North Korean Economy Watch

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.

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.

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.

Joong Ang Daily
Kang Chan-ho
2/7/2007

Budget allocations by the Bush administration show that the United States plans to continue to pressure North Korea about human rights violations and illicit financial transactions, despite the ongoing North Korean nuclear talks.

In its fiscal plan for the year 2008 released Monday, the U.S. State Department said $20 million had been set aside to support refugees in the East Asian region, including North Korean defectors, while $2 million had been earmarked to support activities promoting democracy in North Korea.

In addition, $668 million will be set aside for radio propaganda broadcasts: The Voice of America and Radio Free Asia will increase their combined broadcast hours targeted to the North by up to 10 hours each day. The State Department is focusing its broadcasts on North Korea, the Middle East, Somalia and Cuba.

In addition, the Treasury Department has budgeted $385,000 to hire two more officials to deal with illicit North Korean financial activities and act in an advisory role to bring more pressure on the communist country.

The budget plan by the State Department also outlined a timeline for the ongoing nuclear negotiations. It projects that should the nuclear talks be concluded, the actual process of dismantling the North’s nuclear weapons should start by early 2008. The plan states that negotiations to dismantle the North’s mid- to long-range missiles would begin next year as well.

Meanwhile, with nations involved in the six-party talks getting ready to convene in Beijing on Thursday to resume nuclear negotiations, Japanese Prime Minister Shinzo Abe said on Monday that without sincere measures taken by Pyongyang regarding Japanese abductees, Tokyo will not come up with the energy aid measures needed to compensate the North.

Officials involved in the nuclear talks have said they intended to take some initial steps toward implementing an international accord reached in September 2005. The Yomiuri Shimbun reported earlier that Pyongyang was looking to get 500,000 tons of heavy fuel per year in exchange for agreeing to stop operations at its Yongbyon nuclear reactor and allowing inspectors from the International Atomic Energy Agency back into the country.

Korea Times
Lee Jin-woo
2/6/2007

High-level executives from Moody’s Investors Service and Goldman Sachs will visit a joint industrial complex in the North Korean border city of Kaesong on Friday, the Ministry of Unification said Tuesday.

The delegation includes Thomas Byrne, a senior credit officer for Korean affairs at the global credit appraiser Moody’s.

Three executives from each financial company will visit the Kaesong Industrial Complex accompanied by officials from the Ministry of Finance and Economy.

The half-day visit is part of the foreign rating agency’s annual meeting on South Korea’s sovereign rating. The Moody’s delegation will visit Seoul from Feb. 9-14.

The visit is aimed at observing North Korea’s economic situation and attitude toward economic reform, sources said.

North Korean officials are positive about the visit, a source said. The Stalinist state has not issued an invitation for the delegation as of 2 p.m. Tuesday.

Moody’s delegates will meet with officials from the Finance Ministry, the National Assembly, the Bank of Korea and other government offices in Seoul from Feb. 12-14.

In the meetings, the two sides will discuss South Korea’s macroeconomic policies, fiscal stability, ongoing negotiations on a U.S.-South Korea free trade agreement and the North Korean nuclear issue.

Moody’s upgraded South Korea’s rating to A3 in March 2002, its seventh-highest investment grade.

Moody’s Investors Service is a credit rating, research and risk analysis company. It has more than 9,000 customer accounts and employs more than 2,400 people, including more than 1,000 analysts, according to its Web site.

The Seoul branch of Goldman Sachs did not provide much detail on the scheduled visit.

The number of North Koreans working for the 18 South Korean firms at the industrial complex surpassed 10,000 late last year.

In 2012, the complex is expected to house about 2,000 South Korean manufacturers employing about half a million North Koreans, according to the Ministry of Unification.

Choson Ilbo (hat tip One Free Korea)
2/2/2007
A sand supplier under virtual control of the North Korean army has notified its South Korean customers that the price of sand exported to South Korea would be going up by 60 percent.

On Thursday, the Korea International Trade Association, the Korean Aggregates Association and importers of North Korean sand said that the North recently sent an unexpected notice that it would raise the price of sand next month by W900 (US$1=W937) from US$1.6 (W1,500) to 2 euros (W2,400) per cubic meter.

Exports of North Korea’s sand, which is extracted mainly from seaside areas around Haeju, Hwanghae Province, are virtually controlled by the Ministry of People’s Armed Forces, the command authority of the North Korean People’s Army.

Chun Seong-whun, a senior research fellow with the Korean Institute for National Unification, said, “It would seem cash-strapped North Korea is trying to obtain foreign currency by raising the price of sand, which is quite flexible.”

Last year around 9.09 million cubic meters of sand were imported from the North. If the same amount of sand is imported this year, the North will see an additional W8.2 billion. In addition, experts believe that the North wants to change to euros because it is under suspicion of counterfeiting dollars. An increase in sand prices could seriously undermine profits for around 20 aggregates firms in South Korea.

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.

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.

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.

Daliy NK
Yang Jung A
1/24/2007

North Korean authorities are requesting “implied” voluntary offerings to be made to the army, placing a greater burden on the North Korean citizens who are battling a tough winter due to the bitter cold and dire food crisis.

The first journalist to report about North Korea Lee Joon said that at a people’s unit meeting held in the rural district of Dancheon, North Hamkyung from January 7th to the 13th, orders were made from the central committee indicating a “severe food crisis amidst the people’s army,” reported Japan’s Asia Press on the 22nd.

Lee Joon is the first underground journalist to work in North Korea and has exposed the daily lives of North Korean citizens through video footages, collections of still life photos and voice recordings both nationally and worldwide.

At the people’s unit, an order was made “The food shortage in the people’s army is severe. With a devoted heart to the nation, every family must voluntarily offer food to the army.” Though the orders imply donations as a voluntary act, it is in fact forced upon the citizens or as it implies otherwise, suffer the consequences.

Lee informed “The exact amount of donations were not specified, though citizens are being pressured to increase their offerings as one person was said to have offered 600kg and another even up to 1tn.”

Lee said “Though the army declares a shortage in food, the cost of rice and corn at the markets has not risen in comparison to late November and early December” and commented “There does not seem to be a great shortage in supply as merchants at the markets sell rice imported from China.”

Contrastingly, Lee explained “From a national perspective, it seems that the supply of food had been considered low as international aid was terminated and crop output minimal.”

In addition to this “As the nation does not have any funds, an order was made for each family to invest their money into banks” and again “Though the exact amount was not specified, this order was indisputably forced” upon the citizens, Lee said.

Lee continued “Even 3 years ago, as a 10 years redemption national loan, the people had to support the nation with their funds” and “As there were many complaints from the people, the idea was changed to a look like a savings account. I believe that forcibly collecting money is no different to the national loan.”

At present, as there are many cases where North Korean banks cannot pay interest or capital from investments, any person that does invest in banks is called as a fool. Even though the government enforces a directive, it is unlikely that the people will invest their money in banks.

Lee said “Each person must gather 2.5tn’s of provisions and offer it to the local farms because a task was assigned to increase the output of fertilizer.” and remarked “It’s something that happens often, but it did come earlier than expected.”

“The poor collect excrement from their homes or public places whereas the rich slip through the cracks by either buying goods from the markets or offering bribes” Lee explained.

Complaints are rising against the government’s frequent tasks of offering goods, though “with feelings of discontent (resulting from international sanctions) the government exploits the people as they cannot make any money” Lee said.

In particular, “There is a general consensus amongst the people who now believe that the government is not trying to change the economy (through openness and reform) but only making their lives more difficult” revealed Lee.