North Korean Economy Watch

Lankov writes in the Asia Times:

In early March, the United States State Department made a statement that attracted surprisingly little attention worldwide, estimating that government-sponsored narcotic production in North Korea seemed to have decreased considerably. At the same time, the statement made clear that the private production of drugs was on the rise.

This fits with what the present author has heard recently – often from sources inside North Korea; it seems that North Korea’s drug industry is changing, and this change might have important consequences for the outside world.

The story of North Korea’s involvement with the international narcotics trade began 35 years ago. In 1976, Norwegian police intercepted a large shipment of hashish in the luggage of North Korean diplomats. The same year, another group of North Korean officials was found in possession of the same drug by Egyptian customs; they had 400 kilograms of hashish in their luggage.

In both cases, diplomatic passports saved them from any formal investigation. Next year, North Korean diplomats were caught trying to smuggle drugs into Venezuela and India. In India, quite friendly to North Korea in those days, the 15 kgs of hashish was transported by the ambassador’s secretary. After that, such seizures became regular occurrences, usually once every year or two, and usually involving North Korean diplomats.

North Korea’s narcotics program has always appeared strange to outside observers – “strange” even if judged by the standards of Pyongyang, whose leaders do not care much about legal niceties and international reputation, and perceive international politics as a cut-throat, zero-sum game. On balance, state-sponsored drug production has done much more harm than good to Pyongyang.

Available estimates agree that the North Korean government didn’t earn much from pedaling illicit drugs. It is even possible that these risky operations were largely waged to sustain North Korean missions overseas – from the mid-1970s such missions were required to pay for their own expenses.

At the same time, the existence of this program inflicted serious damage on Pyongyang’s international standing, which was at rock-bottom anyway. Despite all denials of official involvement, the program could not really be hidden because seizures of narcotics carried by North Korean diplomats and officials happened far too often and sometimes in countries that were relatively sympathetic to the North.

So, if analysts at the State Department are to be believed, North Korea seems to have come to its senses and stopped or, more likely, significantly reduced its narcotics production. Indeed, this program seems to belong to the strange and slightly bizarre world of the foreign policy of North Korea in the 1970s. After all, those were the times when North Korean agents were busy kidnapping Japanese teenagers to become living tools for the training of agents (and when US$200 million was spent propagating the juche(self-reliance) ideology in the Third World).

However, this doesn’t mean the world should heave a collective sigh of relief and write off North Korea as a potential source of dangerous narcotics. If anything, the situation has become worse over the past five to six years. But this time, the North Korean regime seems to have little or no responsibility for the new boom in drug production.

The change in the North Korean drug industry essentially mirrors the wider changes that in the past two decades have occurred in the North Korean economy and society at large. The state-run Stalinist economy essentially collapsed whilst private business took over – usually unrecognized by the state, technically illegal in most cases, completely absent from official statistics, but powerful nonetheless. This happened in all industries, and drugs production was not an exception.

The author interacts with North Koreans quite frequently and most of my contacts are people from the northernmost part of the country, from areas adjacent to the Chinese border. They are unanimous: around 2005 to 2006, these areas experienced a sudden and dramatic upsurge in drug usage, hitherto almost unknown to the common public.

It’s true that some opium productive capacity existed in the northeastern parts of Korea since the early 1900s. This is also the region where secret state-run plantations were rumored to be located in the 1980s or early 1990s. However, in the North Korea of the Kim Il-sung era, surveillance was tight and exceptionally efficient, so drug problems were for all practical purposes non-existent within the country. The drugs were produced for export and medical purposes only.

Things began to change around 2005; by that time North Korea had undergone what is usually described as “grassroots capitalism” or “marketization from below”. The old state-run economy had come to a complete standstill, so most North Koreans started to make a living through all sorts of private economic activities – from cultivating private fields and working at private workshops to smuggling.

Official corruption became endemic, so officials became more than willing to turn a blind eye to all sorts of illegal activities as long as they received their cut. Arguably, North Korea nowadays might be described as the most corrupt country of East Asia: every interaction with authorities requires payment, and if the payment is sufficient, almost everything is possible.

This social and economic situation has made the large-scale private production of drugs possible. The new North Korean drug scene is dominated by “Ice” (crystal meth), a synthetic substance produced in numerous small workshops. It is frequently mentioned by defectors, while references to other drugs are quite rare.

Most of my North Korean interlocutors, some former Korean People’s Army officers, believe that methamphetamines were initially produced officially, but not so much as a drug in the strict sense, rather as a stimulant for elite military units. This seems to be plausible – after all, it was used as such during World War II by both the Axis and the Allies.

However, after around 2005 private production of Ice began and soon became large-scale. There are rumors about occasional state involvement with illicit production of drugs for export, but even if those rumors are true, the state-sponsored labs clearly produce only a small fraction of the total. Most of the labs are private nowadays.

Raw materials are often imported from China, and China has also become a major market for North Korean drug manufacturers. Since law-enforcement in North Korea is so lax (at least when no political issues are involved), it is easier and safer to run a drug workshop there, on the southern banks of the Tumen River.

The Ice-producing labs are difficult to hide since the production is smelly. Usually, such labs operate at some distance from living quarters, somewhere in the mountains or at a non-operational factory. (Admittedly, such factories are not in short supply in post-crisis North Korea).

In many cases, there are joint operations of Chinese and North Korean criminal groups: the Chinese provide the necessary supplies while the North Koreans use their territory as a safe haven to process drugs that are later shipped to China.

However, some narcotics remain in North Korea, where drug usage has increased dramatically. My interviewees say that at least in the cities of the borderlands a significant proportion of younger people have had some experience with Ice. A schoolteacher from a borderland city of Musan recently told me that in 2008-09 most of the students in their final years of high school tried Ice.

But the problem is not limited to the borderlands. A few months ago, a colleague of mine whilst visiting a prestigious college in Pyongyang spotted a poster that warned Pyongyang students about the dangers of drug use. Merely a few years ago, such a poster would be both unthinkable and unnecessary.

It seems this development has begun to worry the Chinese. In the past few years, Chinese media occasionally write about crackdowns on drug dealers in China’s northeast, often explicitly mentioning their Korean connection. Last summer, Chinese media reported that a fleet of high-speed boats, operated by the Chinese police, had begun to patrol the rivers on the border with North Korea. The task of this squad is specifically to fight drug smuggling.

The “new” North Korean drug problem is relatively local and small in scale, although it might have sufficiently grave consequences for North Korea itself, as well as for some adjacent areas of China and Russia. It also might be seen as an indication of a new type of problem that North Korea might create.

In the past, most troubles related to North Korea were caused by the North Korean government that demonstrated an inclination to flout international laws and conventions (sometimes this inclination was strengthened by remarkable adventurism). Nowadays, problems are increasingly caused by the inability of this government to control what is happening in the country – at least outside of Pyongyang and some major cities. In the long run, the lawlessness of uncontrolled private profiteers might prove more dangerous than the Machiavellian adventurism of dictators.

Read the full story here:
Narco-capitalism grips North Korea
Asia Times
Andrei Lankov
3/18/2011

UPDATE: For the second time in as many weeks, the DPRK’s central bank makes the news.  According to KCNA:

A national meeting of commercial officials took place at the People’s Palace of Culture on Monday.

The meeting reviewed the gains and experience made in the past commercial service and discussed tasks and ways for improving this work.

Present there were Premier Choe Yong Rim, Minister of Light Industry An Jong Su, Minister of Foodstuff and Daily Necessities Industry Jo Yong Chol, Chairman of the State Price Commission Ryang Ui Gyong, President of the Central Bank Paek Ryong Chon and other officials.

According to Yonhap, Paek Ryong Chon is the third son of the late foreign minister Paek nam-sun.

ORIGINAL POST: A big hat tip to Chris Green who translated an interesting article on recent changes to DPRK banking regulations.  The original article in Korean is here.

According to Chris’ translation of the article:

The Chosun Central Bank is said to have raised interest rates by 1.8 times. Customers are also now able to get instant access to their money. As a result, the bank’s total deposits are also said to be growing.

These measures appear to be the bank coming forward to guarantee deposits given that people have been unwilling to put their money there since the 2009 currency redenomination.

North Korea watchers are observing the situation, saying that there is a chance that measures like these could be an indicator of financial sector reform.

Speaking on the 1st, one such source said, “I hear that the number of people putting their money in the bank is growing. The total reserves of the Chosun Central Bank are also growing. The causes of this are that access to withdrawals has recently been freed up and the interest rate has risen steeply.” According to the source, the interest rate offered by the bank was previously 3%, but has recently risen to 5.4%.

The Chosun Central Bank is a government entity under the Cabinet, doing the job of both a central and commercial bank at the same time. It offers savings, loans and insurance services.

North Korean people can deposit money there and earn interest on it; in this, it is much the same as the Post Office, which also takes deposits and gives interest.

In terms of allocation in North Korea, the state does it by force, and there are also cases of deposits being coerced. Indeed, until now it has been hard for North Korean people to recover capital deposited with the bank.

The source explained, “At times when the economic situation has been bad, it has not just been hard to get interest, it has even been common to illegally have to give 20% of the value of the capital to Central Bank management and then take the rest,” but added, “Recently, North Korean people have been able to get hold of their deposits surprisingly easily, and the rumor ‘We can get our money! And the interest has gone up!’ is going around.”

Cho Byung Hyun of the Industrial Bank of Korea’s research institute explained more, saying, “Following the failure of the 2009 currency redenomination, people disliked putting their money in the bank so, for the circulation of money, the bank instituted a policy of allowing instant access to deposits and raising interest rates.”

North Korea suffered serious fallout from the currency redenomination, including rapidly rising prices and the execution of its architect, former Workers’ Party financial planning head Pak Nam Gi.

However, it is also possible in part to interpret the failed redenomination as an opportunity to activate capitalist banking practices.

Cho went on, “We know North Korea has recently been preparing financial reforms. At the moment, banks under existing trade banks etc are controlled by the Central Bank, but this can be seen as propelling reform in the direction of giving independence to each bank.”

Meanwhile, Professor Lee Sang Min of Joongang University economics department pointed out, “This can be seen as helping with the introduction of a capitalist system in North Korea in the long term. It is an opportunity for the North Korean people to learn about a capitalist banking system.”

However, it is as yet too early to see this sort of phenomenon as meaning that the financial system of North Korea is settled. As one defector pointed out, “For this to develop into a system, the North Korean authorities shall have to spend a long time building trust.”

Another North Korea source added, “The dollar tended to be thought of by the North Korean people as the standard currency, but the Yuan is gradually moving to center stage.” This is analyzed by experts as being down to recent economic exchanges between the North and China and the rising value of the Yuan.

Fascinating stuff.  Thanks for posting, Chris.

I am actually looking for information on the DPRK’s monetary system, so if you have any good papers, please send them my way.

UPDATE 3 (2/23/2011): According to Yonhap:

A recent survey of North Korean defectors in South Korea showed Wednesday that a large number of them use part of their resettlement money from the government here to help their families in the North.

In the survey conducted in November by the Organization for One Korea, a group run by unification activists, 71 percent of 350 respondents said they have sent money back to the communist country before. About 66 percent of the cash remitters said that they used part of their money received from the South Korean government.

In an effort to buffer the initial costs of resettlement, the government here provides each defector with a subsidy of 6 million won (US$5,330) and partly finances their housing.

More than 20,000 North Korean defectors have arrived in South Korea since the 1950-53 Korean War ended in a truce. The number does not account for the estimated tens of thousands hiding in China.

According to the survey that had a margin of error of 3.59 percentage points, about half of the cash remitters said brokers took away 30 percent of their money sent to the North as a fee, while only 65 percent believed the remainder was entirely delivered.

North Korean defectors are 17 times likelier to depend on government allowances, according to the Unification Ministry. Over 50 percent of defectors depend on a universal welfare program that pays them about 400,000 won (US$355) a month.

Defections began to accelerate after a massive famine swept through North Korea in the mid-1990s, killing an estimated 2 million people. North Korea considers defectors criminals punishable even by death.

Read previous recent stories about remittances below.
(more…)

UPDATE 4 (2/20/2011): Kim Tong-un (김동은) named Kim Jong-il’s fund manager.  According to Yonhap:

A senior official of North Korea’s ruling party has been named to lead a special party bureau, code-named Office 38, that oversees coffers and raises slush funds for its leader Kim Jong-il and the ruling elites, a source on North Korea said Sunday.

Kim Tong-un, formerly head of Office 39 in the Workers’ Party of Korea, assumed the post in May last year, when North Korea revived Office 38, which was merged with Office 39 in 2009, the source said on condition of anonymity. Office 39 is believed to be another organ that governs a wide network of business operations both legal and illegal.

Both Offices 38 and 39 belong to the Secretariat of the Workers’ Party, which Kim Jong-il chairs, according to a diagram of the North’s power structure released by the Unification Ministry, which handles inter-Korean affairs. Last year, the ministry had only included Office 39 in a similar diagram.

In a meeting with reporters last week, a ministry official said Office 38 has been spun off from Office 39 and is now running on its own again. The official, who would speak only on the condition of anonymity citing the sensitive nature of his comments, described “a stream of information” that has come through since mid-2010.

Office 38 mainly oversees transactions involving foreign currency, hotels and trade, the official said, while Office 39, headed by Jon Il-chun, drives revenue by dealing in narcotics, arms, natural resources and others.

The North’s revival of Office 38 is interpreted as an effort to cover the increasing cost of leader Kim Jong-il’s ceding of power to his youngest son, Jong-un.

The story was also reported in Yonhap.

UPDATE 3: Here are links to the Ministry of Unification‘s English language organization charts of the North Korean leadership in which some of the changes mentioned below are listed (though not all): Workers’ Party, State Organs, Parties and Organizations

UPDATE (2/15/2011): According to the Daily NK:

The number of Special Departments under the Secretariat of the Chosun Workers’ Party has been increased from 18 to 20, a move that includes the revival of the No. 38 Department, which previously served as Kim Jong Il’s private bank vault, and the foundation of a film department.

The Ministry of Unification revealed the news yesterday in its 2011 North Korean Power Structure and Index of Figures, Agencies and Organizations. It incorporates North Korean changes from December, 2009 up to the present day, completed after consultation with relevant agencies and experts.

The revival of the No. 38 Department and founding of a film department

The report states, “The No. 38 Department, which was merged with the No. 39 Department in 2009, was spun off again last year. Kang Neung Su, who was appointed Deputy Prime Minister in June of 2010, was introduced as head of the film department at the same time. The exact foundation date of the film department is unknown; however, it appears to be newly established.”

No. 38 and No. 39 Departments are directly controlled by Kim Jong Il and serve as a private vault for his ruling funds. The No. 38 Department manages hotels, foreign currency stores and restaurants etc, while illegal weapons trading through foreign trade companies, the smuggling of gold, illegal trade in drugs and the distribution of counterfeit dollars, so-called supernotes, are handled by the No. 39 Department.

“They combined two offices which had different functions, and it appears that this did not result in the intended efficiency,” a knowledgeable source commented.

Meanwhile, on the establishment of a film department, the source added, “North Korea’s cultural art is a political means by which to carry out Party policy and a policy tool to implant policy in the North Korean citizens.”

Among the reshuffled special departments, the existing ‘Munitions Industry Department’ has been renamed the ‘Machine Industry Department’, and the ‘Administration and Capital Construction Department’ has been scaled back to simply ‘Administration Department’.

Elsewhere, the existing National Resources Development and Guidance Department under the Ministry of Extractive Industries has been promoted to National Resources Development Council and, as reported, the Joint Investment Guidance Department rose to become the Joint Investment Committee, while the National Price Establishment Department became the National Price Establishment Committee. Again, as reported, the ‘People’s Safety Agency’ under the Cabinet became the People’s Safety Ministry under the National Defense Commission, while the Capital Construction Department was downsized to become the General Bureau of Capital Construction.

The Central Court and Central Prosecutors Office were also renamed the Supreme Court and Supreme Prosecutors Office respectively.

The Ministry of Unification report also notes that North Korea added Nampo City to its list of eleven cities and provinces, increasing the total number to twelve.

The newly designated Nampo City includes five former parts of South Pyongan Province; Gangseo, Daean, Oncheon, Yonggang, and Chollima districts. Previously, Nampo was under the direct control of the central government as part of South Pyongan Province proper.

At the same time, North Korea also transferred the existing Kangnam-gun, Joonghwa-gun, Sangwon-gun, and Seungho-district, all formerly southern sections of Pyongyang City, to North Hwanghae Province.

Military Commission placed under the Central Committee of the Party

The relationship of the Central Committee and Central Military Commission, which was formerly said to be in parallel, has been changed, reflecting the idea that the Military Commission is now under the Central Committee of the Party.

The Ministry of Unification commented, “By revising the Party regulations, the Central Military Commission and Central Committee were marked as parallel in 2009 and 2010. However, after confirming the revised Party regulations at the Chosun Workers’ Party Delegates’ Conference on September 28th last year, this relationship was adjusted, and an election is now held for the Central Military Commission via a plenary session of the Central Committee.”

Also, the ‘Bureau of General Staff’ under the National Defense Commission was judged to be below the Ministry of the People’s Armed Forces, but is now shown to be in a parallel relationship with the Ministry of the People’s Armed Force and ‘General Political Department’.

ORIGINAL POST (2/14/2011): According to Yonhap:

North Korea has revived a special party bureau, codenamed Office 38, that oversees coffers and raises slush funds for its leader Kim Jong-il and the ruling elites, South Korea said Monday in its annual assessment of the power structure in the communist country.

In 2009, the bureau had been merged with Office 39, another organ that governs a wide network of business operations both legal and illegal, according to the Unification Ministry in Seoul.

In a meeting with reporters, however, a ministry official said Office 38 has been spun off from Office 39 and is now running on its own again. The official, who would speak only on the condition of anonymity citing the intelligence nature of his comments, cited “a stream of information” that has come through since mid-2010.

The official would not elaborate on how the information has been obtained, only saying the ministry works closely with “related government bodies” to outline the North’s power structure.

Office 38, whose chief remains unknown, mainly oversees transactions involving foreign currency, hotels and trade, the official said, while Office 39, headed by Jon Il-chun, drives revenue by dealing in narcotics, arms, natural resources and others.

A source privy to North Korea matters said the spin-off suggests that North Korea has been experiencing difficulties in earning foreign currency since merging the two offices.

“Efficiency was probably compromised after the two, which have different functions, were combined,” the source said, declining to be identified citing the speculative nature of the topic. “More importantly, it seems related to the current state of foreign currency stocks. The North is apparently trying to address those difficulties.”

In August last year, the United States blacklisted Office 39 as one of several North Korean entities to newly come under sanctions for involvement in illegal deeds such as currency counterfeiting.

North Korea is also believed to have been hit hard financially after South Korea imposed a series of economic penalties last year on Pyongyang when the sinking of a warship was blamed on it.

Both Offices 38 and 39 belong to the Secretariat of the Workers’ Party, which Kim Jong-il chairs, according to a diagram of the North’s power structure released by the Unification Ministry. Last year, the ministry had only included Office 39 in a similar diagram.

Both offices have often been referred to as Kim Jong-il’s “personal safes” for their role in raising and managing secret funds and procuring luxury goods for the aging leader.

Read the full story here:
North Korea Splits No. 38 and 39 Departments Up Again
Daily NK
Kim So Yeol
2/15/2011

N. Korea revives ‘Office 38’ managing Kim Jong-il’s funds: ministry
Yonhap
Sam Kim
2/14/2011

Picture above from Marcus Noland

Marcus Noland writes at his new blog that the DPRK’s attack on Yonpyong triggered a depreciation of the North Korean Won:

A common trope among North Korea watchers is that North Korea has the asymmetric capacity to inflict damage on South Korea. By raising tensions, North Korea can disrupt South Korea’s financial and foreign exchange markets and even deter foreign investment. North Korea, by contrast, is immune from the consequences of such actions because of its authoritarian system and closed economy,

While this argument has some intuitive plausibility, past nuclear and missile tests do not appear to have generated long-lasting effects. In the recent case of the Yeonpyeong shelling, however, the North Korean provocation appears to have boomeranged, tanking the North, not the South, Korean market.

The episode points to a basic problem confronting the North Korean economy: the high level of financial repression (and economic repression more broadly) contributes to thin, underdeveloped markets that are more prone to panics and wild swings in prices.  The disastrous currency reform has already primed market participants to be wary of the domestic currency, and macroeconomic instability in its wake has not helped either. The North Korean leadership may not be swayed by such considerations but we are doubtful that the leadership can be entirely sanguine either: exchange rate movements of this magnitude have implications across a range of markets, including the cost of imported food, and thus affect core supporters as well as the general population. North Korea’s provocations appear to be doing more damage to its own economy than to South Korea’s, no doubt one reason for the current push from Pyongyang to re-engage.

The data Noland lays out here paints an compelling picture. It would be interesting to think about the chain of causality in this model so we can be certain that the relationship between the won’s depreciation and the shelling of Yonyong is not merely coincidental.  Theories anyone?

There is a paper in here for an ambitious researcher.  I would like to know more about the DPRK’s domestic monetary policy; how the currency black market works in relationship with official fiscal and monetary policy; movements in the domestic price level; and the effects of the won’s depreciation on food imports (-?) and total exports (+?).

Pictured above: Ontan Worker’s District, Onsong (Google Earth)

According ot the Daily NK:

In advance of next week’s lunar New Year’s Day holiday, National Security Agency agents are concentrating on getting together things for the holiday from households of those whose family members have crossed into China or South Korea.

Exploitation by the NSA or other powerful state apparatus is exceedingly common, of course, and the obtainment of necessities for holidays such as Kim Il Sung and Kim Jong Il’s birthdays, the Korean thanksgiving day (Chuseok) and lunar New Year’s Day are often covered via exploitation of the people. The difference this time, however, is that the specific targets are the families of defectors.

A source from North Hamkyung Province told The Daily NK today, “NSA agents in charge of northern border regions including Onsung have been engrossed in preparations for the holidays and generating private benefits, targeting smugglers and households with family members who have crossed into China or South Korea.”

The source explained, “Modes of exploitation by agents of the NSA and People’s Safety Ministry and cadres of the Party or prosecutors have been varied of late. They win houses which have problems over to their side and then get them to give certain things.”

The source said that as the lunar New Year’s Day comes closer, these moves have become more active and transparent. “NSA agents visit all of these houses and force them, or sometimes beg for things. They are no different from thieves, just without a knife.”

According to the source, the Conspiracy Research Office of the NSC in Onsung, North Hamkyung Province, which employs 25 agents, has allotted each agent items to get from their district.

There are two sets of items: one set is ten bottles of liquor, 5kg of pork, 20 packs of expensive cigarettes called “Yeomyung,” and the other set contains 20kg of gasoline, a certain amount of fruit and candy, and bottles of oil. Each agent has to select one set.

According to Onsung Jangmadang standards, a bottle of liquor can be bought for 4,000 won, 1kg of pork for 5,000 won, a pack of “Yeomyung” for 6,000 won, 1kg of gasoline 3,000 won, and a bottle of oil for 5,000 won.

In Ontan workers-district within Onsung, there are three agents. The goods assigned to them are also unaffordable, but only defector families have to provide them, the source said.

The source explained, “When an agent visits one’s home, they won’t leave until the host has set up a table of drinks for him. After drinking some, the agent coaxes them, ‘Have you got some news from the South?’ ‘Are you getting money well?’ or ‘When you get a call next time, you should grumble that the situation is hard, so that they will send more money.’”

Sometimes, agents call for bribes for their own family events, too. The source said, “While talking, agents hint furtively that there will be a family event and call for something for that, saying, ‘There will be nothing bad for you if you help out.’”

“Agents say openly that, ‘If more money is delivered, we can live well; it’s is a good thing, and a way to maintain socialism.’ They only need so much as to smell money and they come running,” the source complained.

Due to possible revenge from agents, people cannot complain about the situation and have to provide them with the things they demand, according to the source, who added, “However, the effect works only at that moment when they get the goods. When a problem occurs for these defector families, they are nowhere to be seen.”

Read the full story here:
Defector Families Are Moneybags for NSA Agents
Daily NK
Im Jeong Jin
1/27/2011

According to the Korea Herald (via Yonhap):

North Korea’s actual military spending is believed to be about 15 times the announced amount in 2009 as the communist regime continues to build up its military capacity despite the country’s moribund economy, a South Korean defense research institute said Tuesday.

The North said it spent US$570 million on its military in 2009, but the real expenditure, calculated on an exchange rate based on purchasing power parity terms, was $8.77 billion, the state-run Korea Institute of Defense Analyses (KIDA) said in a report.

“In spite of its economy shrinking since the mid-2000s, North Korea has gradually increased its military spending,” the report said.

North Korea maintains the world’s fifth-largest army with an active duty military force of 1.19 million, compared to about 655,000 in the South.

According to figures released by North Korea, its military spending rose to $570 million in 2009 from $540 million in 2008, $510 million in 2007 and $470 million in 2006, the KIDA said.

As of 2009, North Korea’s gross national income stood at 28.6 trillion won ($25 billion), compared with the South’s 1,068 trillion won, the KIDA said.

Despite this chunk of change, rumors are leaking into the media that the DPRK military is suffering some sever problems:

1. People ordered to donate food to the military

2. Shortage of clothing provisions

3. Shortage of heating and increased propaganda training.

The usual caveats apply.

(h/t Joshua)

Read the full story here:
N. Korea’s actual military spending estimated at US$8.77 bln in 2009
Korea Herald
1/18/2011

The Choson Ilbo reports:

The [Wikileaks] cables say that North Korea received the arms payments through the Seoul branch of Iran’s Bank Mellat and that the U.S. government urged the South Korean government to investigate the matter. According to a cable dated March 24, 2008, a company in Iran called Hong Kong Electronics wired $2.5 million in three separate payments from Parsian Bank in Iran to the Seoul branch of Bank Mellat in November of 2007. Hong Kong Electronics is a paper company owned by North Korea’s Tanchon Commercial Bank. The money was wired entirely in euros, and $1.5 million worth of the payment was then wired to accounts in China and Russia.

Following a U.S. request to investigate, the South Korean government probed the Bank Mellat branch in December 2008 but did not take any punitive measures. Washington then demanded that the branch’s assets be frozen, according to a cable dated May 12, 2009.

The Iranians deny the accusations.  According to the Joongang Ilbo:

Iranian Foreign Ministry Spokesman Ramin Mehmanparast rejected allegations that Iran transferred a large sum of money via the Seoul branch of Iran’s Bank Mellat to buy North Korean arms.

In an exclusive interview with the JoongAng Ilbo on Friday at the Iranian Embassy in Seoul, Mehmanparast stressed that Bank Mellat’s Seoul office ran its business “under the supervision of South Korean financial authorities.”

Iran’s new ambassador to South Korea, Ahmad Masoumifar, sat in on the interview.

Mehmanparast was in Seoul with seven Iranian journalists to improve relations with the Korean Ministry of Foreign Affairs and Trade.

The South Korean government in September slapped tough sanctions on Iran for its nuclear program, with penalties including the suspension of virtually all financial activities at the Seoul branch of Iran’s Bank Mellat.

The South Korean government said its actions complied with United Nations Security Council resolutions.

Q. Cables released by WikiLeaks suggested that North Korea likely received payment for weapons sold to Iran through Bank Mellat’s Seoul Branch.

A. I think there’s someone behind the allegations in regard to Wikileaks’ information on Iran. Bank Mellat operates abiding South Korean law. There’s nothing wrong with the bank. We do maintain diplomatic ties with the North Korean government. But Iran doesn’t damage (diplomatic) relations with one country for the sake of relations with another country.

Q. What about allegations that Iran and North Korea are cooperating on nuclear technology?

A. Iran and North Korea aren’t in a military alliance. Frankly speaking, when it comes to nuclear weapons, Iran doesn’t need other countries’ assistance.

Iran’s young scientists are in the process of successfully developing technology to use nuclear power in a peaceful manner.

Q. What’s Iran’s official position on North Korea’s attacks on the South Korean warship Cheonan and Yeonpyeong Island?

A. It was heartbreaking when I heard the news about the Yeonpyeong attack. I hope peace is maintained in Asia. I want to again stress peace through dialogue.

Q. Iran is an oil rich country. Why does it need nuclear power?

A. The Western media also questions why Iran needs nuclear power. But when you look at the world’s latest economic trends, nuclear power is (increasingly important) when used in a peaceful way. Even the United Arab Emirates began nuclear cooperation with the South Korean government.

Crude oil will be depleted in the future. Nuclear power is an answer to that, and it’s necessary for environmental reasons, too.

Q. Former Iranian Ambassador to Korea Mohammad Reza Bakhtiari said in a previous interview with our paper that Iran won’t sit back and watch if the South Korean government joins international sanctions against Iran.

A. That’s an uncomfortable question to answer. South Korea and Iran have lots in common as Asian nations. I hope for South Korean companies’ prosperity in Iran and I also hope for the success of Iranian companies in South Korea.

I hope short-term political pressures won’t hurt our bilateral relationship.

Read the full stories here:
N.Korean Arms Payments ‘Passed Through Seoul’
Choson Ilbo
1/18/2011

‘Bank Mellat didn’t pay for arms from North Korea’
Joongang Ilbo
Chun Su-jin
1/24/2011

The Daedong Credit Bank (Based in the Potonggang Hotel in Pyongyang) has issued a press release.

I have made a PDF of it available here.

Here is their web page.

According to the Choson Ilbo:

Siem Reap, Cambodia’s second largest city near the sprawling ruins of the Angkor Wat, has two North Korean restaurants, down from three since North Korea recalled all their expat staff after Kim Jong-il’s stroke in 2008 and returned only the employees of two of them. The restaurants rely on South Korean tourists for business since the town is a popular destination for them.

One of them, called Restaurant Pyongyang, sells the famous cold noodles or naengmyeon for US$7 a dish, while North Korean dancers perform and pour drinks for customers. It used to be a regular stopover for South Korean tourists, with tour agencies charging $30 for a visit and a meal. One tour guide said, “In Cambodia $7 a dish is already pretty expensive, but many tourists go to the restaurant because of its attractions.”

After North Korea’s sinking of the Navy corvette Cheonan in March last year, the South Korean Embassy in Cambodia asked tour agencies and South Korean residents’ association there to avoid sending visitors from the South there, but local sources say the plea fell largely on deaf ears. But the North’s artillery attack on Yeonpyong Island in November last year finally did the trick. The South Korean residents’ association in Siem Reap voluntarily boycotted the North Korean restaurants, and tour agencies also voluntarily took them off their itinerary.

The restaurants are apparently suffering. A member of the South Korean residents’ association said, “Almost all of the customers were South Korean tourists, but it seems that even the performances have stopped now there are no customers.”

Around 120,000 South Koreans a year reportedly visited the two restaurants, contributing to an estimated W200-300 million (US$1=W1,126) in monthly sales. North Korea runs over 100 restaurants in China, Vietnam, Thailand, Laos and Russia, which serve as a source of much-needed hard currency for the regime by sending home $100,000-300,000 a year.

The mood in Siem Reap is now desperate. Last month, a placard outside a South Korean restaurant criticizing North Korea’s attacks were torn down by seven people who appeared to be North Korean agents, in what expats there believe was another small-scale North Korean provocation. Tour agencies are also losing revenues after taking the restaurants off their itineraries. “We used to charge $30 per visit and took 30 percent of the profits, but not any more,” a tour guide said.

South Korean residents’ associations abroad rarely voluntarily boycott North Korean restaurants. The Okryugwan chain of North Korean restaurants in Beijing’s Wangjing district is still accessible to South Koreans. A South Korean Embassy official there said, “We asked residents to avoid the restaurant in November but did not force them.”

Meanwhile, a North Korean restaurant in Kathmandu, Nepal closed down in November after its North Korean manager defected to South Korea.

Read the full story below:
N.Korean Restaurants Abroad Feel the Pinch
Choson Ilbo
1/10/2011