung: “This is a very important moment for the two Koreas.”

On the agenda: everything from reunions of separated families to rebuilding a railway across the heavily mined dmz dividing North and South. In a surprise move, Pyongyang has already agreed to send athletes to the Pusan Asian Games next month, the first time North Koreans will take part in an international sporting event in the South. Japanese officials head to Pyongyang next week for talks that will include the awkward issue of Japanese nationals allegedly abducted in the 1970s and ’80s, Japan wants them back before the two countries can normalize relations. Meanwhile, North Korean Foreign Minister Paek Nam Sun met with U.S. Secretary of State Colin Powell for a 15-minute chat on the sidelines of the asean meeting in Brunei two weeks ago, the highest level encounter between the two sides since George W. Bush became President.

Is this the same country whose navy six weeks ago shelled South Korean patrol boats off the west coast of the peninsula, killing five sailors? It is, say observers, who speculate that the naval battle may have been an accidental clash rather than a deliberate provocation. The country’s recent reforms and overtures are, in fact, in keeping with an agenda dating back to the late 1980s, when the Soviet Union unraveled and left its client state, North Korea, without a dependable source of oil and food. The conventional wisdom has been that Kim is too scared of losing control to risk reform. But a devastating famine in the mid-’90s made it clear the country could not go it alone–that it must, to some degree, join the international economic community.

Frequent business visitors to Pyongyang say the North Koreans have been overhauling their investment laws and welcoming international trade delegations in the hope of attracting foreign capital. Government connections are still essential, but there are fewer layers of bureaucracy than in China, say experts on North Korean business practices. Once a joint venture is signed, getting things done is no tougher than in other developing countries. “I find it very refreshing to be here,” says Savage. “The guys are very straight.”

But North Korea’s agricultural output has fallen dramatically and its infrastructure is crumbling. Most of its factories have shut down and its electric power system is in shambles. The country has one of the worst credit ratings in the world and its currency, the won, is not convertible. Building the basic services that might make North Korea alluring to more foreign investors will take billions of dollars in loans from international lenders like the World Bank.

Lending cannot take place without assent from the U.S., and Washington won’t approve until North Korea allows inspections of all its nuclear weapons facilities. The country froze its nuclear program under a 1994 agreement with the U.S., in return receiving oil imports and a commitment–backed by South Korea and Japan–to build two light-water nuclear power plants in North Korea. Ground has been broken for construction of one in the port city of Kumho. But under the agreement, North Korea must allow the International Atomic Energy Agency to assess whether Pyongyang is living up to its promise to come clean on all of its nuclear programs, a process that could take several years. The U.S. and its partners want to begin soon. So far, Kim has refused to allow inspections to resume, and the standoff goes on. Says a Western diplomat: “The North Koreans are going to have to be viewed as extremely clean.”

Nevertheless, a few brave pioneers have set up shop in North Korea in anticipation of better times. Swiss data-processing company Datactivity.com has run a joint-venture data-entry center in Pyongyang since 1997. Some South Korean companies have launched joint ventures in areas like animation and computer software. And Chinese traders do a booming business back and forth across the China-North Korea border. Robert Suter, who heads the Seoul office of Swiss power generation company ABB Ltd., says his firm is staking out a position in North Korea, “It is the same as it was in China years ago. You had to be there and you had to build trust.”

The question on many minds is whether Kim Jong Il, who has a history of trading friendly relations and empty promises for monetary assistance, is merely giving the world another head fake. His market reforms, according to skeptics, are designed not to liberalize the economy but to control the informal black markets that burgeoned during the famine, when the government could not feed everybody.

If North Korea is indeed serious about reform, it will begin by rebuilding its decimated manufacturing sector. The country needs to export goods if it is to earn hard currency to pay for the food and fertilizer it cannot produce itself. Cutting off subsidies to deadbeat factories is just a first step, and there is no evidence the government has a blueprint for moving further. “They aren’t scrapping the socialist system,” says Koh Hyun Wook, an expert on North Korea at Kyungnam University near Pusan. “These are makeshift moves to overcome the current economic crisis.”

Savage, the tree farmer, believes otherwise. He will be in North Korea with his Israeli irrigation engineers this week, setting up greenhouses and touching base with his North Korean partners. But he acknowledges his venture will require patience. The country “may be a bit backward,” he concedes, “but so what? If you are prepared to help, it will take off like a bloody bullet.” Or a paulownia tree.

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Comrade can you spare a Won?

Monday, May 14th, 2001

Dow Jones Newwire

PYONGYANG — At the foreign exchange counter at the self-proclaimed ‘deluxe’ Koryo Hotel, an electronic screen posts the daily rate of the North Korean won against various international currencies.

Quotes for a dozen or so currency pairs light up in red digital numbers, one after the other.

One rate that doesn’t shift too much is the dollar-won, which generally hovers at or around 2.16 won to the dollar. Speculation has it that the government has fixed the won’s rate against the dollar around that level to commemorate the February 16 birthday of Kim Jong-il, the country’s semi-divine leader.

Sounds strange? The fact is, in this quasi-theocratic country, if it looks like adulation, it probably is. This is, after all, the nation that holds a weeklong exhibition (in mid-February, of course) to admire the Kimjongilia, the national flower.

In any case, whether there is a peg at 2.16 or not, North Korea’s currency bears little relation to economic fundamentals.

Indeed in the Rajin-Sonbong trade zone in the north of the country, where the government has experimented with a free market rate, and along the Chinese borders where there is an active black market, the rate of the won tends to be more like 200 won to the dollar, analysts say. That’s a difference of a hundred fold – making the North Korean won one of the most distorted currencies in the world.

“The pricing of the won doesn’t have any particular relationship to any economic cost concept,” explains Bradley Babson, a senior advisor to the World Bank who specializes in North Korea.

That may have made little difference in the Soviet-style planned economy that has characterized this country’s economy to date. However, as the country tentatively opens its doors to international trade and investment and toys with the idea of using at least some elements of a market economy, currency reform will become vital, analysts say.

Ideological Aversion to Money

Unfortunately, other than the experiment in Rajin-Sonbong, there is little sign the country’s Communist leaders are prepared to take this step yet.

Monetary reform North Korean-style, the latest round of which took place in the early 1990s, has normally been focused on confiscating funds from overly rich entrepreneurs – not exactly the kind of adjustment the IMF would endorse.

At issue is the official Communist ideology which views money as a dirty instrument of capitalism. As such, its role within the economy should be kept to a minimum.

As Deok Ryong Yoon, an economist at the Korea Institute for International Economic Policy in Seoul, explains, until 1990, the North Korean won served not as money at all, but purely as an accounting unit.

North Korean residents didn’t need money because all their needs were met by the state distribution system – one of the most complete anywhere in the Communist world.

That is now changing. “Nowadays people use money and monetization is quite advanced,” says Yoon.

What doesn’t seem to be changing, however, is the government’s attitude toward money. “The regime does not admit the reality,” he says.

That means a complete absence of an “institutional framework” to manage money in the economy, leading to inflation rates of around 700%, according to Yoon’s estimates.

True, there is formally a central bank. But western economists who have met with officials from the Choson Central Bank describe them as meek bureaucrats who have little knowledge of even the most basic economic principles.

The result has been an increasing marginalization of the North Korean won – also nicknamed the ‘brown’ won for its brown and grubby appearance – in the economy. North Koreans resort to barter to meet their basic consumption needs – and increasingly just do transactions in hard currency, such as U.S. dollars, Chinese yuan or even Japanese yen.

Worthless Currency

The same is true of foreign investors. North Korea has a ‘foreign exchange certificate’ system – the same type used in China until 1994. Under this system, foreigners exchange dollars not for local currency but for special purple and blue currency notes.

If as a tourist you change money here, such special notes is what you’ll get. But it’s hard to find anywhere to spend them – as hard currency is demanded for most transactions.

“Basically it’s all done in U.S. dollars,” says Roger Barrett, chief representative of a Beijing-based business group that helps foreign businesses interested in investing in North Korea.

“Hard currency is the export focus, and you get your money back in hard currency,” he says.

The large South Korean projects in North Korea, such as Hyundai’s tourist cruises to Mt. Kumgang, have also been structured in U.S. dollars, according to Yoon.

Pending a major reform of the North Korean currency and pricing system, this tendency to use the dollar in any commercial transaction is likely to continue, analysts say.

In the meantime, even investors used to the most exotic instruments rule out the prospects of the North Korean won as a currency play.

“No we can’t really do anything with it,” says Jerome Booth, head of research at Ashmore Investment Management in London. “I’ve never heard of anyone trying to do anything.”

An economist who travels regularly to North Korea was even more scathing. “I don’t think this currency is worth anything anywhere,” he said.

If either project is built, then, it would probably come as foreign aid, probably in exchange for once again putting North Korea’s nuclear weapons program back under international inspection and control. After a six-month break in talks over the weapons program, American diplomats were touring Northeast Asia over the weekend trying to restart the negotiations.

Yevgeny Afanasiev, a senior Russian diplomat, said at the forum that his country “will do our utmost” to promote the two projects. “They do not have to be part of a package, they could be separate,” Mr. Afanasiev said. “But think of private investors, think of the high political risk – would you invest?”

Financing could come as part of a wider package that would gain North Korea entry into the World Bank and the Asian Development Bank. Or the money might be put up by South Korea, which would stand to benefit both directly and indirectly.

“The Russians basically believe that South Koreans will pay for it,” said Yonghun Jung, a Korean executive at the Asia Pacific Energy Research Center in Tokyo.

But many South Korean businesspeople see North Korea as an unreliable money pit.

Korea Gas, favors bringing Russian gas to South Korea through China and an underwater pipeline, bypassing North Korea and denying it any control over the supply.

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Beyond a Wall of Secrecy, Devastation

Sunday, October 19th, 1997

By Keith B. Richburg
Washington Post Foreign Service
Sunday, October 19, 1997; A01

Rare Closeup Reveals a North Korea That No Longer Functions

HAMHUNG, North Korea — A visit to this remote and desolate city near North Korea’s eastern coast provides a rare glimpse of the country’s near-total economic collapse. The crisis is over food — or the lack of it — but the country’s problems run much deeper, to the core of a socialist system that simply has ceased to function.

You can start at Hamhung’s local hospital, a dilapidated, cavernous 1,000-bed facility without lights, where the stench of urine fills the dark corridors, and patients recovering from surgery writhe in pain on dirty sheets in unheated rooms. There are no antibiotics, no intravenous drips and no stretchers, so workers carry patients on their backs. There were only 250 patients during a recent visit; few sick people bother coming, since the hospital has no food and no medicine.

“We have a shortage of anesthesia, so the patients have to go through pain during surgery,” said Dr. Lee Huyn Myung, as he points to a man gripping his mattress after a colon operation. Most of the patients have rectal, stomach or liver problems, the result of slow starvation, he said. Almost all are malnourished.

From the hospital, travel across this city past gray cement buildings that look half-finished or simply abandoned, past lots strewed with broken-down Soviet-era trucks that cannot be started because there are no spare parts. Then drive down narrow, winding mud roads until you reach the Hamhung orphanage and talk to its director, Choi Kwang Oak.

The orphanage is divided into several small rooms, with playpens for the smallest infants. Almost all the children are malnourished, with browning hair, bald patches on their scalps and sores on their heads and faces. The most severely malnourished are listless and unresponsive.

There are 198 children under age 4 at the orphanage, and about 20 percent are expected to die because they arrived too late to be helped. About 70 percent of the children here were orphaned when their parents died of malnutrition or disease, Choi said. The other 30 percent simply were abandoned and left for dead by parents too poor and too hungry to feed them.

“Some parents just put them outside on the street and leave them to nature,” Choi said. “Sometimes people pick them up and bring them here.” And other times? “They just die.”

The orphanage is surrounded by high hills covered with graves and stone markers. It is an old burial ground, she said. But there are also many new graves.

The scenes of deprivation and hardship go on and on. There is a massive 1950s-era hotel in the town, but it is cold and apparently empty. Since power is rationed, the electricity has been turned off.

There are factories here, but they stand idle. No smoke comes from the chimneys; there is no activity inside the gates. Outside, people mill around, apparently with little to do. Nearly everyone here — hospital workers, hotel employees, even the official government guides — talked openly about the fuel shortage and lack of electricity.

And not even the capital, Pyongyang, about 120 miles to the southwest, is immune from the hardship, despite long being maintained as a showcase city for outsiders to witness the apparent success of the country’s socialist system. Diplomats and aid workers say some parts of the city have been without water for days. Electricity is strictly rationed, and floodlights are turned off at some of the towering monuments early in the evenings. By 10 p.m., the city is plunged into darkness, with no street lights on and no lights visible from the surrounding high-rise apartment buildings.

What you also see are bicycles. Visitors to North Korea before the famine marveled at the lack of bicycles on the streets, even as people walked for miles or waited endlessly for buses. Bicycles were officially discouraged, since they promoted individualism and could allow people to move more freely. But now that fuel imports from the former Soviet Union have stopped, and with North Korea lacking hard currency to buy what it needs on the world market, many people use bicycles since buses sometimes do not run.

Last week, U.S. Rep. Tony P. Hall (D-Ohio) and this correspondent were permitted an unusual look behind the regime’s wall of secrecy, traveling into areas rarely seen by outsiders, and never by an American journalist. In addition to Hamhung, which we reached in an old Soviet-made helicopter, we also took a 3 1/2-hour drive north from Pyongyang on the country’s main north-south highway into the rugged mountains of Chagang province to the small town of Tongsin, stopping briefly along the way in a slightly larger town, Huichon.

From the air, the extent of the drought damage was apparent — dry brown earth in many areas, as well as dried-up riverbeds and hills that had been cleared of all their trees. Years of overuse of petroleum-based fertilizers have destroyed much of the arable land, experts say, and hills have been stripped of their topsoil because farmers use it to cover paddy fields, causing increased flooding in the plain.

On the ground, the damage becomes more evident. Buildings look abandoned or unfinished until, on closer inspection, you see faces in the holes where the windows should be, and you realize the buildings are occupied. Huichon, particularly, looked like a ghost town — sprawling factories fallen into disuse, cement buildings missing large sections and darkness everywhere because there is no electricity.

In Tongsin, more a large village than a town, the local hospital was washed away in last year’s floods, and the makeshift one built on the same site from the debris has a few patients but no medicines, heat, or supplies. Three teenage girls were checked in because they were starving; from their body sizes, they looked more like 5- or 6-year-olds, with normal-sized heads for their age but tiny necks and limbs.

What emerged from the three-day trip, conducted mostly in the presence of government escorts, was a snapshot of a country in economic free fall and a surprising willingness on the part of the authorities to allow outsiders to see even the worst of the crisis — like the hospital in Hamhung.

“The most difficult part as a doctor is we could treat them well if we had food and medicine,” said Lee, the deputy director of the hospital in Hamhung. “We know how to treat them — but we can’t.” Many patients die here, but Lee says he cannot disclose the figure because death rates are kept secret in this strictly controlled society.

“What you saw is pretty widespread,” said O. Omawale, the special representative in North Korea for the United Nations Children’s Fund. “I have seen kids with IV drips, with tubing you wouldn’t put in your car, and the [fluid] reservoir is a bare bottle.”

North Korea’s predicament largely has been portrayed as a massive food shortage brought on by twin natural disasters — destructive floods last year followed by this year’s drought and record-high summer temperatures. But what was revealed on this trip is that the food crisis is just part of an overall breakdown of the country’s state-controlled and centrally planned system. It has been a long and painfully slow descent that began with the collapse of the Soviet Union in 1991 and the loss of invaluable subsidies, the major petroleum supplier, and the principal market for exports.

In Hamhung, Lee was asked how long the hospital had been in its state of collapse and shortages. The deputy director replied, “It started six or seven years ago, but it became worse this year.” Six or seven years ago would date the decline to the time the Soviet Union collapsed.

Relief workers in Pyongyang seem in agreement that the food crisis, reaching famine proportions in some areas of the remote and mountainous north-central provinces, is just one more tangible sign of a total systemic collapse. “It’s a large economic crisis, but it’s not being addressed,” said Christian C. Lemaire, the resident representative of the U.N. Development Program. “All we want to do is talk about the food problem.”

Neither, it seems, does the North Korean government have a strategy for what to do to stop the free fall.

One of the world’s last Marxist states, North Korea in many ways resembles a theocracy more than a doctrinaire socialist state, with the country’s late founder and revered “Great Leader,” Kim Il Sung, as its high priest. His portrait still hangs everywhere — even over the hospital in Hamhung — and the north-south highway is lined with billboards extolling his exploits.

Kim’s guiding philosophy is called juche, or self-reliance, and it propelled the country’s headlong rush to industrialize in the 1950s and ’60s. It also has made it more difficult for North Korea’s secretive rulers to admit to outsiders the extent of the crisis and to ask for outside help.

On Oct. 8, three years after the death of Kim Il Sung, his son, Kim Jong Il, officially took over leadership of the ruling Korean Workers’ Party. Now some analysts are wondering whether the younger Kim might be willing to break from some of the country’s socialist practices and adopt the kind of reforms needed for the country to survive.

Some relief workers here claim already to see some early, tentative signs of an opening. For one, they say, there are now six foreign relief agencies based in Pyongyang and the outlying provinces, while a year ago there were none. The workers’ movements are restricted but, they say, they are slowly making progress in persuading authorities to allow them access to more places.

John Prout, deputy director of the World Food Program in North Korea, said his group had been to 110 of the country’s 209 counties.

There are other small signs, relief workers say. Farmers in the hard-hit northern provinces, particularly near the Chinese border, have been told to fend for themselves, allowing them to trade privately with China. With help from the U.N. Development Program, there have been a few scattered experiments with “micro-credit,” providing money to individual households to buy chickens or goats and allowing them to sell the eggs or milk on the open market.

Some North Korean farmers are said to be “double-cropping,” or planting twice each year — a practice long forbidden by Kim Il Sung. And some North Korea analysts in the United States report that massive collective farms have been reduced in size.

On the helicopter trip across the northern mountains, a few small and scattered patches of green were spotted, suggesting that some farmers in remote areas were starting private plots. In some villages, beans were being grown on makeshift terraces in back yards.

“Living here you can really see things change,” said Lemaire, the UNDP representative. “But it’s not change that’s coming from the top. It’s coming from the base.”

A hint of the continued hard-line views of top North Korean officials came during the trip. In one meeting, last Tuesday evening, Deputy Foreign Minister Kim Gye Gwan warmly thanked Rep. Hall for U.S. food aid. “We are grateful to the United States government for the several tons of humanitarian food aid as well as the active efforts of the NGOs,” or nongovernmental organizations, Kim said. But a few minutes later, Kim told Hall that North Korea and the United States “are in a state of hostile relations.”

No one is predicting that the hardships will lead to any kind of popular disaffection with the regime — and in fact, many here believe attitudes will only harden.

The personality cult built up around Kim Il Sung remains deep and pervasive, and now officials seem to be trying to transfer some of the popular affection from father to son.

In a rare interview, Foreign Minister Kim Yong Nam referred to Kim Jong Il as “the people’s leader, who is acknowledged as a man of ability,” a man “who has produced immortal exploits,” a general who “enjoys the absolute trust and support of our people,” and who embodies “the destiny of our nation as well as the future of our country.”

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