North Korean Economy Watch

The Hong Kong daily newspaper Ta Kung Pao (excerpted in the Donga Ilbo) did some field work on the China-DPRK border which helps us get a better idea of how trade between the two nations has fared in the latest financial crisis. 

Quoting from the article:

The volume of border trade between North Korea and China has plunged in the wake of the global financial crisis, the Hong Kong daily Ta Kung Pao said yesterday.

Trading in the market along the border line and approved by the Chinese government has effectively stopped, the report said. Such trading is also not categorized as international trade.

“We found such a result after inspecting 1,334 kilometers from Dandong down the Yalu River to the Tumen River over 20 days,” the daily said.

The trade of mineral resources was hit hardest. The price of yellow copper has fallen from 60 yuan (around 12,000 won) in March to 12 yuan. That of red copper has dropped from 100 yuan (around 20,000 won) per kilogram in April to 24 yuan.

Over the same period, the price of iron ore has plummeted nearly 70 percent from three to four yuan to 1.2 yuan.

The daily said North Korea’s largest copper mine in Hyesan suspended production as prices of mineral resources for export have fallen.

North Korean exports to South Korea via China have also sharply decreased.

A trader in Longjing said, “The global financial crisis has significantly affected border trade since last month. It is hard for North Korean merchants to bring goods to Chinese markets. But it is far harder to find North Korean merchants who cross the border to buy goods in China.”

Read previous posts on this topic here.

Read the full article above here:
N. Korea’s Border Trade With China Plunging 
Donga Ilbo
11/19/2008

Below is an excerpt from the Economist Intelligence Unit Views Wire 11/1/2008 (h/t Oliver): 

INTERNATIONAL RELATIONS: The immediate outlook for North Korea’s foreign relations is positive. The country’s removal in October from the US State Department’s list of states regarded as sponsoring terrorism signals that the nuclear six-party talks (SPT, also involving China, the US, Russia, Japan and South Korea) are back on track, at least for now. The delisting also clears the way for North Korea, if it so desired, to apply to join the World Bank and the IMF, which the US was previously bound to oppose. However, the rollercoaster of the past three months, and the fact that the SPT are now in their sixth year, counsels caution as to the depth or irreversibility of any progress.

POLICY TRENDS: The omens for progress on economic reform are not propitious. Six years on from the “special measures” (the word “reform” remains discouragingly taboo) of July 2002, it is clear that these have not galvanised GDP growth, which was negative during 2006 and 2007, according to the Bank of Korea (the South’s central bank). Nor have they been a harbinger of wider or deeper institutional reform. Even though the North Korean state can no longer provide and most of its citizens must scrape a living from markets, the regime still seems perversely determined to keep markets in check.

ECONOMIC GROWTH: A reportedly better autumn harvest may bring some respite, but will not alter the fundamental plight of most North Koreans, who must scrabble to ensure even a meagre amount of food. Meanwhile, heavy industry, outmoded and worn out, has no potential to recover, and infrastructure remains in a parlous state. Transforming all of this would require two as yet unmet conditions: large-scale capital investment, which can only come from abroad, and the will to pursue genuine market reforms. The paltry energy aid and other assistance offered via the SPT is no substitute for the major investment needed, the precondition of which is complete denuclearisation.

Although removal from the US list of state sponsors of terror carries little economic significance for the DPRK, its government has made this one of its top policy priorities.  Now that this has been accomplished, we must ask what the DPRK’s next move is in terms of international economic integration.  Will they push for removal of more economically-significant legal barriers which isolate them, to a large degree, from global markets (indicating reform is an important policy goal), or will we continue to see mixed signals and muddle-through policies (indicating a desire to maintain the status quo)? 

We cannot answer this question without knowing the DPRK’s overall strategy.  Today, however, a North Korean academic quoted in the Japanese media acknowledges that de-listing changes little economically, and signals that we should not expect to see much change in the DPRK’s economic environment:

Ri Gi Song, professor at North Korea’s Academy of Social Sciences, told Kyodo News in an interview that other international sanctions are still in place and “there should be no illusions” about the country’s trade environment.

“The delisting from the terror list is expected to have a certain level of beneficial impact, but this does not mean that all (international) economic restrictions have been taken away,” he said.

Ri also said Japan’s sanctions against North Korea have not had a major impact on the country’s economy but are hurting Korean residents of Japan who do business with North Korea.

“There is little impact from these restrictions on the economic development of the country, but I think there is an impact on businessmen of Chongryon,” he said, referring to the pro-Pyongyang General Association of Korean Residents in Japan.

“The Korean residents of Japan cannot come and go as they please,” Ri said.

Japan’s sanctions include a ban on port calls by North Korean vessels including a cargo-passenger ferry that provided a major means of transportation for Koreans in Japan traveling to North Korea. The sanctions also ban imports from North Korea and exports of luxury goods to the country.

The sanctions were first imposed in 2006 in the wake of an impasse in the issue of past abductions of Japanese nationals by North Korea. The sanctions are subject to review every six months and were extended in October for the fourth time.

Ri said he does not think North Korea’s centrally planned economy will be affected by the current global financial turmoil that began with the U.S. subprime mortgage meltdown.

“I don’t think it will have a direct impact on our economy, as our economy is not part of the capitalist market mechanism,” he said. (Kyodo – link requires subscription)

As an aside, Mr. [Dr.?] Ri might be surprised to learn just how exposed his country is to the “capitalist market mechanism”.

(Hat tip to Oliver for the article)

The full article can be read here:
N Korea Trade To Gain From U.S. Terror Delisting: N Korea Expert
Kyodo (subscription required)
11/4/2008

Although many would assume that North Korea’s economic isolation would insulate it from recent global financial instability, this does not appear to be the case.  According to the Wall Street Journal:

North Korea does little trade with the rest of the world — about $2 billion annually — and now it’s being hurt by lower prices paid by its biggest trading partner, China, according to report from a South Korean institute that specializes in North Korea research.

In recent weeks, the Chinese companies that buy North Korean ores and minerals like zinc, which are some of its biggest exports, have slashed the prices they’re willing to pay. That’s forced some North Korean mining firms to halt production and even produced a drop in the smuggling of ore and scrap, trade that’s illegal in the North but is believed to play an important role in supporting the impoverished country.

Lim Eul-chul, a professor at the Seoul-based Institute for Far Eastern Studies who wrote the report issued Thursday, said he learned about the commodity-trade problems from North Koreans doing business in China

“Chinese companies that are affected by global trends don’t want to pay as much as they used to for North Korean raw materials or resources,” Mr. Lim said. “Thus, North Korean merchants can’t make profits from trade.”

The price pressure exerted by Chinese traders on North Korean companies is in line with the broader drop in commodity prices in recent months. But it has imposed new burdens on North Korea in what is shaping up to be a terrible year there.

Official North Korean media have published reports saying the global financial crisis will ruin the U.S. and other industrial powers. But in the report, the Institute for Far Eastern Studies said “North Korean people are becoming very anxious over the possibility of the international economic crisis having a long-term impact.”

Below is the IFES report mentioned in the Wall Street Journal:

Global Financial Crisis hits DPRK economy by way of China 
NK Brief No. 08-10-29-1
10/29/2008

Contacts within North Korea are reporting that the North Korean people are becoming very anxious over the possibility of the international economic crisis having a long term impact as not only exports have dropped, but even cross-border smuggling is taking a hit.

Recently, as Chinese traders have more than halved the price of North Korea’s main export goods such as minerals and scrap iron, North Korea’s markets and even construction industry have felt the blow.

As North Korean state-run media outlets report the current financial crisis as the ruin of the United States and other capitalist world powers, they report as if North Korea were completed unaffected by it. On the 20th, the Rodong Sinmun emphasized that the the U.S.’ financial management system was ‘like a candle in the wind.’

However, it has been leaked that since last week, businesses in North Korea have been shutting their doors as a result of the financial crisis. In particular, the value of the North Korean Won has dropped sharply against the Chinese Yuan, and combined with Chinese traders’ reluctance to purchase North Korean goods and calls to lower prices, very little business is being conducted. This has led mines in Hyesan to halt exports of lead and zinc, and with the drop in legitimate exports, of course smuggling has dropped of, as well.

Furthermore, as raw materials from China are not being supplied, construction projects in the North are also grinding to a halt. 

(UPDATE) Barbara Demick reports in the Los Angeles Times:

Despite efforts to keep North Korea’s extreme poverty out of view, a glance around the countryside shows a population in distress. At the root of the problem is a chronic food shortage, the result of inflation, strained relations with neighboring countries and flooding in previous years.

Aid agencies say the level of hunger is not at the point it was in the 1990s, when it was defined as a famine, although they have found a few cases of children suffering from kwashiorkor, the swollen belly syndrome associated with malnutrition. Mostly what they are seeing is a kind of collective listlessness — the kind shown by the people on the streets of Nampo.

“Teachers report that children lack energy and are lagging in social and cognitive development,” reported a group of five U.S. humanitarian agencies in a summer assessment of the food situation. “Workers are unable to put in full days and take longer to complete tasks — which has implications for the success of the early and main harvests.”

Hospitals complained to aid workers of rising infant mortality and declining birth weights. They also said they were seeing 20% to 40% more patients with digestive disorders caused largely by poor nutrition.

The U.N. World Food Program reached similar conclusions. In a recent survey of 375 households, more than 70% were found to be supplementing their diet with weeds and grasses foraged from the countryside. Such wild foods are difficult to digest, especially for children and the elderly. The survey also determined that most adults had started skipping lunch, reducing their diet to two meals a day.

These are some of the same signs that augured the mid-1990s famine, which killed as many as 2 million people, 10% of the population.

“The current situation hasn’t reached the famine proportions that it did during the 1990s. Our hope and goal is to keep it from going over the precipice,” said Nancy Lindborg, president of Mercy Corps, one of the U.S. aid organizations working in North Korea. “You have a number of factors that have conspired to create a really tough food situation.”

In Pyongyang, the capital, residence in which is reserved for the most politically loyal North Koreans, plenty of food is available on sale. A grocery inside the Rakwon Department Store carries Froot Loops and frozen beef. At open-air markets, you can find mangoes, kiwis and pineapples

But the products are far too expensive for most North Koreans, whose official salaries are less than $1 a month — 60 to 75 cents monthly for the workers surveyed by the World Food Program. And the farther you get from Pyongyang, the poorer are the people.

Nampo is 25 miles southwest of the capital, on the Yellow Sea. It used to be a thriving port city, but nowadays its harbor is used mostly for shipments of humanitarian aid. On a weekday morning, many people sit along the sidewalk watching the few cars pass by. They appear to be unemployed or homeless.

North Koreans say that the food situation is improving and that a good harvest is expected this autumn, as a result of improved weather conditions. The last two years were disastrous because of heavy flooding.

“There was a problem before, but it is getting better. We expect a bumper harvest,” said Choe Jong Hun, an official of the Committee for Cultural Relations With Foreign Countries.

North Korea experts, however, are skeptical. “One good harvest is not really going to alter the picture,” said Stephan Haggard, a UC San Diego professor who has written widely on the North Korean famine.

The World Food Program and the U.S. aid organizations are providing food for the most vulnerable, including children and pregnant women. A U.S. ship carrying more than 27,000 tons of bulk corn and soy is slated to arrive in Nampo within days.

International agencies have been trying to raise money to expand their food aid to the general population. Many urban North Koreans are dependent on food rations, which have dwindled to 150 grams a day, or a little more than 5 ounces.

Even in Pyongyang, one can see signs of scarcity behind the facade of what is supposed to be a showcase capital. Foreign residents say they have seen homeless children in the last few months — a notable sight in a totalitarian country where nobody is supposed to wander away from their legal residence. (Los Angeles Times)

Read the full Wall Street Journal articles below:
North Korea Feels Effects of the Crisis
Wall Street Journal
Evan Ramstad and Sungha Park
10/31/2008

North Korean facade of self-sufficiency can’t hide signs of hunger
Los Angeles Times
Barbara Demick
11/2/2008

According to Yonhap:

North Korea has recently promoted its vice forestry minister, Kim Kwang-yong, to the post of minister, according to the country’s state media on Wednesday.

Radio Pyongyang referred to Kim as forestry minister, rather than his previous title of vice minister, while carrying his comments on a recently broadcast statement from North Korean leader Kim Jong-il.

Little is known about the new minister. He visited Russia a year ago while leading the ministry’s delegation as vice minister, according to North Korean media reports.

Kim’s predecessor, Sok Kun-su, was reportedly named to the post in October 2004.

On October 18, KCNA published the following story (this is the only mention of his name in KCNA online archives):

Delegation of Ministry of Forestry Leaves for Russia

Pyongyang, October 18 (KCNA) — A delegation of the DPRK Ministry of Forestry headed by Vice-Minister Kim Kwang Yong left Pyongyang Thursday to participate in the 12th meeting of the forestry sub-committee of the inter-governmental committee for cooperation in trade, economy and science and technology between the DPRK and Russia to be held in Russia.

Many North Korea watchers will remember that North Korean laborers are felling forests in Siberia (background here and here).  It looks like these business ventures are now part of Mr. Kim’s portfolio.

Read the full article here:
N. Korea names new forestry minister
Yonhap
10/29/2008

Reuters published a short article stating many of the DPRK’s economic statistics.  Most of these can already be found on this site, but in terms of a quick update, this is not bad.  The author even acknowledges the wide disparity of the DPRK’s national and per capita income estimates, which is something most articles on these topics fail to address:

*SIZE OF ECONOMY

Annual gross domestic product in 2007 was just over $20 billion, a fall of 2.3 percent from the previous year due to the effects of widespread flooding, according to South Korea’s central bank. However, a report commissioned by a former South Korean unification minister estimated it was less than half that.

*HOW MUCH DO NORTH KOREANS HAVE

Estimates of per capita income range from $400 to $1,000. Whichever figure is true, the population of around 23 million is one of the world’s most destitute. That compares to around $20,000 in capitalist South Korea, once the poorer of the two halves of the Korean peninsula. North Korea’s economy has declined over the past two decades.

*HUNGRY NATION

North Korea’s state doctrine preaches self-reliance. But for years it has been unable to produce enough food for its people and relies heavily on foreign aid. Even in good harvests, it produces about 20 percent less than it needs. An estimated 1 million North Koreans perished during famine in the 1990s.

Last month, the U.N. World Food Programme estimated that North Korea would need some $500 million in food aid over the next year to avoid a humanitarian crisis.

*WHO TRADES WITH NORTH KOREA AND WHAT CAN IT SELL?

Constantly running a trade deficit, North Korea offers cheap labor mostly for relatively low-skilled manufacturing industries, such as textiles. Its chief attraction, especially to neighboring China, is its natural resources, especially coal and minerals.

Some sources, including the U.S. government, believe it bolsters its trade through the illicit exports of weaponry, drugs and counterfeit U.S. dollars.

Its biggest trade partner is China which, by one estimate, accounted for an estimated two-thirds of its total foreign trade last year. By contrast, in the first eight months of this year, Pyongyang accounted for just 0.12 percent of China’s total foreign trade.

Of China’s imports from the North, close to 60 percent were coal and minerals such as iron ore, zinc, lead, molybdenum and precious metals.

South Korea is Pyongyang’s other main trade partner. The two operate an industrial park on the northern side of the border where manufacturers from the South use cheap local labor.

The full article can be found hrere:
FACTBOX: Some facts about the North Korean economy
Reuters
Jonathan Thatcher
10/20/2008

UPDATE 2: Below are a list of materials from the US Department of State web site related to the DPRK’s list removal:

1. Existing Sanctions and Reporting Provisions Related to North Korea (thorough, but does not mention that the DPRK never obtained MFN or NTR status with the US, making it subject to the higher column 2, Smoot-Hawley, tarrifs.

2. Briefing on North Korea With Special Envoy for the Six-Party Talks Ambassador Sung Kim, Assistant Secretary of State for Public Affairs Sean McCormack, Assistant Secretary of State for Verification, Compliance, and Implementation Paula DeSutter, and Acting Assistant Secretary of State for International Security and Nonproliferation Patricia McNerney.

3. U.S.-DPRK Agreement on Denuclearization Verification Measures.

4. U.S.-North Korea Understandings on Verification

UPDATE 1: Since being removed from the list, it is now easier for the DPRK to obtain avian flu vaccinations from the US:

Yet deep inside an 86-page supplement to United States export regulations is a single sentence that bars U.S. exports of vaccines for avian bird flu and dozens of other viruses to five countries designated “state sponsors of terrorism.”

The reason: Fear that they will be used for biological warfare.

Under this little-known policy, North Korea, Iran, Cuba, Syria and Sudan may not get the vaccines unless they apply for special export licenses, which would be given or refused according to the discretion and timing of the U.S. Three of those nations – Iran, Cuba and Sudan – also are subject to a ban on all human pandemic influenza vaccines as part of a general U.S. embargo.

Under normal circumstances it would take at least six weeks to approve export licenses for any vaccine on the list, said Thomas Monath, who formerly headed a CIA advisory group on ways to counter biological attacks. All such decisions would follow negotiations at a “very high level” of government.

That could makes it harder to contain an outbreak of bird flu among chickens in, say, North Korea, which is in the region hardest hit by the virus. Sudan and Iran already have recorded cases of the virus in poultry and Syria is surrounded by affected countries. Cuba, like all nations, is vulnerable because the disease is delivered by migratory birds.(Associated Press)

ORIGINAL POST:
As reported in the Associated Press Saturday morning:

North Korea has agreed to all U.S. nuclear inspection demands and the Bush administration responded Saturday by removing the communist country from a terrorism blacklist. The breakthrough is intended to salvage a faltering disarmament accord before President Bush leaves office in January.

“Every single element of verification that we sought going in is part of this package,” State Department Sean McCormack said at a a rare weekend briefing.

North Korea will allow atomic experts to take samples and conduct forensic tests at all of its declared nuclear facilities and undeclared sites on mutual consent. The North will permit experts to verify that it has told the truth about transfers of nuclear technology and an alleged uranium program.

Verifying North Korea’s nuclear proliferation will be a serious challenge. This is the most secret and opaque regime in the entire world,” said Patricia McNerney, assistant secretary for international security and nonprofileration.

Proponents of de-listing say it is an important step in accomplishing the goals of the six-party talks which are ultimately aimed at realizing a denuclearized Korean peninsula.  Critics of this agreement claim that it addresses only the DPRK’s plutonium program while ignoring nuclear proliferation and uranium enrichment.  

North Korea stepped up the pressure this week barring IAEA inspectors from the DPRK’s nuclear facilities at Yongbyon:

North Korea “today informed International Atomic Energy Agency inspectors that effective immediately access to facilities at Yongbyon would no longer be permitted,” IAEA spokesman Marc Vidricaire said today in an e-mail. The country “has informed the IAEA that our monitoring activities would no longer be appropriate.”

The demand that inspectors leave the whole complex, which is the source of the country’s weapons-grade plutonium, followed a Sept. 24 instruction that monitors quit the reprocessing plant. The new orders will prevent UN personnel from seeing whether North Korea is removing spent uranium fuel rods from cold-water holding tanks. Spent uranium can be turned into plutonium.

IAEA inspectors will remain in the town of Yongbyon until ordered to leave by North Korean authorities, the agency said. (Bloomberg)

UPDATE: According to Reuters, “North Korea said on Sunday it would resume taking apart its plutonium-producing nuclear plant and allow in inspectors in response to a U.S. decision to remove it from a terrorism blacklist and salvage a faltering nuclear deal.”

Despite these recent developments, or maybe because of them, the Bush administration quickly negotiated a de-listing agreement with Pyongyang and spent the last few days selling it to other governments involved in the six-party talks. Though South Korea supported the move, the Japanese government was divided.  Japanese Finance Minister Shoichi Nakagawa (a North Korea hard-liner) called the move “extremely regrettable” as Japan was using US terrorism de-listing as leverage to discover the whereabouts of kidnapped Japanese citizens.  This leverage is now gone since the next president of the US will not likely go through the effort of adding the DPRK to the list again.  Other members of the Japanese government, however, believe there will not be any resolution to this issue until the nuclear issue is resolved. 

De-listing marks the end of the second of three phases agreed to in the six-party talks.  The third stage includes completely dismantling Yongbyon and ending atomic development on the Korean peninsula.  This is likely to be even more difficult than the previous stages. (Bloomberg)

De-listing, however, carries more political than economic significance.  According to the State Department web site (here) countries are added to the list for the following reasons:

Countries determined by the Secretary of State to have repeatedly provided support for acts of international terrorism are designated pursuant to three laws: section 6(j) of the Export Administration Act (which expred in August 2001), section 40 of the Arms Export Control Act (wikipedia), and section 620A of the Foreign Assistance Act. Taken together, the four main categories of sanctions resulting from designation under these authorities include restrictions on U.S. foreign assistance; a ban on defense exports and sales; certain controls over exports of dual use items; and miscellaneous financial and other restrictions.

Designation under the above-referenced authorities also implicates other sanctions laws that penalize persons and countries engaging in certain trade with state sponsors. Currently there are five countries designated under these authorities: Cuba, Iran, North Korea, Sudan and Syria.

As discussed before (here and here), the DPRK still faces a myriad of legal barriers which restrict it from accessing global trade and financial markets, including the US Column 2 tariffs (Smoot-Hawley Tariffs), US Treasury sanctions, bilateral Japanese sanctions (renewed on Friday), and recent UN resolutions 1695 and 1718.  In other words, the DPRK does not have much to gain financially from de-lisitng.

Here is the initial executive order to begin de-listing.  Now that the US terrorism list is one country shorter, who remains? Cuba, Iran, Syria, Sudan.

Read the full article here:
N Korea off US blacklist after nuke inspection deal
Associated Press (via Washington Post)
Matthew Lee
10/11/2008

N. Korea Removed From U.S. List of Terror Sponsors
Bloomberg
James Rowley and Viola Gienger
10/11/2008

North Korea Uncovered: Version 12
Download it here

About this Project: This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, energy infrastructure, political facilities, sports venues, military establishments, religious facilities, leisure destinations, national parks, shipping, mining, and railway infrastructure. It is continually expanding and undergoing revisions. This is the 12th version.

Additions include: Tongch’ang-dong launch facility overlay (thanks to Mr. Bermudez), Yongbyon overlay with destroyed cooling tower (thanks to Jung Min Noh), “The Barn” (where the Pueblo crew were kept), Kim Chaek Taehung Fishing Enterprise, Hamhung University of education, Haeju Zoo, Pyongyang: Kim il Sung Institute of Politics, Polish Embassy, Munsu Diplomatic Store, Munsu Gas Station, Munsu Friendship Restaurant, Mongolian Embassy, Nigerian Embassy, UN World Food Program Building, CONCERN House, Czech Republic Embassy, Rungnang Cinema, Pyongyang University of Science and Technology, Pyongyang Number 3 Hospital, Electric Machines Facotry, Bonghuajinlyoso, Second National Academy of Sciences, Central Committee Building, Party Administration Building, Central Statistics Bureau, Willow Capital Food House, Thongounjong Pleasure Ground, Onpho spa, Phipa Resort Hotel, Sunoni Chemical Complex (east coast refinery), Ponghwa Chemical complex (west coast refinery), Songbon Port Revolutionary Monument, Hoeryong People’s Library, Pyongyang Monument to the anti Japanese martyrs, tideland reclamation project on Taegye Island. Additionally the electricity grid was expanded and the thermal power plants have been better organized. Additional thanks to Ryan for his pointers.

I hope this map will increase interest in North Korea. There is still plenty more to learn, and I look forward to receiving your contributions to this project.

Version 12 available: Download it here

The DPRK’s recent efforts to reconstruct the Yongbyon 5MW nuclear reactor seem to have brought implementation of the “second” Agreed Framework to a halt, though it was already behind schedule.  This week the US sent Chris Hill to Pyongyang to try and rescue the process which is hung up on verification protocol.   The North claims to have sufficiently declared their nuclear capabilities and believe they should be removed from the US list of state sponsors of terror.  The US does not believe this condition has been met and seeks to establish a protocol to verify if the North’s declaration is accurate.

Japan is also set to extend sanctions (due to expire) on the DPRK.  According to Bloomberg:

Japan’s ruling Liberal Democratic Party decided to extend sanctions against North Korea for six months after their Oct. 13 expiration date, Jiji Press reported.

LDP lawmakers agreed to extend the sanctions because North Korea took steps to reactivate its nuclear program and made little progress in an investigation into Japanese nationals abducted by North Korean agents, Jiji reported.

Prime Minister Taro Aso’s Cabinet is likely to endorse the extension by Oct. 10., the Japanese wire service said.

The sanctions include a ban on North Korean imports and the entry of North Korean ships into Japanese ports. The extension will be the fourth since sanctions began after North Korea’s October 2006 nuclear test, Jiji said.

Just as the DPRKs hopes of restoring/establishing relations with Japan and the US start to dim, however, they have reached out to South Korea, with whom political relations had recently gone sour due to the South’s policy change from unsupervised aid provision under the “sunshine policy” to a quid-pro-quo relationship under a “policy of mutual benefits and common prosperity“.  Additionally, the fatal shooting of a South Korean tourist in Kumgangsan led to a deterioration in cooperation between the two governments and suspension of the inter-Korean project (a cash cow for the North).

How much was the Sunshine Policy worth to the North?  South Korean GNP lawmaker Jin Yeong, who analzed data submitted by the Unification Ministry and the Export-Import Bank of Korea, claims that the Kim and Roh administrations oversaw the transfer of 8.38 trillion South Korean Won in aid and loans since 1998.

Taking office in February 2003 after the second North Korean nuclear crisis emerged in September 2002, Roh doled out 5.68 trillion won to Pyongyang over his five-year term, double that of his predecessor Kim (2.70 trillion won).

Kim and Roh gave to North Korea 2.4 trillion won for building light-water reactors and in food aid; 2.5 trillion won to pin the price of rice aid to that of the global market; 2.8 trillion won for other aid including fertilizer; and 696 billion won in aid from advocacy groups and provincial governments.

In 2003, South Korean aid to the North reached a high of 1.56 trillion won. Then after North Korean leader Kim Jong Il declared that his country had gone nuclear in 2005, the Roh administration sent 1.48 trillion won to the North.

Jin said, “South Korea gave a loan with rice first in 2000. Payments on the loan are deferred for 10 years. Thus, we are to receive the first repayment installment in 2010. But most of the 2.4 trillion won in loans seem irrecoverable.”

PricewaterhouseCoopers Korea audited the fiscal 2007 accounts of Seoul`s inter-Korean cooperation funds, saying, “Considering the characteristics of the North Korean government, grave uncertainty exists over the possibility of redeeming the loans given to the regime. The ultimate outcome depends heavily on the conditions around the Korean Peninsula.”

Since President Lee Myung-bak took office this year, exchanges between the two Koreas have been rare. Still, aid to the light-water reactor and the Gaesong industrial complex projects and civilian donations have continued, amounting to a combined 211.3 billion won. (Donga Ilbo)

It appears the Russians are doing their part to bring the North and South together through a project they can all agree on—building a natural gas pipeline from Russia to South Korea via the DPRK:

South Korea plans to import $90 billion of natural gas from Russia via North Korea, with which it shares one of the world’s most heavily fortified borders, to reduce its reliance on more expensive cargoes arriving by sea.

State-run Korea Gas Corp. signed a preliminary agreement with OAO Gazprom, Russia’s largest energy company, to import 10 billion cubic meters of natural gas over 30 years starting in 2015, the Ministry of Knowledge Economy said in a statement. The accord was signed in Moscow during President Lee Myung Bak’s three-day visit that began yesterday.

Gazprom Chief Executive Officer Alexei Miller said after talks today between Lee and Russian President Dmitry Medvedev that the exact delivery route hasn’t been determined and that shipments could begin as early as 2015.

“Russia suggested a pipeline via North Korea, which is expected to be more economical than other possible routes,” the minister said in a news briefing. “Russia will contact the North to discuss this.”

“Transporting gas through North Korea could be risky for South Korea,” said Kim Jin Woo, a senior research analyst at Korea Energy Economics Institute. “But the project will ease tensions on the Korean peninsula if Russia successfully persuades North Korea” to accept the plan.

North Korea could earn $100 million a year from the gas- pipeline project, the Ministry of Knowledge Economy said.

“Russia will supply the fuel in the form of LNG or compressed natural gas if negotiations with North Korea do not work out,” according to the ministry’s statement. South Korea and Russia will sign a final agreement in 2010 when a study on the route is completed.

South Korea is turning to Russia, holder of the world’s biggest proven gas reserves, as it faces intensifying competition for energy resources from China and Japan. Asia’s fourth-largest economy depends on gas for 16 percent of its power generation.

Under the agreement, a pipeline to South Korea will be laid via North Korea from gas fields on Sakhalin Island in Russia’s Far East. The pipeline would initially carry 10 billion cubic meters of gas a year, or about 20 percent of South Korea’s annual consumption. The cost of the gas link’s construction is estimated at $3 billion, the ministry said.

Read the full articles here:
South Korea Seeks $90 Billion of Russian Natural Gas
Bloomberg
Shinhye Kang
9/29/2008

Liberal Gov`ts Gave W8.38 Bln to North Korea`
Donga Ilbo
9/30/2008

The Nautilus Institute has published an aritcle by Leonid Petrov on 60 years of Australian/DPRK relations.

Topics covered: on again/off agian diplomatic history, Australian foreign policy, bilateral relations, DPRK engagement with Australia, Pong Su (drug smuggling), denuclearization, economic sanctions, DPRK canberra embassy closing.

You may read the article on line here.

You may download a PDF of the article here: petrov-australia-dprk.pdf