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US Promises to End Financial Sanctions Against NK

Saturday, March 10th, 2007

Korea Times
3/10/2007

The United States has promised North Korea that it would lift financial sanctions against the communist country, the North’s chief nuclear envoy said Saturday in Beijing.

“The U.S. has promised to end financial sanctions on the Banco Delta Asia and the North is keeping a close eye on the promise,” Kim Kye-gwan told reporters at Beijing Shoudu Airport before taking a flight to Pyongyang.

“If the U.S. fails to solve the issue completely, we will have to take partial actions against it,” Kim said.

Kim was leaving Beijing after meeting with his Chinese counterpart Wu Dawei to prepare for a fresh round of denuclearization talks on the North’s nuclear disarmament on March 19.

He also briefed Wu on the outcome of his U.S.-North Korea normalization talks in New York on March 5-6 with Christopher Hill, the chief U.S. envoy to the six-party negotiations.

In the normalization talks, both sides also agreed to resolve issues surrounding the designation of North Korea as a terrorism-sponsoring state and the application of the U.S. Trading with the Enemy Act, Kim said.

“We agreed to resolve the issues based on our strategic interests and normalize ties between North Korea and the U.S.,” Kim said. “On those two items, there still are diplomatic issues between us.”

In September 2005, the U.S. Treasury Department blacklisted Banco Delta Asia in Macau for its suspicious role in helping the North launder money. Thus, the bank froze $24 million on North Korean accounts.

The North interpreted the financial sanctions as a U.S. attempt to isolate Pyongyang from the international community, and had boycotted the six-party talks until last December.

During the New York talks, Kim discussed with Hill measures for the normalization of diplomatic relations between North Korea and the U.S., following a breakthrough denuclearization agreement which was signed in the six-party talks in Beijing on Feb. 13.

Kim said the U.S. has promised to resolve the financial sanctions against the North within 30 days.

He added that if the U.S. kept its promise, we will shut down our nuclear facilities in 60 days.

Under the disarmament accord, North Korea committed to take intial steps to disable its nuclear weapons program in return for economic aid, security guarantees and diplomatic incentives from South Korea, the U.S., China, Japan and Russia.

The steps require the North to shut down its Yongbyon nuclear complex and admit international inspectors into the country by mid-April

With a two-month deadline, the other parties will provide 50,000 tons of fuel oil and discuss normalizing diplomatic relations with the North.

Posted in Banking, Finance | Comments Closed

Daedong fights U.S.-imposed sanctions on North Korea banks

Thursday, March 8th, 2007

International Herald Tribune
Donald Greenlees
3/8/2007

Last August, Colin McAskill, a British businessman, agreed to buy a small bank in North Korea. On the face of it, Daedong Credit Bank was not a brilliant investment.

The agreement that McAskill signed with the management of Daedong Credit at a hotel in Seoul came as the bank was caught in the grip of financial sanctions that had virtually cut off North Korea from the global financial system.

Financial institutions around the world were shunning any links to North Korean banks, making it almost impossible to transact business.

Daedong Credit was using couriers to carry cash in and out of the country in amounts as high as $2.6 million because it could not make electronic transfers to other banks.

Since September 2005, Daedong Credit had also been fighting to recover $7 million that had been frozen in a Macao bank as part of efforts by the United States to put a financial squeeze on North Korea over alleged illicit financial transactions. This was a big sum for Daedong Credit. When McAskill had examined the bank’s books, its total assets were just $10 million.

None of this has deterred him. He said during an interview in Hong Kong that he planned to execute the sale agreement within the next two weeks and take full control of the only foreign-managed bank in North Korea. The Hong Kong- based Koryo Asia, chaired by McAskill, will take control of the banking license and a 70 percent stake owned by British investors through a Virgin Islands company. The remaining 30 percent is held by the state-owned Daesong Bank. “I think it’s a magnificent deal,” McAskill said, although he would not disclose the purchase price. “The bank has been running for 12 years. It is trusted and it has been profitable since day one.”

Despite McAskill’s optimism, the future of Daedong Credit has been under a cloud since the imposition of the U.S.- orchestrated banking embargo on North Korea 18 months ago and the viability of the business remains precarious.

Even amid signs of a thaw in relations between Pyongyang and Washington, the start of a bilateral dialogue that began in New York on Monday and an agreement in six-nation talks in Beijing on Feb. 13 to start to denuclearize the Korean Peninsula, analysts say banks in North Korea will struggle to restore contacts with the global financial system.

The trigger for the financial embargo of North Korea was a declaration by the U.S. Treasury Department under section 311 of the Patriot Act that the Banco Delta Asia, based in Macao, was a “primary money laundering concern” because of its links to a number of North Korean banks, individuals and companies alleged to have engaged in product and currency counterfeiting, drug trafficking and weapons proliferation.

The U.S. and Macanese authorities began separate investigations into Banco Delta Asia and the bank was placed under Macao government supervision.

Along with about 50 North Korean banks, trading companies and individuals, Daedong Credit had its account frozen. The total amount put into “suspense accounts,” according to Banco Delta Asia, was about $25 million, with Daedong Credit accounting for the largest share. Since then, almost all foreign banks that had correspondent relations with Daedong Credit have severed contact for fear of being excluded from the U.S. financial system.

Jack Pritchard, president of the Korea Economic Institute in Washington, said it was unlikely that the United States would send an explicit signal to the financial community to resume trading with North Korea, regardless of whether Pyongyang starts to address concerns about its foreign financial transactions.

He said that although a portion of the frozen money was likely to be released soon, there would not be a “100 percent reversal” of the American stance on financial transactions with North Korea.

Daedong Credit is likely to be one of the first North Korean account holders in Banco Delta Asia to get its money back from the Macao Monetary Authority where it has been earning no interest.

In recent months, McAskill has circled the globe from his home in London acting under a mandate from Daedong Credit to persuade officials in Washington and Macao to release the account. At 66, McAskill has spent 28 years doing business with North Korea, including as a consultant to North Korean banks on debt negotiations and helping to operate North Korean foreign gold sales. He said that at no stage in his meetings with officials from either the U.S. or Macao governments had he seen any specific reason for freezing the Daedong Credit money or been told of any specific allegation about its origins.

McAskill has produced what he calls a “dossier of proof” to establish the identity of all the customers whose money is frozen and the sources of the money. Since it was founded by the failed Hong Kong finance group Peregrine in 1995, Daedong Credit has filled a valuable niche serving the foreign community in Pyongyang. It has about 200 customers among foreign-invested joint ventures, foreign relief organizations and foreign individuals, according to McAskill. The biggest single amount frozen in Macao is $2.6 million belonging to British American Tobacco, which owns a cigarette plant in North Korea.

“We irrefutably established that the money was legal,” McAskill said. “The U.S. Treasury have been going around the world saying to banks ‘close this account, close that account’ but not offering any proof of wrongdoing.” He said his due diligence of Daedong Credit had convinced him that it was a “fully legal, legitimate operation” that did not manage state accounts or had ever been connected to illicit practices.

One of the Treasury’s main allegations against Banco Delta Asia is that it facilitated the spread of counterfeit $100 bills. But McAskill said Daedong Credit had put $49 million into Banco Delta Asia in 2005 and all that money had been forwarded to HSBC for verification.

Only three of the $100 notes belonging to Daedong Credit were confiscated because they were “suspect,” he said.

McAskill has charged the Treasury with harassment after two correspondent banks — one in Vietnam and the other in Mongolia — informed Daedong Credit late last year that they would immediately close accounts because of pressure from the United States.

But it is likely to prove difficult to persuade banks, nervous about the effect on Banco Delta Asia of the long- running Treasury investigation, to take the risk of dealing with a North Korean counterpart, regardless of the pedigree of its shareholders and board.

Last week, at a meeting in Macao, McAskill was finally told by the head of a government-appointed committee supervising Banco Delta Asia, Herculano de Sousa, that it was likely that the money in Daedong Credit would be returned by the end of March.

In the meeting, McAskill told de Sousa that once the funds were freed, Daedong Credit intended to leave the money in Banco Delta Asia and resume operating its old account.

But Banco Delta Asia has informed the U.S. Treasury that as part of its cleanup both the administrative committee and the shareholders were adamant that they no longer would do business with any North Korea entities. In doing so, the bank hopes to avoid the United States making good on a threat to ban Banco Delta Asia from having any correspondent relationships with U.S. banks.

Still, McAskill insisted that Daedong Credit has not broken any law in Macao or elsewhere and that there were no grounds for it to be forced to close its account.

“I am not going to take my money back and cut and run,” he said.

Posted in Banking, British American Tobacco (BAT), Daedong Credit Bank, Daesong Group, Finance, Gold, Korea Business Consultants, Tobacco | Comments Closed

US Concludes Probe Into NK-Linked Bank in Macau

Tuesday, February 27th, 2007

Korea Times
2/27/2007

U.S. officials said Monday they had wound up their probe into a Macau bank accused of laundering millions of dollars of illicit North Korean funds, Agence France-Presse reported.

The U.S. move raised expectations that sanctions placed on the lender may soon be lifted, AFP said in its dispatch from Hong Kong.

AFP quoted Daniel Glaser, an assistant to the U.S. Treasury Department’s deputy secretary, as saying that a team of U.S. officials had met Macau financial authorities during their one-day visit.

“We’ve completed our investigation,’’ Glaser was quoted as telling reporters at a hastily convened press briefing in nearby Hong Kong hours after the talks ended.

“Everything that we have seen throughout this investigation has confirmed and reinforced the concerns we initially expressed in September 2005,’’ he added.

The talks follow a deal announced two weeks ago between the U.S., the two Koreas, Japan and Russia on initial steps towards dismantling Pyongyang’s nuclear program.

As part of the agreement, the U.S. Treasury team probing Banco Delta Asia (BDA) and other banks believed to have links to North Korea said they would begin talks that would lead to the lifting of sanctions.

“All of this work has put us in a position where we can begin to take steps resolve the BDA matter,’’ Glaser was quoted as saying, adding that he had discussed the matter with North Korean and Macanese authorities.

However, he would not say when a decision would be made on lifting the sanctions, nor on what would happen to some $24 million worth of bank assets frozen by the Treasury.

“I don’t think it would be responsible for me to get into a specific timetable, but we do intend to take steps to resolve the matter and we do intend to do that in a timely fashion and to do it as soon as possible,’’ Glaser said.

BDA has been under administration in Macau since the Treasury announced its inclusion on the watch list in 2005.

The government stepped in after fearful depositors began withdrawing funds at a rate that threatened to destabilize the southern Chinese territory’s financial system.

AFP said that in December the bank admitted to buying gold bullion produced by North Korea.

According to the AFP report, the bank also admitted to continued dealings with Tanchon Commercial Bank for three months after the North Korean lender was blacklisted.

Promising never again to deal with North Korea, BDA has appointed an outside compliance officer and hired Hong Kong-based consultants to upgrade its computer system.

Macau’s authorities, meanwhile, with the backing of China’s central government in Beijing, have instituted tough new laws against money laundering and counterfeit currency.

Posted in Arms shipment, Banking, Counterfeiting, Drug smuggling, Finance, Illicit activities | Comments Closed

North Korea Enacts Law Against Money Laundering

Tuesday, February 20th, 2007

Korea Times
Park Song-wu
2/20/2007

The National Intelligence Service (NIS) on Tuesday confirmed that North Korea recently enacted a law that prohibits money laundering.

The standing committee of the North’s Supreme People’s Assembly adopted the legislation last October to ban financial transactions involving illegal earnings, the agency said in a press release.

The enactment apparently aimed at settling the U.S. financial sanctions on a bank in Macau that was blacklisted by Washington in September 2005 for its suspicious role in helping the North conduct illicit financial activities, it said.

Under the latest six-party agreement, reached on Feb. 13, the United States is to resolve financial sanctions within 30 days on North Korean assets worth $24 million that have been frozen in the Macau bank.

The NIS also confirmed that the North has a highly enriched uranium (HEU) program.

NIS officials made the confirmation during a closed-door National Assembly session as the Beijing deal on initial actions to implement the denuclearization of North Korea came under criticism for not mentioning the HEU program.

After ending the session, a lawmaker said on condition of anonymity that the NIS officials confirmed the existence of the HEU program in the North.

When North Korea’s uranium enrichment program came to the fore in 2002, Washington and Pyongyang accused each other of violating the 1994 agreed framework that eventually collapsed.

Seoul and Washington are reportedly sharing the view that Pyongyang has an HEU program, for which the North began purchasing large quantities of centrifuge-related equipment in 2001.

But what is not yet clear is whether the North has begun to produce weapons-grade uranium.

In a separate Assembly session, Minister of Foreign Affairs and Trade Song Min-soon also faced the same question from lawmakers on why the Beijing agreement did not mention the HEU program.

He avoided speaking specifically on the sensitive issue that triggered the second nuclear crisis in October 2002. But he said it will be addressed as the latest agreement invoked section one of the joint statement adopted in September 2005.

“The Beijing deal is about initial steps, and it’s not a complete roadmap toward the denuclearization,” Song said. “But the recent agreement requires the North to declare all of its nuclear programs.”

In section one of the September statement, the North committed to abandoning “all nuclear weapons and existing nuclear programs” and returning at an early date to the treaty on the nonproliferation of nuclear weapons treaty (NPT) and to International Atomic Energy Agency (IAEA) safeguards.

The main opposition Grand National Party (GNP) also expressed doubts over Pyongyang’s willingness to abide by its pledges to implement initial measures for the denuclearization of North Korea.

Rep. Kim Yong-kap of the conservative party found problems with the deal reached in Beijing on Feb. 13 since key components of it, especially on the disablement of the North’s nuclear facilities, are overly “abstract.”

“Despite the North’s agreement to disable its 5 megawatt reactor in Yongbyon, it later changed the wording into a temporary stoppage of operations,” Kim said.

The North’s media promptly reported the result of latest six-party talks, but did not use the term “disablement.” Seoul officials interpreted it as an attempt to mislead North Koreans so they do not lose their pride.

“In addition, there is no deadline on the disablement. I am simply doubtful of the deal’s practicality,” he said.

According to a Chosun Ilbo-Gallup Korea poll, conducted on Feb. 19, 77.9 percent of respondents predicted that the North would not keep its pledges, while 15.8 percent of the 1,006 respondents trusted the North.

But Song said the Beijing deal was a good chance to reaffirm Pyongyang’s willingness for an early denuclearization.

He also dismissed the GNP’s claim that Seoul is determined to share the largest financial burden of aiding the North to achieve a second inter-Korean summit in the run-up to the December presidential election.

“We will not bear all the burden because all five parties have agreed to provide economic aid on the principle of equality and equity,” he said. “And the provision of assistance will be made in line with the principle of action for action.”

As a first step toward denuclearization, North Korea is to shut down its nuclear-related facilities at Yongbyon while allowing United Nations nuclear inspectors back to the nuclear complex to seal them off.

Seoul’s top nuclear negotiator, Chun Yung-woo, said in Beijing on Feb. 13 that the deal is working under an “incentive system.”

For shutting down the Yongbyon complex, the North would receive the equivalent of 50,000 tons of heavy fuel oil in emergency relief aid. An additional 950,000 tons of heavy oil or equivalent aid will be provided to the country upon its completion of disabling other nuclear-related facilities.

Posted in Banking, Black markets, Economic reform, Energy, Finance, Illicit activities, Nuclear, Supreme Peoples Assembly | Comments Closed

Kim Jong-il’s Son Sells Weapons Abroad: Report

Tuesday, February 13th, 2007

Korea Times
1/13/2007

Kim Jong-nam, believed to be the eldest son of North Korean leader Kim Jong-il, has taken charge of the overseas sales of North Korean military weapons.

The junior Kim, 35, went back to Pyongyang via a Koryo Air flight from Beijing on Tuesday after getting a lot of media attention during his three-day stay in the Chinese capital.

According to the Segye Times, a vernacular daily, Jong-nam has made profits for his country by selling military weapons such as Scud medium-range missiles and SA-16 surface-to-air missiles overseas.

He invested money in real estate and overseas banks offering high interest rates in several countries including Britain, Switzerland, Hong Kong, Macau and Singapore, said the report based on comments from an expert on North Korean affairs in Japan.

On Sunday Kim was spotted by Japanese television crews at Beijing International Airport. His appearance in Beijing sparked interest among North Korea watchers, as the six-party talks over the North’s nuclear weapons programs were being held there.

Reports said Kim was on a three-day layover on his way back home to attend his father’s 65th birthday party, which falls on Friday.

Wearing a Reebok baseball cap and blue jeans as well as a gold necklace, Kim showed off his foreign language skills in brief interviews with the news media including Japan’s Fuji television.

Asked whether he speaks Japanese, he answered in Japanese that he didn’t understand the language. He also said he speaks a little bit of English and French as he studied in Europe for several years.

Kim said he meets with his father “sometimes” but did not elaborate on their relationship.

According to reports Kim stayed at his favorite hotel, the Kempinski Hotel located adjacent to the South Korean embassy in Beijing during his short visit.

The Toronto Globe and Mail reported earlier this month that the North Korean leader’s son has been spending most of his time for the past three years at casinos, saunas and luxury hotels in Macau, the former Portuguese enclave near Hong Kong.

Kim was photographed in the city by a newspaper as he left his favorite hotel, the Mandarin Oriental.

According to the South China Morning Post, he has frequently visited Macau’s casinos and often goes out drinking late at night.

There have been rumors that fell out of favor with his father in 2001 when he embarrassed the regime in a bizarre incident in Japan.

Kim was briefly detained at Tokyo’s airport where he tried to enter Japan on a fake Dominican Republic passport. He was on his way to visit Tokyo Disneyland, reports said.

Posted in Arms shipment, Banking, Finance, Fiscal & monetary policy, Illicit activities, International trade, Political economy | Comments Closed

U.S. to remove financial sanctions on N. Korea in 30 days: Hill

Tuesday, February 13th, 2007

Yonhap
2/13/2007

The top U.S. negotiator in international talks aimed at ending North Korea’s nuclear weapons program said Tuesday his country will remove its financial sanctions on the communist nation within a month.

The measure follows Pyongyang’s agreement to “disable” its nuclear-related facilities and programs in return for economic and diplomatic benefits.

“We will resolve the matter of the financial sanctions” within 30 days, Assistant Secretary of State Christopher Hill told reporters as he returned from a six-party talks meeting, at which North Korea agreed to shut down its Yongbyon nuclear complex in two months.

His remarks partly confirmed an earlier report by a pro-Pyongyang newspaper that the U.S. nuclear envoy had last month promised his North Korean counterpart, Kim Kye-gwan, to remove the financial restrictions within 30 days after progress in the nuclear negotiations.

The two held three days of meetings in Berlin, which were followed by two-day talks between the countries’ financial officials in Beijing later that month.

North Korea had stayed away from the nuclear talks for over a year after the U.S. imposed sanctions on a Macau bank with suspected links to the North’s illicit financial activities in September 2005.

The six-party talks resumed late last year after a 13-month hiatus, but they again failed to produce a breakthrough as North Korea refused to discuss the nuclear issue, and instead stuck to its demand for the U.S. to remove the financial sanctions.

Tuesday’s agreement marked a milestone in negotiations that had made little progress since they began in 2003.

North Korea is to shut down the Yongbyon complex, which includes a nuclear reprocessing facility, within 60 days, and receive “emergency energy assistance equivalent to 50,000 tons of heavy fuel oil,” the statement said.

The nuclear talks are also attended by South Korea, the U.S., Japan, Russia and host China.

Posted in Banking, Finance, International trade | Comments Closed

Swiss banking association denies any dealings with Kim Jong-il

Saturday, February 10th, 2007

Yonhap
2/10/2007

An official of Switzerland’s banking industry denied accusations that the country’s banks are involved in dealings with North Korea’s leader Kim Jong-il, saying such involvement would taint the industry’s image, a report said.

“There is no way a Swiss bank would be running a bank account for Kim Jong-il knowing that he is a dictator. The reputational risk is simply too high,” James Nason, a spokesman for the Swiss Bankers’ Association, told Washington-based Radio Free Asia (RFA) on Friday.

Posted in Banking, Finance, Switzerland | Comments Closed

U.S., N.K. open talks on BDA

Tuesday, January 30th, 2007

Korea Herald
Lee Joo-Hee
1/30/2007

Officials from Washington and Pyongyang are in Beijing today for their second round of talks on U.S. financial sanctions against North Korea.

The discussions are likely to set the tone for the upcoming round of six-party talks scheduled to resume early next month.

The agenda is thought to include North Korea’s acknowledgement of illicit financial activity, a pledge to prevent any reoccurrence, and the lifting of a U.S. embargo on North Korean accounts at a Macau bank.

Washington imposed financial restrictions against Banco Delta Asia after charging the bank with helping North Korea launder counterfeit dollars and funds raised from smuggling restricted goods. The move prompted Pyongyang to boycott the six-party talks process in 2005.

Upon returning to the six-party process in December last year, North Korea demanded it must first solve the financial issue before discussing the nuclear question.

The United States remains adamant that the financial measures were separate from the nuclear issue but has offered to discuss it on the sidelines of the nuclear talks.

The U.S. side is led by Daniel Glaser, the Treasury Department’s deputy assistant secretary for terrorist financing and financial crimes.

The North Korean team is led by Oh Gwang-chul, president of the Foreign Trade Bank of Korea, the reclusive regime’s window for foreign banking.

The two delegations are likely to discuss the technical aspects of the issue, which North Korea claims was a political gesture by the United States as part of its hostile policy.

On Sept. 15, 2005 the U.S. Treasury Department banned all American banks from dealing with Banco Delta Asia for allegedly helping North Korean companies launder money from smuggled cigarettes and counterfeit $100 bills.

Washington and Pyongyang have been exchanging questions and information regarding the measures since their first discussion in Beijing on the sidelines of the six-party talks last month.

N. Korean financial officials arrive in Beijing for talks on U.S. sanctions
Yonhap
1/30/2007

A group of North Korean financial experts arrived in Beijing Tuesday for talks with their U.S. counterparts on removing U.S. financial sanctions on the North, a major hurdle to six-way negotiations on the communist nation’s nuclear weapons program.

The U.S.-North Korea financial talks come ahead of a new round of six-nation negotiations next week aimed at persuading North Korea to give up its nuclear weapons program.

The Chinese Foreign Ministry said Tuesday the new round of the nuclear disarmament talks will start Feb. 8.

The North Koreans, headed by O Kwang-chol, president of the North’s Foreign Trade Bank, arrived in the Chinese capital at 9:30 a.m. The North Koreans were expected to hold talks with a U.S. financial team led by Daniel Glaser, a deputy assistant secretary at the U.S. Treasury Department.

Upon arriving from Pyongyang, the head North Korean delegate said the sides would hold talks at their countries’ embassies here.

The two last met here on the sidelines of a December round of the nuclear talks, also held in Beijing. The working-group financial meeting seeks to remove U.S. sanctions imposed in September 2005 on a Macau bank suspected of laundering money for the North, which Pyongyang used as an excuse to stay away from the nuclear talks for 13 months.

Expectations of progress from the financial discussions, as well as the nuclear talks, have been significantly raised following a three-day meeting of top U.S. and North Korean nuclear negotiators in Berlin earlier in the month, at which the two agreed “on a number of issues,” according to Christopher Hill, the top U.S. nuclear envoy.

Hill said Monday (Washington time) that the next round of the nuclear talks could produce an agreement similar to a 1994 pact in which North Korea agreed to freeze its nuclear activities in return for economic and energy assistance. The 1994 Agreed Framework became defunct when the ongoing dispute over the North’s nuclear ambitions erupted in late 2002.

However, Hill made it clear that the goal of the six-party negotiations is to carry out a 2005 agreement in which Pyongyang agreed in principle to completely and verifiably dismantle its nuclear program in return for economic and diplomatic benefits.

“Whatever emerges in the next round, our job will not be finished until the full joint statement is finally realized and implemented,” Hill told Reuters in Washington.

“I am not too worried whether something might look like the Agreed Framework because we’re only looking at part of what we’re aiming at,” Hill added.

The top U.S. envoy to the financial talks Tuesday also expressed hope for progress.

“We are prepared to go through these talks as long as it takes for us to get through our agenda,” Glaser was quoted as telling reporters in Beijing. “I am hopeful we’ll make progress.”

Treasury officials have so far refused to confirm it, but recent reports said the United States may unfreeze part of North Korea’s assets at the Macau bank to help move the nuclear negotiations forward.

Pyongyang has about US$24 million in 50 accounts at the Macau bank, Banco Delta Asia, and as much as $13 million is believed to belong to legitimate accounts.

Posted in Banking, Finance, Foreign Trade Bank, USA | Comments Closed

Analysis of North Korea’s ‘Market Economy’ 2

Friday, January 26th, 2007

Daily NK
Kim Min Se
1/26/2007

The “first-runners” are first-tier wholesalers who connect Chinese manufacturers and North Korean market owners in large cities such as Sinuiju, Hyesan, Hamheung or Chongjin. The goods transported by the first-runners to metropolitan markets in NK are met by second-runners in smaller cities.

South Pyongan province’s Pyongsong, Sunchon and Nampo are the hub for those second-runners, who move imported commodities to further deep into countryside of North and South Pyongan provinces and Hwanghae province.

Moon, a 38-year old shopkeeper in a market in Sunchon, South Pyongan, said “As soon as we hear the news that first-runners brought goods, we go to them with money right away. Since they run a huge amount of money, ordinary buyers can’t even meet them.”

Moon said that for second-runners including herself it took about half million NK wons (180 US dollars) to buy goods for one time. She buys merchandise from first-runners and sells it back to local storeowners.

For second-runners, it is crucial to procure enough high-quality goods with low price. If one buys bad products, he or she loses money. Same rule applies to first-runners.

Second-runners also hand over raw materials to manufacturers. The diminutive North Korean industry relies partly on them.

Chinese sugar and flour turn to bread and candy, and imported clothing materials are manufactured in home factories. Most of the manufacturers who buy raw materials from second-runners are individual handicraftsmen.

Lee, a clothing producer in Hamheung, sells her homemade clothes in market. Lee has had good relationship a number of second-runners, who trade Chinese fabric, so she can even buy stuff on credit.

Throughout the March of Tribulation in late 90s, North Korean people had depended on home industry for their basic necessities. And now it is estimated that significant amount of industrial products in North Korean markets are home-produced.

Those with little capital or without a stand in local market go to the most remote regions in high mountains or countryside and sell their handicrafts via train. Although it is not North Korean business slang, such activity can be classified as “third-running.”

The so-called “third-runners” trade their home-manufactured goods with country people’s corn, bean or rice, since it is rare to own a lot of cash in rural area.

In sum, once persecuted North Korean private markets are now reflecting every aspect of capitalist economy.

Posted in 1990s Famine, Agriculture, Banking, Black markets, Economic reform, Finance, Foreign direct investment, General markets (FMR: Farmers Market), Price liberalization, Private property | Comments Closed

N. Korea Bans Domestic Use of Foreign Currency

Thursday, January 25th, 2007

Korea Times
Lee Jin-woo
1/25/2007

North Korea recently banned the domestic use of all foreign currency in a desperate effort to get hold of U.S. dollars possessed by individuals amid strict financial sanctions imposed by the outside world, reports said.

South Korea’s Ministry of Unification that deals with inter-Korean affairs said it is trying to clarify whether the report is based on the truth or not.

According to the Dong-a Ilbo, a vernacular daily, the Stalinist state Wednesday announced a ban on its people from paying with foreign currency without getting prior approval.

The decision will be applied to all kinds of foreign currency including the greenback and euro as well as the Chinese yuan, it said.

“It seems Pyongyang is trying to overcome its shortage of foreign reserves by gathering what its people are keeping at home,” a North Korean expert was quoted as saying on condition of anonymity by the newspaper.

Those who wish to pay with foreign currency must convert their foreign money into a sort of gift certificate at designated money exchange spots.

Back in the late 1980s, the North maintained a similar regulation, but later withdrew the decision. The measure was shunned in its socialist market.

Shops in the downtown shopping district of Pyongyang, the North’s capital, have sold goods priced in both North Korean won and U.S. dollars.

With the reintroduction of the measure, the North Korean won-U.S. dollar exchange rate in the North’s black market plunged from 3,285 won to 2,800 won, according to the report.

The North’s official, but not internationally accepted, currency ratio is $1 to 143 North Korean won.

However, the decision is unlikely to influence the two inter-Korean projects _ the Kaesong industrial complex and the tourism project to Mt. Kumgang _ as Pyongyang has not informed Seoul of any decision to ban the use of foreign currency including the South Korean won at the two sites.

South Korean companies in the Kaesong industrial complex pay $57.50 per month to their North Korean workers.

The Unification Ministry has explained that most of the U.S. dollars paid in wages to North Korean workers have been used to provide daily necessities for the workers, not to benefit Kim Jong-il’s regime or its nuclear and other weapons programs.

Posted in Banking, Finance, Fiscal & monetary policy, International trade | Comments Closed

North Korean Economy Watch