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North Korea Development Report 2003/04

Friday, July 30th, 2004

KIEP has published the North Korea Development Report 2003/04 (follow the link to download all several hundred pages!)

Summary: As a result of North Korea’s isolation from the outside world, international
communities know little about the status of the North Korean economy and its
management mechanisms. Although a few recent changes in North Korea’s economic system have attracted international interests, much confusion remains as to the characteristics of North Korea’s recent policy changes and its future direction
due to the lack of information. Therefore, in order to increase the understanding of readers in South Korea and abroad, KIEP is releasing The North Korea Development Report in both Korean and English. The motivation behind this report stemmed from the need for a comprehensive and systematic investigation into North Korea’s socio-economic conditions, while presenting the current status of its industrial sectors and inter-Korean economic cooperation. The publishing of this second volume is important because it not only supplements the findings of the first edition, but also updates the recent changes in the North Korean economy. The topics in this report include macroeconomics and finance, industry and infrastructure, foreign economic relations and inter-Korean economic cooperation, social welfare and science & technology.

This report also covers the ‘July 1 Economic Reform’ launched two years ago and
subsequent changes in the economic management system. The North Korea
Development Report helps to improve the understanding of the contemporary North
Korean economy.
Table of Contents

Part I Macroeconomic Status and Finance
Chapter 1 Current Status of the North Korean Economy and Its Prospects
Chapter 2 National Financial Revenue and Expenditure
Chapter 3 Banking and Price Management

Part II Industrial Management and Problems
Chapter 4 The Industrial Sector
Chapter 5 The Agricultural Sector
Chapter 6 Social Overhead Capital
Chapter 7 Commerce and Distribution Sector
Chapter 8 The Defense Industry

Part III International Economic Activities
Chapter 9 Foreign Economic Relations
Chapter 10 Special Economic Zones
Chapter 11 Inter-Korean Economic Relations

Part IV Social Security and Technology Development
Chapter 12 Social Security and Social Services
Chapter 13 Science and Technology Sector

Part V The Recent Economic Policy Changes
Chapter 14 The Contents and Background for the Recent Policy Changes
Chapter 15 The Features and Problems of the Recent Economic Policy Changes
Chapter 16 Prospects and Future Tasks of the July 1 Economic Reform

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Agriculture statistics, Arduous March, Banking, Biotech, Cell phones, Communications, Computing/IT, DPRK Policies, Economic reform, Email, Emigration statistics, Finance, Fiscal & monetary policy, Foreign aid statistics, Foreign direct investment, GDP statistics, General markets (FMR: Farmers Market), Health care, Insurance, Internet, Kaesong Industrial Complex (KIC), KIEP-Korea Institute for International Economic Policy, Mt. Kumgang Tourist Special Zone, Price liberalization, Radio, Rason Economic and Trade Zone (Rajin-Sonbong), Songun, Special Economic Zones (Established before 2013), Statistics, Telephones, Trade Statistics | Comments Closed

children’s lives improving

Wednesday, March 17th, 2004

According to the BBC:

A UNICEF worker claims the following:

vast improvements in the immunisation programme against basic diseases, with 80% of children vaccinated compared with 35% in 1987.

Pyongyang had now opened up 162 of 200 counties to Unicef

UNICEF was looking at broadening the educaiton. The new three-year programme was a “little breakthrough”, which would attempt to bring “a little more reality” to the country’s highly ideological school curriculum. children would be taught about HIV/ADIS, hygeine and children’s rights.

Posted in Education, Health care | Comments Closed

Through a glass, darkly

Thursday, March 11th, 2004

The Economist
3/11/2004

So far as a visitor can tell in this secretive land, North Korea’s economic reforms are starting to bite. But real progress will require better relations with the outside

COMMUNIST North Korea has started to experiment with economic reform, and opened its door a crack to the outside world. Though its culture of secrecy and suspicion stubbornly persists, it was deemed acceptable for your correspondent to visit Pyongyang’s Tongil market last week. Here, stalls are bursting with plump vegetables and groaning with stacks of fresh meat. You can even buy imported pineapples and bananas from enthusiastic private traders.

But how about a photograph? Most foreigners think of North Korea as a famished nation, and the authorities are evidently keen these days to tell the world about the great strides their economy has made since reforms were introduced in July 2002. Logic might seem to suggest that a snap showing the palpable result of the reforms would be acceptable too. But it is not. The officials were friendly but firm: no pictures of fat carrots.

The July 2002 reforms were ground-breaking for North Korea: the first real step away from central planning since the dawn of communism there in 1945. The government announced that subsidies to state-owned enterprises were to be withdrawn, workers would be paid according to how much they produced, farmers’ markets, hitherto tolerated, would become legal and state enterprises would be allowed to sell manufactured products in markets. Most of these enterprises, unless they produced “strategic items”, were to get real autonomy from state control.

Almost two years on, how to assess the success or failure of these reforms? That climate of secrecy makes it deeply frustrating. Even the simplest of statistics is unavailable. Li Gi Song, a senior economist at Pyongyang’s Academy of Sciences, says he does not know the rate of inflation. Or maybe he is not telling. After all, he says, “We can’t publish all the figures because we don’t want to appear bare before the United States. If we are bare then they will attack us, like Afghanistan or Iraq.” So what follows can be little more than a series of impressions.

The indications are that the reforms are having a big impact. For a start, North Korea has recently acquired its first advertisement (pictured above)—for foreign cars, assembled locally by a South Korean majority-owned company. Or, to be more basic, take the price of rice, North Korea’s staple. Before the reforms, the state bought rice from state farms and co-operatives at 82 chon per kilo (100 chon make one won, worth less than a cent at the official exchange rate). It then resold it to the public through the country’s rationing system at eight chon. Now, explains Mr Li, the state buys at 42 won and resells at 46 won.

North Korea’s rationing system is called the Public Distribution System (PDS). Every month people are entitled to buy a certain amount of rice or other available staples at the protected price. Thus most North Koreans get 300g (9oz) of rice a day, at 46 won a kilo. According to the UN’s World Food Programme (WFP), that is not nearly enough. Anything extra has to be bought in the market.

In theory, even in the market the price of staples is limited. Last week, the maximum permitted rice price was marked on a board at the entrance to Tongil as 240 won per kilo. In fact, it was selling for 250. WFP officials say that in January it was selling for 145 won, which points to significant inflation, for rice at least. This is not necessarily a bad thing, since it means that the price is coming into line with the market.

The won’s international value is also adjusting. Since December 2002, the euro has been North Korea’s official currency for all foreign transactions. In North Korean banks, one euro buys 171 won. In fact, this rate is purely nominal. A semi-official rate now exists and the price of imports in shops is calculated using this.

Last October, according to foreign diplomats, a euro bought 1,030 won at the semi-official rate. Last week it was 1,400. A black market also exists, in which the euro is reported to be fetching 1,600 won—which implies that the won is approaching its market level. It also means, however, that imported goods have seen a big price-hike. For domestically-produced goods, like rice, prices may well go on rising for a good while longer.

What about earnings? Before the 2002 reforms, most salaries lay in the range of 150-200 won per month. Rent and utilities, though, were virtually free, as were (and are) education and health care. Food, via the PDS, was virtually given away. Now, pay is supposed to be linked to output, though becoming more productive is not easy for desk-bound civil servants or workers in factories that have no power, raw materials or markets.

Rents and utilities have gone up, though not by crippling amounts. A two-bedroom flat in Pyongyang including electricity, water and heat costs just 150 won a month—that is, about a tenth of a euro.

Earnings have gone up much more: a waitress in a Pyongyang restaurant earns about 2,200 won a month. A mid-ranking government official earns 2,700. A worker at a state farm earns in the region of 1,700, a kindergarten teacher the same, and a pensioner gets between 700 and 1,500. A seamstress in a successful factory with export contracts can earn as much as 5,000 won a month. Since that seamstress’s pay equates to barely three euros a month, wages still have a long way to adjust.

The prices of food and other necessities, to say nothing of luxuries, has gone up much more than rent has. According to the WFP, some 70% of the households it has interviewed are dependent on their 300 gram PDS ration, and the WFP itself is targeting 6.5m vulnerable people out of a total population of some 23m. Not all suffer equally: civil servants in Pyongyang get double food rations from the PDS.

There are some encouraging stories. In Pukchang, a small industrial town 70km (40 miles) north-east of Pyongyang, Concern, an Irish aid group, has been replacing ancient, leaking and broken-down water pipes and pumps, and modernising the purification system. This has pushed the amount of clean water available per person per day from 80 to 300 litres. Kim Chae Sun is a manager at the filtration plant, which is now more efficient. Before July 2002 she earned 80 won a month. Afterwards she earned 3,000 won. Now she earns 3,500.

As Mrs Kim speaks, three giant chimneys belch smoke from the power station that dominates the town. All workers have been told they can earn more if they work harder, but certain groups have been told they will get even more money than everyone else. In energy-starved North Korea these include miners and power workers. Mrs Kim says her husband, who works in the power plant, earns an average of 12,000 won a month. Her rent has gone up from eight to 102 won a month, and in a year, she thinks, she will be able to buy a television or a fridge.

A lot of people, in fact, are buying televisions. The women who sell the sets from crowded Tongil market-stalls get them from trading companies which they pay after making a sale. The company price for an average set is 72,000 won, the profit just 1,000 won. After they have paid for their pitch, the traders can expect an income of 10,000-12,000 won a month.

Mystery sales
Which makes for a puzzle. Who can afford a good month’s salary for a locally made jacket in Tongil, costing 4,500 won? How come so many people are buying televisions, which cost more than two years of a civil-servant’s pay? How come the number of cars on the streets of the capital has shot up in the past year? Pyongyang still has vastly less traffic than any other capital city on earth, but there are far more cars around than a year ago. Restaurants, of which there are many, serve good food—but a meal costs the equivalent of at least a white-collar worker’s monthly salary. Many of these restaurants are packed.

Foreign money is part of it. Diplomats and aid workers say many new enterprises seem to have opened over the last year. Nominally they are state-owned, but sometimes they have a foreign partner, often an ethnic Korean from Japan. The majority are in the import-export business. Some have invested in restaurants and hotels and some in light industry. Thanks to the 2002 reforms, these firms have a degree of autonomy they could not have dreamed of before. An unknown number of people also receive money from family abroad, but there are still no North Korean-owned private companies.

Farmers are among the other winners: they can sell any surpluses on the open market. But two out of three North Koreans live in towns and cities, and only 18% of the country is suitable for agriculture. The losers include civil servants, especially those outside Pyongyang who do not get double food rations and have no way to increase their productivity.

Factory workers have it the hardest. A large proportion of industry is obsolete. Though Pyongyang has electricity most of the day, much of the rest of the country does not. Despite wild talk of a high-tech revolution, the country is not connected to the internet, though some high-ups do have access to e-mail service. In the east of the country lies a vast rustbelt of collapsing manufacturing plants.

Huge but unknown numbers of workers have been moved into farming, even though every scrap of available land is already being cultivated. The extra workers are needed because there is virtually no power for threshing and harvesting and no diesel for farm vehicles. This requires more work to be done by hand. Ox-carts are a common sight.

The innocent suffer
Markets are everywhere. But this does not mean that there is enough food everywhere. In Pyongyang, where there are better-off people to pay for it, there is an ever-increasing supply. Outside the capital, shortages are widespread.

No one knows how many died during the famine years of 1995-99; estimates range from 200,000 to 3m. In Pukchang, officials say that 5% of children are still weak and malnourished. In Hoichang, east of Pyongyang, schools and institutions tell the WFP that about 10% of children are malnourished. Masood Hyder, the senior UN official in North Korea, says that vulnerable households now spend up to 80% of their income on food.

And yet some things are improving. Two surveys carried out in 1998 and 2002 by the North Korean government together with the WFP and Unicef showed a dramatic improvement in children’s health between those years. The proportion of children who fail to reach their proper height because of malnutrition fell from 62% to 39%, and the figures are thought to be still better now. However, Unicef says that though children may no longer die of hunger, they are still dying from diarrhoea and respiratory diseases—which are often a side-effect of malnutrition.

To a westerner’s eye, a class of 11-year-olds in Hoichang is a shocking sight. At first, your correspondent thought they were seven; the worst-affected look to be only five. Ri Gwan Sun, their teacher, says that apart from being stunted some of them still suffer from the long-term effects of malnutrition. They struggle to keep up in sports and are prone to flu and pneumonia. They are also slower learners.

Pierrette Vu Thi of Unicef says that North Korea’s poor international image makes it hard for her agency, the WFP and others to raise all the money they need. The country is in a chronic state of emergency, she says, and to get it back on its feet it would need a reconstruction effort on the scale of Afghanistan and Iraq.

Such bleak talk is echoed by Eigil Sorensen of the World Health Organisation. He says that health services are extremely limited outside the capital. Medicines and equipment are in short supply, large numbers of hospitals no longer have running water or heating and the country has no capacity to handle a major health crisis.

None of this is likely to change very fast. With no end yet to the nuclear stand-off between North Korea and the United States, American and Japanese sanctions will remain in place. And nukes are only part of it. Last week the American State Department said it was likely that North Korea produced and sold heroin and other narcotics abroad as a matter of state policy. North Koreans who have fled claim that up to 200,000 compatriots are in labour camps. North Korea denies it all.

Reform, such as it is, has plainly made life easier for many. But rescuing the North would take large amounts of foreign money, as well as measures more far-reaching than have yet been attempted. At present, there is no way for the government to get what it needs from international financial institutions like the World Bank. Such aid as comes will be strictly humanitarian, and investment in so opaque a country will never be more than tentative. Domestic reform on its own cannot fix an economy wrecked by decades of mismanagement and the collapse of communism almost everywhere else.

Posted in 1990s Famine, 2002 Economic reforms, Agriculture, Automobiles, DPRK Policies, Email, Fiscal & monetary policy, General markets (FMR: Farmers Market), Japan, Pediatrics, Price liberalization, Public Distribiution System (PDS), Pyongyang Academy of Sciences, Real estate, UN World Food Program | Comments Closed

DPRK acts against sars

Saturday, April 26th, 2003

from the BBC:

North Korea announces tough restrictions in a bid to prevent the spread of the deadly respiratory disease Sars.

It has introduced strict quarantine measures and suspended a shipping service to Japan as well as a joint tourism project with South Korea.

Public health officials have outlined some of the steps being taken on state TV.

Emergency anti-epidemic centres have been set up at national and local level and quarantine officers are implementing stringent checks at all points of entry into the country, said Choe Ung-chin, head of the State Hygiene Inspection Institute at the North Korean Public Health Ministry.

Travellers bear cost

North Korea’s proximity to China, where the outbreak was first recorded, is the cause of particular concern.

“Most North Koreans who make business trips abroad and foreigners who enter our country do so via China,” Han Kyong-ho, another senior health official, explained.

“When the international train that runs from Sinuiju [border station] to Pyongyang enters the station, all travellers are thoroughly checked to see if they have Sars symptoms such as fever and dry coughs.

“Furthermore, all travellers coming into the DPRK from the places of origin of Sars are strictly isolated for 10 days.”

Mr Han said that Sars germs could be present in travellers’ luggage or in insects such as cockroaches.

“Therefore, every one of the travellers’ possessions is thoroughly sterilised, and medical inspections of all workers at the station who have had contact with people who have travelled abroad are being carried out in detail,” he said.

At Pyongyang international airport, incoming travellers who display any Sars symptoms are hospitalised while those who do not are quarantined for 10 days at specially designated hotels.

Russia’s Itar-Tass news agency reports that the cost of such unforeseen stopovers – 100 euros a night exclusive of meals – will be borne by foreign travellers themselves.

Services suspended

North Korea has also suspended the Man Gyong Bong-92 shipping service to Niigata Port.

Japan’s Kyodo news agency said the ship was slated to make three port calls to Japan in May, but two have already been cancelled.

The North Korean Government is also reported to have sent emails to thousands of pro-Pyongyang ethnic Koreans in Japan urging them not to visit their homeland for the time being.

And South Korea’s Hyundai Asan Corp was “stunned” to learn that North Korea had suspended a joint North-South tourism project it operates over Sars fears, South Korea’s Yonhap news agency reports.

The South Korean firm has run loss-making cruises for tourists to the North’s scenic Mount Kumgang since 1998 in a symbolic project to promote inter-Korean reconciliation.

The suspension of the tours heightens the possibility that all of Hyundai’s inter-Korean projects may come to a “screeching halt”, at a time when the company has been campaigning hard to revitalize the business, the agency adds.

Posted in Chongryun, Mt. Kumgang Tourist Special Zone, SARS | Comments Closed

N.K. drug company urges aid donors to `buy local`

Wednesday, April 16th, 2003

Korea Herald
Chris Gelkin
3/30/2007

“It’s not just about making money, at least not from our perspective as a producer,” declared Felix Abt, president of the Pyongyang-based pharmaceutical company PyongSu Pharma. “The profit margins are very small. It is more about supplying a necessary and quality product at a price people can afford.”

Abt was in Seoul earlier this week meeting with South Korean pharmaceutical companies and aid organizations. On the table was a unique opportunity that would allow them to expand their existing humanitarian work, while at the same time helping to lay a solid foundation for the future of the pharmaceutical sector in North Korea.

“One of the main purposes of my visit here is to meet with the people who donate drugs and medicines to North Korea, or their agents who are based here,” Abt told The Korea Herald. The “frontier-businessman” believes substantial savings could be realized if the donor had the drugs produced locally, in North Korea, rather than purchasing them here in the South or overseas and then having them shipped in.

“We have lower production costs in the North, and of course there would be savings on transportation. All of these cost savings would translate into more money being made available for the actual provision of drugs. And after all, that is the whole point of the exercise, isn`t it?” Abt said, posing a very pertinent question.

For each donated dollar, for each dollar spent, he explained, more medicines would actually reach the people who need them.

“So that, from a humanitarian position at the very least, is a very compelling reason for them to buy from us or have us produce them and then organize the distribution.”

PyongSu has been gaining experience through contract manufacturing for charity organizations, donors and pharmaceutical companies, but Abt says there is plenty of scope to do more.

“We have a total staff of about 30 running one full shift,” Abt said, “and obviously we have capacity to expand that.”

Abt said in addition to helping even more North Korean patients in hospitals and clinics throughout the country, aid organizations could also help raise the quality standards of the local pharmaceutical industry.

“Just shipping aid here is all well and good,” Abt explained, “but it has the danger of creating a culture of dependency. So rather than, for example, just giving them fish, we should give them a fishing rod and teach them how to fish.”

By expanding local production in terms of quantity and variety, Abt said, donors would be helping the people to learn how to stand on their own feet.

“This should be particularly interesting for pharmaceutical companies based here in the South,” he said, “it is absolutely in their long-term interests to see a pharmaceutical sector in the North that is developed and meets international standards which could later become a strong and important partner for South Korean companies.”

PyongSu recently underwent an international inspection and has been approved as a producer that meets the highest standards of pharmaceutical producers worldwide.

The company was launched in the summer of 2004 in a joint venture between the Ministry of Public Health and a group of foreign investors. By the end of 2006, PyongSu was producing a range of medications including painkillers and antibiotics among others.

The company`s mission was to reach and maintain production quality and service standards comparable to any pharmaceutical producer elsewhere in the world.

“We are making a direct contribution to the improvement of the local pharmaceutical sector,” Abt said, “through training, education, and our sharing of knowledge with medical professionals and staff at all levels throughout the DPRK.”

PyongSu pharmacists meet regularly with staff from hospitals and clinics to fully understand their needs, and provide them with up to date information on the latest drugs.

Abt said PyongSu has its finger on the pulse of the medical sector in the DPRK, and is in a unique position to serve humanitarian and aid organizations by producing drugs on their behalf and distributing them, “to those who are in need of them.”

Posted in Foreign direct investment, Health care, Pharmaceuticals, PyongSu Pharma | Comments Closed

Coming in From the Cold

Thursday, October 25th, 2001

UN PAN
Bertil Lintner
Suh-Kyung Yoon

Pak Ku Po and his companion would not make it in international business circles. They have no name cards and one of them does not even want to give his name. They claim they know nothing about the place where they are based–“we’re just newcomers here”–but promise to be more forthcoming “the next time we meet.” Their secretiveness is perhaps understandable as they work for Zokwang Trading, a state-owned North Korean company in Macau, which in the past has been accused of being involved in the distribution of counterfeit money, arms smuggling and terrorist training. North Korea had been accused of state-sponsored terrorism long before Afghanistan decided to give shelter to Osama bin Laden and the seeds of the present conflict in Central Asia were sown.

But now things are supposed to have changed, and Zokwang and other North Korean trading companies–and there are many of them throughout East Asia–claim they are legitimate business operations. Pak, for instance, says that Zokwang is involved mainly in the export of North Korean ginseng to Asian countries, and sweaters and other knitwear to France and Canada. Over the past few years, North Korea has embarked on a vigorous commercial drive across the globe, and, for the first time, it is making serious attempts to attract foreign investment. Is Pyongyang finally turning to capitalism to save the world’s last Stalinist state?

The main question is whether this change in attitude will, in the long run, also change North Korea’s economy and society–as similar initiatives by the Chinese communists in the late 1970s have begun to transform China. Or will more hard currency in the state’s coffers only serve to delay the collapse of one of the world’s most atavistic regimes, thus prolonging the suffering of the North Korean people? And have North Korean businesses overseas really become legitimate? Or are they still peddling fake bank notes, drugs and ballistic-missile technology? This is an important issue going forward because the United States has made it clear it will track down all sources of funding for terrorists in future–and now that other sources are drying up,lesser-known alternatives may come into vogue.

There is little doubt that the sale of ballistic-missile technology in violation of the Missile Technology Control Regime and, more generally, the export of weapons to terrorist organizations and the states that harbour them, is far more lucrative than all of Pyongyang’s legitimate commercial ventures put together. But it is equally true that the international war on terrorism will only make such sales more difficult with every passing day.

Ri To Sop, North Korean consul general at the recently established diplomatic mission in Hong Kong, is firm in his assurances. “Our Dear Leader has told us that this is a new millennium, and that we should not do things in the old way. There will be changes. Just wait and see,” he says. The “Dear Leader,” North Korea’s reclusive supremo, Kim Jong Il, visited China in May this year, where his hosts took him to see the stock exchange in Shanghai. In July, he embarked on a 10-day epic train journey through Siberia to Moscow and St. Petersburg, where he visited sites commemorating the 1917 communist revolution, but also held talks with Russia’s new, born-again capitalist leadership. The trip was hailed by South Korean Foreign Minister Han Seung Soo: “[This is] a very positive development because it is an indication that North Korea is willing to open up.”

The main force behind North Korea’s commercial drive is, perhaps not surprisingly, the country’s powerful military. In June, a North Korean defector described the North Korean People’s Army as the country’s biggest “foreign-exchange earner.” From early spring this year, servicemen have been made to engage in a variety of export-oriented projects including mushroom harvesting, gold mining, medicinal-herb collection and crab fishing.

The ruling Korean Workers’ Party is also reported to be operating more than 40 restaurants in six countries as a means of raising hard currency. The first North Korean eatery opened in Austria as early as in March 1986, but in recent years more have followed in China, Russia and Indonesia. According to South Korean intelligence, North Korea will soon open restaurants also in Bulgaria and Australia.

Even more imaginatively, the Dongkong Foreign Trade Corporation in the Chinese city of Dandong, just across the border from North Korea, acquired in September the exclusive right to sell North Korean medicines in the international market–including a brand called Cheongchun No. 1, which is a home-made North Korean version of Viagra.

EFFORTS PAYING OFF
In Thailand, a North Korean-owned company, Wolmyongsan Progress Joint Venture, has for years been engaged in mining activities near the Burmese border in Kanchanaburi, west of Bangkok, while Kosun Import-Export, which is based in the Thai capital itself, is permitted to trade in rice, rubber, paper, tapioca and clothing. Kosun is located in a discreet office on the top floor of an eight-storey building in a Bangkok suburb. The company is also involved in property, apparently owning the building and renting out flats and office space.

At first glance, it seems that North Korea’s dive into the world of capitalism is paying off. North Korea does not release any trade or economic figures, but according to data collected by South Korea’s state-run Korea Trade-Investment Promotion Agency, or Kotra, from the North’s main trading partners–China, Japan, Thailand and Hong Kong–its external trade in 2000 jumped by 33.1% to $1.96 billion from a year earlier. It was the second straight year that North Korea saw its trade volume expand and that, too, at a much higher rate than the modest 2.6% increase in 1999.

Kotra is now actively promoting more trade with North Korea. In April this year, the agency published a fact book on how to do business in the Stalinist state, complete with useful phone numbers in Pyongyang and the complete text, in English, of all new laws relating to foreign trade and investment. South Korea’s interest in the development of the impoverished north is understandable. Since South Korean President Kim Dae Jung undertook his historic journey to Pyongyang in June last year, the question of a reunification of the Korean peninsula has become much more urgent–and the South Koreans are painfully aware of the wide income gap between the North and the South.

“Unless we help North Korea develop and strengthen its economy, both countries would collapse if they were reunited,” says a South Korean diplomat on condition of anonymity. “The South would not be able to take care of the North. The gap is just too wide today.” The cost of reunification was first discussed in South Korea shortly after East and West Germany–at a tremendous price–became one country in 1990. According to Marcus Noland, a researcher at the Institute for International Economics, Washington, South Korea would have to invest as much as $3.17 trillion in order to avoid an abrupt influx of people to the South and to upgrade living standards in the North–significantly more than West Germany had to pay to raise living standards in East Germany to an acceptable level.

A closer look at Kotra’s upbeat trade figures for North Korea also reveals a somewhat less rosy picture. In 2000, North Korea exported $556 million worth of machinery and chemical goods–while importing $1.4 billion worth of food, computers and vehicles. The North’s perennial trade deficit is expected to worsen this year as the country has to increase imports of rice, corn and other grains. According to the Bank of Korea, North Korea’s foreign debt totals $12.3 billion and Pyongyang’s credit rating is the lowest in the world.

There is no doubt that it is the dire straits that North Korea has found itself in which have forced its government to resort to commerce, not any real change of mind in the inviolability of the country’s austere socialist system. According to a study by Heather Smith and Yiping Huang of the Australian National University, the present food crisis in North Korea was caused by the disruption in trading ties with former communist allies in the late 1980s. The former Soviet Union ceased providing aid in 1987. More devastatingly, they emphasize, both the former Soviet Union in 1990 and China in 1993 demanded that North Korea pay standard international prices for goods, and that it pay in hard currency rather than through barter trade, as previously had been the case. This affected petroleum imports to the degree that they declined from 506,000 tonnes in 1989 to 30,000 tonnes in 1992.

Subsequently, North Korea embarked on its overseas capitalist ventures. According to a Western diplomat who follows developments in North Korea, the country’s embassies abroad were mobilized to raise badly needed foreign exchange. This, he says, was done partly in the name of the diplomats themselves, or through locally established trading companies, which in reality are offshoots of bigger, Pyongyang-based state trading corporations. “Not only do the embassies have to be self-sufficient, they are also expected to send money back to the government in Pyongyang,” the diplomat says. “How they raise money is immaterial. It can be by legal or illegal means. And it’s often done by abusing diplomatic privileges.”

The sad truth is that the North Koreans are desperate and prepared to do anything to make money, and Bangkok seems to be emerging as a centre for many of their activities. Western intelligence officials based in the Thai capital are aware of the import and sale of luxury cars, which are brought in duty-free by North Korean diplomats. Another way of raising money is to insure a cargo consignment at a disproportionate level, and then report the goods lost. “This is usually done through international insurance markets, and there is little the companies can do but to pay up,” the diplomat says.

And earlier this year, fake $100 notes turned up in Bangkok. The police believed that the North Korean embassy was responsible as some of its diplomats were caught trying to deposit the forgeries in local banks. The North Korean diplomats were warned not to try it again. In a more novel enterprise, the North Koreans in Bangkok were reported to be buying second-hand mobile phones–and sending them in diplomatic pouches to Bangladesh, where they were resold to customers who cannot afford new ones.

And even where businesses tend to be more legitimate, North Korea has managed to attract some rather unusual investors. As early as 1991, the North Koreans established a “free economic and trade zone” in Rajin-Sonbong along the Tumen River near the border with China and Russia. Some 746 square kilometres were set aside for “foreign capitalists”–but there have been very few takers apart from pro-Pyongyang ethnic Koreans from Japan, who have invested because of patriotic duty rather than any expectations of quick returns. In fact, there is only one major foreign investor in the entire zone: Hong Kong entrepreneur Albert Yeung Sau Shing, who controls the Emperor Group, which has interests in gold, securities, property and entertainment in Hong Kong and China as well as a banking venture in Cambodia.

In October 1999, Yeung opened the $180 million Seaview Casino Hotel in Rajin-Sonbong. Although locals are banned from entering the establishment, the Emperor Group is betting that wealthy Chinese and Russians will come there to gamble. The casino has 52 slot machines and 16 gaming tables offering everything from blackjack and baccarat to roulette. In Hong Kong, Yeung is best remembered for his acquittal at his dramatic trial for criminal intimidation in 1995 when all five witnesses called by the prosecution testified that they did not remember anything. Yeung was accused of having kept a former employee prisoner after threatening to break his leg. Even the victim himself said he could not remember what had happened.

In the same year, Macau gambling tycoon Stanley Ho also opened a casino in North Korea, but in the capital itself. Ho’s $30 million Casino Pyongyang is located in the Yanggakdo Hotel, where his partner is Macau businessman Wong Sing-wa. His company, the Talented Dragon Investment Firm, in 1990 became Pyongyang’s unofficial consulate in Macau with authority to issue North Korean visas.

Wong, who has interests in several Macau casinos, made headlines in early 1998, when a Lisbon-based weekly newspaper, the Independent, protested over his presence in a delegation from Macau that was being received by the Portuguese president. The paper cited a Macau official as saying that Wong had “no criminal record, but we have registered information that links him to organized crime” in Macau.

With such business partners, it is obvious that the North Koreans have a long way to go before they acquire a better understanding of how capitalism really works. Nor has North Korea, despite its efforts, managed to attract a large number of new investors. In July this year, a delegation of representatives from 17 Hong Kong companies went to North Korea on a trip initiated by the new consulate in the special administrative region. But though they showed some interest, no commitments were made.

LITTLE BUSINESS INTEREST
In October, the Singapore Confederation of Industry sent a 25-member delegation to North Korea to look into business opportunities, but little investment is expected from there as well. In recent years, only one Singapore company, Maxgro Holdings, has concluded a joint-venture agreement with North Korea. Maxgro intends to plant 80 million paulownia trees on 20,000 hectares of state-owned land and the project is meant to produce wood for furniture, veneers and musical instruments. But at a value of only $23 million, it is hardly going to turn things around in North Korea.

And, as the fake dollars in circulation in Bangkok show, old habits die hard. In fact, North Korea’s main export item remains ballistic-missile technology. There are especially two North Korean companies that have attracted the attention of Western diplomats: the Changgwang Sinyong Corporation and the Lyongaksan General Trading Company.

In the 1990s, Changgwang was sanctioned by the U.S. government for exporting ballistic-missile technology to Pakistan. In July this year, Changgwang was once again sanctioned by Washington, this time for providing Iran with the same technology. According to Western diplomats, Lyongaksan, which like Changgwang is controlled by the North Korean military, sends people under commercial cover to countries such as Syria and Libya, where they in reality sell weapons systems. According to a report which the Seoul-based Korean Institute for Defence Analyses released in April, North Korea has exported at least 540 missiles to Libya, Iraq and other Middle East countries since 1985.

Libya recently bought 50 Rodong-1 missiles with a range of 1,000 kilometres. Cash-starved North Korea has not hesitated to sell weapons to whoever wants to buy them, including terrorist groups. A video of an attack last year by the Liberation Tigers of Tamil Eelam on a Sri Lankan navy vessel shows speedboats which appeared to be of North Korean origin. The rebels also appeared to be using a North Korean variant of the Russian 107 millimetre Katysha rocket launcher. And in late 1990, North Korea sold Burma 20 million rounds of 7.62 millimetre rifle ammunition, which intelligence sources say ended up in the hands of the United Wa State Army, a drug-trafficking group which is active in the Burmese sector of the golden triangle.

While the world is focusing on the terrorist threat from Afghanistan, North Korea’s potential for mischief has been almost overlooked. But in testimony on April 17 this year, Deputy CIA Director John E. McLaughlin warned: “North Korea’s challenge to regional and global security is magnified by two . . . factors . . . first the North’s pursuit of weapons of mass destruction and long-range missiles, and its readiness–and eagerness–to become missile salesman to the world. And second, the economic and humanitarian disaster that has afflicted the people of the North–a catastrophe whose effects will endure for generations, no matter how the Korean situation finally plays out.”

Unlike North Korea’s more mainstream trading companies, its sale of ballistic-missile technology and military hardware raises millions of dollars, which–minus commissions for the North Korean “businessmen” in the field–flow back into Pyongyang’s coffers. “There is no evidence to suggest that this money is used to put food upon the tables of North Korea’s starving people,” quips a Western diplomat.

North Korea, which depends on international aid to feed its people, has imported $340 million worth of military hardware over the past decade, according to South Korean security officials. This may be less in absolute terms than what South Korea spends on its military. But the much-poorer North spends 14.3% of the country’s GDP on its military compared to the 3.1% spent by the South.

So, for the time being, missiles rather than mushrooms make up the backbone of the North Korea’s exports. If some capitalist seeds have been sown during the present drive to shore up the economy, it will take some time for a new business mentality to emerge. Kim Jong Il, it seems, is not yet about to become another Deng Xiaoping. But in a world ever more concerned with the spread of biological, chemical and nuclear weapons, states that are known, or suspected, to possess them will find themselves facing intense scrutiny–if not outright isolation. North Korea, thus, has very good reason to come in from the cold.

Posted in Arms shipment, Cambodia, Changgwang Sinyong Corporation, Companies, Counterfeiting, Drug smuggling, Economic reform, Finance, Forestry, Gambling, Health care, Hong Kong, Illicit activities, Indigenous medicine, Insurance, International Aid, International trade, Korea Trade-Investment Promotion Agency (KOTRA), Kosun Import-Export, Libya, Lyongaksan General Trading Company, Maxgro holdings, Military, Mining/Minerals, Pharmaceuticals, Rason Economic and Trade Zone (Rajin-Sonbong), Special Economic Zones (Established before 2013), Thailand, Trade Statistics, Wolmyongsan Progress Joint Venture, Zokwang Trading Company | Comments Closed

Beyond a Wall of Secrecy, Devastation

Sunday, October 19th, 1997

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

Rare Closeup Reveals a North Korea That No Longer Functions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Posted in 1990s Famine, Arduous March, Bicycles, Disease prevention, Electricity, Energy, Health care, Manufacturing, Pediatrics | Comments Closed

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