North Korean Economy Watch

According to CanKor Report #323, 2 June 2010:

North Korea began opening up to nongovernmental organizations in the 1990s, when severe food shortages forced it to seek outside aid. While both the famine of the mid-90s and the efforts to alleviate it got a good deal of press at the time, attention to this aspect of North Korea has fallen off in recent years as most press coverage now deals with the nuclear issues or questions of leadership succession. But while NGO activities may have dropped off over the last decade, a select few groups continue in their efforts to better the lives of ordinary North Koreans, despite all the limitations and difficulties they face in doing so.

CanKor has collected a partial list of nongovernmental organizations from the non-six-party talk countries currently engaged in humanitarian activities in North Korea. While some have been left out at their own request due to the politically sensitive nature of their work, we will endeavour to present regular updates on current or new projects in the DPRK. Readers are encouraged to write in and inform us of any activities we may report.

Featured Project:  Mennonite Central Committee

MCC has been engaged in the DPRK since the mid 1990s, the earlier years through the Canadian Food Grains Bank (CFGB) in partnership with other organizations to support the Food Aid Liaison Unit (FALU), and also together with other non-resident NGOs such as Caritas International, American Friends Service Committee (AFSC), and Foods Resource Bank/Church of the Brethren Global Foods Crisis Fund to support sustainable agriculture and provide humanitarian assistance. Between 1995 and 2006, approximately $15 million in food and other material resources was sent to the DPRK by MCC.

Since 2006 and the dissolving of FALU, MCC has worked in the DPRK through its MCC NE Asia office. MCC has continued to send food and material resources to orphanages, initially via First Steps, and eventually in direct relationship. Soymilk production equipment was also provided to assist orphanages and soymilk production facilities to increase production of their own nutritional needs. MCC also sends food and material resources to tuberculosis hospitals and rest homes through its partnership with Christian Friends of Korea. Greenhouses have also been provided to enable these facilities to raise more of their own food needs.

Here   is a story on MCC’s partnership with First Steps in sending soybeans to orphanages in the DPRK and

Here   is a story on MCC’s cooperation with Christian Friends of Korea in sending food and other material resources to TB facilities.

Beginning in 2009, MCC is partnering with the Ministry of Agriculture in the DPRK on a three- year food security project. Given the success of conservation agriculture in other climatically-similar districts around the world, including Asia and Canada, this project aims to build longer-term food security at three cooperative farms and surrounding areas by increasing the scale of conservation agriculture practiced on each farm.

This is being done through the provision of technical support, training, specialized equipment and inputs. The program will benefit 12,287 residents on the three project farms. The total budget for the 3-year project is U.S.$1 million, with approximately 75% of the funding provided through CFGB and the remainder through individual donations to MCC. Click here   for a news release about the conservation agriculture project. In the interest of further engagement, MCC has also hosted delegations from the DPRK in both the U.S. and Canada, most recently an agricultural delegation to Canada in the fall of 2008. MCC also looks for ways to advocate DPRK engagement with Canadian and American governments. MCC seeks to share its resources in the name of Christ with those in need, placing emphasis on people-to-people relationships.

CanKor has more on NGOs here.

UPDATE 2: According to Yonhap:

North Korea has inked a 10-year contract with British oil and gas company Aminex to explore and extract oil on the seabed off the country’s east coast, the Financial Times (FT) in London reported on June 1.

For the deal, North Korea presented Singapore-registered Chosun Energy as its representative to establish a 50-50 joint venture, Korex, with Aminex, the FT said, noting a filing with Singapore’s Accounting and Corporate Regulatory Authority.

Chosun Energy is an investment holding company operated by North Korea with a paid-up capital of US$1.2 million, according to the newspaper. But the newspaper did not elaborate further details on the company.

Korex will search for oil in an area of 50,681 square kilometers (20,272 square miles) in parts of North Korea’s east coast, Aminex said in a statement.

The contract with the British company, which is listed in London and Dublin, was signed around mid-May in London by officials from the North’s oil company and a head official for Aminex.

“Officials from North Korea’s state oil company traveled to London two weeks ago to conclude the 10-year contract. Lord Alton, chairman of Britain’s parliamentary North Korea group, says he showed the officials around parliament,” the FT added.

North Korea has contacted foreign companies and investors to attract foreign capital for searching for its rich natural resources, including crude oil. In 1997, the North claimed it had reserves of 5 to 40 billion barrels of oil.

North Korea has maintained ties with Animex since 1998. Aminex has been hunting for potential oil reserves in the North Korean portion of the Yellow sea since it signed with the country for joint oil and gas development in January 2005.

UPDATE 1: According to the AFP:

The head of a London-based energy firm that signed a deal to search for oil off North Korea said on Thursday he hoped to start exploring in a year but was closely monitoring tensions on the peninsula.

Aminex PLC executive chairman Brian Hall told AFP he expected “field work in about a year” off the communist nation’s east coast and aimed to “find substantial reserves”.

However, relations on the peninsula have become strained after North Korea was accused of carrying out a torpedo attack on a South Korean warship in March that left 46 sailors dead and stoked fears of an armed conflict.

Pyongyang has denied involvement in the sinking and threatened war in response to a trade suspension and other reprisals by the South.

Asked about the timing of the North Korea contract, Hall said “we have been working with (the) North Koreans for over a decade and an agreement such as the one we have recently signed takes many months to negotiate”.

He added: “Naturally we will keep a very close eye on the tensions on the peninsula, as we have done during previous incidents, but our project is of a long-term nature and well thought through.”

Aminex announced last week that an associate company had signed a 10-year contract with North Korea to search for oil in an area of about 50,681 square kilometres (20,272 square miles) in the Korean East Sea.

Hall declined to give an estimate of the potential deposits.

The contract was signed by Korex — a 50-50 venture between Aminex and Singapore-registered Chosun Energy — and the Korean Oil Exploration Company, the North’s state oil firm.

Victor Shum, an analyst with energy consultancy Purvin and Gertz, said there was every chance that oil would be found in the area but stressed the reserves must be of a significant size in order for exploration to progress further.

“The question is whether any oil reserves that may be discovered there are going to be economically viable to extract,” Singapore-based Shum told AFP.

“I think there has been interest certainly by oil companies so there is therefore a possibility of something there … So far the production isn’t large,” he said.

Aminex, with listings on the London and Irish stock exchanges, describes itself as an upstream oil and gas company with concessions in several countries including the United States, Kenya and Egypt.

According to a filing with Singapore’s Accounting and Corporate Regulatory Authority obtained by AFP, Aminex’s partner Chosun Energy is an investment holding company with a paid-up capital of 1.2 million dollars.

It listed its address as the German Centre in Singapore, a building that hosts small and medium-sized foreign companies, and named three directors — an American, one Briton and a Singaporean.

But staff at the German Centre told AFP the company had moved out.

Singapore is a major financial centre and corporate hub, attracting companies from all over the world because of the ease of doing business and access to funding.

North Korea, one of the world’s most impoverished countries, is starved of energy and foreign exchange after decades of isolation as well as economic sanctions, but is believed by US officials to have up to six nuclear weapons.

South Korea’s ban on most trade with North Korea in response to the ship sinking will cost the communist state hundreds of millions of dollars a year, according to figures from the Seoul-based Korea Development Institute.

ORIGINAL POST: According to the Financial Times:

Aminex, listed in London and Dublin, has formed a company, Korex, to pursue the project jointly with Chosun Energy, a Singapore-listed company that identifies James Passin as one of its directors, according to a filing with Singapore’s Accounting and Corporate Regulatory Authority.

Mr Passin is a New York-based fund manager. His Firebird Global Master Fund II half owns Chosun Energy and targets resource deals in frontier markets.

Officials from North Korea’s state oil company travelled to London two weeks ago to conclude the 10-year contract. Lord Alton, chairman of Britain’s parliamentary North Korea group, says he showed the officials around parliament.

Brian Hall, chairman of Aminex, acknowledged the contract had been concluded at a sensitive time given the rising tensions between Seoul and Pyongyang, but stressed he had opened ties with energy-starved North Korea in 1998. Since then, securing output rights from an exploration block had been “stop-go”.

Additional Information/thoughts: 
1. Here is a previous short post on Aminex.

2. The economics literature overwhelmingly suggests that natural resource windfalls are generally bad news for weak states/developing countries—often fueling corruption, repression, and violence.  The windfall almost never translates into better general working conditions or increases in general income (Botswana being an exception).  There are plenty of papers out there making this point (“Natural Resource Curse”), so feel free to refer to your favorite.

3. I would be weary of building an offshore oil rig in the DPRK.

4.  If oil is discovered in Korea’s East Sea, look for Japan, South Korea, and Russia to begin “drinking from their milkshake”.

Read the full stories here:
Oil firm says N.Korea exploration to start in a year
AFP
Bernice Han
6/2/2010

Anglo-Irish group seeks North Korean oil
Financial Times
Christian Oliver, Kevin Brown
6/1/2010

Bertil Lintner wrties in the Asia Times:

For more than a decade, the world around North Korea has been shrinking. In the wake of its missile and nuclear tests and recent accusations that it torpedoed a South Korean naval vessel, the list of internationally imposed sanctions and trade restrictions aimed at isolating the reclusive state has grown ever longer.

But the North Koreans, who have been in a state of war for more than half a century, have often found ingenious ways around those restrictions and added pressures from the United States, Japan and other countries, most visibly seen in the string of front companies and bank accounts it maintains across Asia.

Recent indications are that Pyongyang has sought willing trade partners outside of Asia and its new closest commercial ally appears to be Brazil. Relations between the two countries have warmed considerably since leftist Luiz Inacio Lula da Silva became president in January 2003.

The official Chinese news agency Xinhua reported in October 2004 that North Korea planned to open an embassy in Brasilia, its fourth in the Latin and South American region after Havana, Cuba, Lima, Peru and Mexico City. On May 23, 2006, the official Korean Central News Agency (KCNA) and the Brazilian media reported that the two countries had signed a trade agreement.

More recently, the KCNA reported last December that a “protocol on the amendment to the trade agreement” had been signed in the capital Pyongyang. “Present at the signing ceremony from the DPRK [Democratic People’s Republic of Korea, or North Korea] side were Ri Ryong Nam, minister of foreign trade, and officials concerned and from the Brazilian side Arnaldo Carrilho, Brazilian ambassador to the DPRK, and embassy officials,” according to the news report.

China’s role in facilitating trade between Brazil and North Korea remains a matter of conjecture, but it is significant that the state mouthpiece Xinhua has eagerly reported on the warming of relations between the two countries. China remains Pyongyang’s most important base for all kinds of foreign trade – legitimate as well as more convoluted business transactions through front companies in Beijing and elsewhere.

But North Korea also needs more discreet trading partners, as China is often criticized in international forums for its close relations with the North Korean regime and is undoubtedly closely watched by Western intelligence agencies. And it is hardly surprising that Brazil, which is known to harbor its own nuclear ambitions, albeit for stated peaceful purposes, has emerged as such a friendly nation to Pyongyang.

Significantly, Brazil has established what appears to be an understanding with another aspiring nuclear power: Iran. “Also like Iran, Brazil has cloaked key aspects of its nuclear technology in secrecy while insisting the program is for peaceful purposes, claims nuclear weapons experts have debunked,” according to an April 20, 2006 Associated Press report.

While Brazil is more cooperative than Iran on international inspections, some worry its new enrichment capability – which eventually will create more fuel than is needed for its two nuclear plants [1] – suggests that South America’s biggest nation may be rethinking its commitment to nuclear non-proliferation.

”Brazil is following a path very similar to Iran, but Iran is getting all the attention,” said Marshall Eakin, a Brazil expert at Vanderbilt University in the United States. ”In effect, Brazil is benefiting from Iran’s problems.”

In September 2009, Lula declared before the United Nations General Assembly: “Iran is entitled to the same rights as any other country in its use of nuclear energy for peaceful purposes.” He added to reporters outside the UN General Assembly, “I defend for Iran the same rights with respect to nuclear energy that I do for Brazil.” He added: “If anyone is ashamed of having relations with Iran, it’s not Brazil.”

But it is Lula’s budding cooperation with North Korea that is especially worrying to some Western observers. According to one longtime observer of the North Korean scene, “Both nations have long-standing ambitions to develop a nuclear capability as well as missiles and space-launched vehicles. Both have been the subject of intense US political pressure at times, Brazil on-and-off, North Korea all the time. And Brazil has access to technology that North Korea can only dream about.”

Because Brazil is not on any international sanctions list, it is easier for it to obtain dual-use materials. It remains to be proven, however, that Brazil has served as a conduit for such goods ultimately destined for North Korea.

According to official trade statistics, available at www.stat-trade.com, North Korea’s largest trading partner in 2009 was China, with two-way commerce totaling US$2.67 billion. That was followed by South-North Korean trade worth $1.68 billion. A surprising third on the list was Brazil with US$221 million in two-way trade, well ahead of Singapore, Hong Kong and North Korea’s other traditional Asian trading partners.

The nominal figure may not be impressive in an international context, but it is substantial for North Korea, a country with an estimated total gross domestic product of about $22 billion. North Korea’s trade with Brazil has recently increased almost at the pace it has decreased with Thailand, from where it previously sourced dual-use chemicals, raw materials and machinery. Thailand no longer figures prominently in recent trade statistics, which is noteworthy given that their two-way trade reached a record US$331 million in 2004.

Those deals were done under the government of Thaksin Shinawatra, who at one point even proposed signing a full-blown free-trade agreement with North Korea. In August 2005, the former Thai premier was formally invited by North Korean leader Kim Jong-il to visit Pyongyang. The visit never materialized, however, and when Thaksin was ousted in a September 2006 military coup, Thai-North Korean relations began to deteriorate. By 2008, bilateral trade between Thailand and North Korea fell to $76 million and in 2009 dipped further to $47.1 million.

Among North Korea’s more remarkable export items before the September 2006 coup in Thailand were 1.3 tons of gold and 10 tons of silver. Another pre-arranged shipment of 12 tons of silver arrived in Bangkok in October of that year. However, business is now reportedly sluggish at the two main trading companies that North Korea is known to maintain in Bangkok, Star Bravo and Kosun Export Import.

Successive Thai governments that have ruled the country since Thaksin’s overthrow are believed to have complied more strictly with international pressure to restrict dealings with North Korea. In Brazil, however, North Korea has a long history of involvement with various leftist groups, the distant offshoots of which are now in power in Brasilia.

North Korea expert Joseph S Bermudez wrote in his 1990 study “Terrorism: The North Korean Connection”:

From 1968 to 1971 the DPRK provided financial and military assistance to several leftist organizations in Brazil, most notably to Carlos Marighella’s National Liberating Action (Acao Libertadora Nacional – ALN) and the Revolutionary Popular Vanguard (Vanguarda Popular Revolucionaria – VPR). By November 1970, the DPRK established a training base in the Porto Alegre area, where a small number of guerrillas were given guerrilla warfare, small arms, and ideological training. A small number of ALN and VPR personnel is believed to have also received training within the DPRK.

Marighella – a Marxist, writer and founder of the ALN – was the leader of a militant movement that fought against Brazil’s US-supported, authoritarian right-wing governments in the 1960s. In September 1969, the guerrillas even managed to kidnap US ambassador Charles Burke Elbrick for 78 hours. After his release in exchange for 15 imprisoned leftists, Elbrick remarked, “Being an ambassador is not always a bed or roses.” Two months later, Marighella was killed in an encounter with Brazil’s police. But on November 4, 2009, the 40th anniversary of the death of Marighella, Lula declared him a “national hero”.

Although ideology may be less important than profits in today’s capitalist world, there are old emotional bonds between North Korea and Brazil under Lula that should not be entirely discounted. Brazil may be among the countries which have condemned North Korea’s nuclear program, as was shown when, in May 2009, the Brazilian government called on North Korea “to sign the Comprehensive Nuclear Test Ban Treaty and to strictly observe the moratorium on nuclear tests”.

But bilateral trade between the two sides is nevertheless – in relative terms – now booming. In May last year, North Korea’s Foreign Affairs Minister Pak Ui-chun arrived in Brazil to meet with his Brazilian counterpart, Celso Amorim. Pak expressed Pyongyang’s interest in receiving assistance in its deep-water oil prospecting efforts from PETROBRAS (Brazilian Petroleum Corporation), while Amorim said his country was reportedly interested in exporting what he referred to as “farm” machinery.

So far no military hardware, or material that could have military applications, is known to have changed hands between North Korea and Brazil. But Pyongyang has found at least one new trading partner which could potentially replace some of its former business allies in Asia. It’s a budding relationship that will be closely monitored by North Korea watchers in Japan and the West.

Read the full story here:
Brazil, North Korea: Brothers in trade
Asia Times
Bertil Lintner
Asia Times
6/3/2010

According to the Koryo Tours newsletter:

Koryo Tours has been officially informed by the Korea International Travel Company that Arirang Mass Gymnastics (Mass Games) will be performed from August 2nd throughout to October 10th, 2010. Mass Games can basically be described as a synchronized socialist-realist spectacular, featuring over 100,000 participants in a 90 minute display of gymnastics, dance, acrobatics, and dramatic performance, accompanied by music and other effects, all wrapped in a highly politicized package. Literally no other place on Earth has anything comparable and it has to be seen with your own two eyes to truly appreciate the scale on display.

Book your tour here.

See the group tours we offer during Mass Games.

You can choose your dates of travel, methods of entry and exit and also the itinerary can be tailored to suit your requests if you prefer to travel with an independent tour. Find more information here.

Preparations are visible on the streets of Pyongyang well in advance of the Mass Games with tens of thousands of gymnasts preparing their routines in the city’s open spaces and parks. The 2009 performance was entitled ‘Arirang’ based on a historic tragic love story but was adapted to represent the struggle of North Korea during the Japanese occupation and Korean War. Students practiced every day from January onwards. The 90 minute performance is held every evening at 7pm and features the ‘largest picture in the world’ a giant mosaic of individual students each holding a book whose pages links with their neighbours’ to make up one gigantic scene. When the students turn the pages the scene or individual elements of the scene change, up to 170 pages make up one book.

In 2003 we made our film on the Mass Games A State of Mind (Koryo Tours, VeryMuchSo productions and BBC4), The film has been broadcast unedited in both North and South Korea and in 2004 won the Pyongyang Film Festival Special Prize and best film music award as well as various international awards and is currently on worldwide release.

Martyn Williams provides an update on the growing use of mobile phones in the DPRK.  According to his article in PC World:

Koryolink, North Korea’s only 3G cellular operator, saw sales more than double in the first three months of this year as it expanded its network coverage and enjoyed continued demand for its service.

At the end of March the company had 125,661 subscribers, a gain just under 34,000 subscribers over the quarter, according to majority-shareholder Orascom Telecom. The Egyptian company, which invests in cellular operators in developing nations, owns 75 percent of Koryolink.

“Contrary to initial speculations that the mobile service will be only available to the government officials and elite, the fact is that currently mobiles are used by different segments and levels of society,” Orascom said of the customer base.

The network achieved a profit of US$5.8 million in the quarter, before accounting for interest payments, taxes, depreciation and amortization. Orascom did not disclose whether it made a net profit or a loss for the period. The figure is a vast improvement on the US$312,000 EBITDA profit recorded in the first three months of last year.

Quarterly revenues were US$9 million, a jump of 102.5 percent.

Sales were hit by North Korea’s revaluation of its currency.

The move, which saw 100 North Korean won devalued to 1 won, caused social unrest, according to reports from the country. Koryolink said sales activity was “practically at a standstill due to uncertainty factors resulting from the currency revaluation,” and that it closed its sales outlets for about three weeks.

The North Korean network was launched in late 2008 using WCDMA (wideband code division multiple access) technology and is only the second cellular network in the country. The other, Sunnet, uses older GSM technology and suffers from poor call quality and disconnections, according to users in the capital city of Pyongyang.

At launch the Koryolink network covered Pyongyang but has since been expanded to five additional cities and eight highways and railways.

North Korea is one of the world’s most tightly controlled societies. Subscribers to the network are divided by class or type of customer with some unable to place calls to others. Most calls are subject to monitoring by the state’s security services as part of an extensive domestic intelligence gathering program.

Nautilus Institute Policy Forum
Policy Forum Online 10-027A
5/12/2010

Alexander Mansourov

North Korea is not static and inflexible. Indeed, there tends to be a very dynamic picture once you look below the surface. Change is a constant but, as in almost any state or society, it brings about tension. However, there is little or no sign that current tensions, caused by changes in the distribution of power within the leaderships’ core cadre, positioning for succession, or economic reforms are eroding the overall strength of the regime. While such tensions may spill over into society, there have been no signs that they have risen to a level that significantly weakens the regime or have made it feel that drastic action is needed.

Contrary to the popular view, North Korea is not being torn apart by an epic battle between the state and markets. The two have over time established an uneasy but symbiotic relationship. The state still considers the markets as parasites and vice versa, but each has learned to exist with the other. The popular argument that the reopening of markets in the North after their alleged (but unverified) closure is a sign of government capitulation before their power is not persuasive.

Much of the “evidence” we have for the latest uptick in internal tensions following the currency redenomination consists of recycled stories from unproven or unreliable sources relating anecdotes from small slices of the country. These publicly available sources for North Korea are very subjective and come through the lens of defector groups and humanitarian non-governmental organizations that, quite frankly, have their own agendas. Corroborating these reports is often impossible. Separating speculation from rumor and fact is difficult. The best we can do is to strip back some of the speculative veneer and establish hypotheses we can test over time.

What is Really Happening?

In spite of recent speculation in the New York Times and other Western media about North Korea’s growing economic desperation and political instability, Pyongyang is, in fact, on a path of economic stabilization. Last year’s harvest was relatively good-the second in a row-thanks to a raft of developments including favorable weather conditions, no pest infestations, increased fertilizer imports from China, double-cropping, and the refurbishment of the obsolete irrigation system. Thanks to the commissioning of several large-scale hydro-power plants which supply electricity to major urban residential areas and industrial zones, North Korea generated more electricity in 2009 than the year before, although losses in the transmission system remain significant.

According to China’s Xinhua news agency, industrial production in North Korea grew by almost 11 percent last year and 16 percent in the first quarter of 2010, compared to the first quarter of 2009. That positive development was facilitated by two nationwide labor mobilization campaigns-the “150-day campaign” and “100-day campaign” as well as growth in extractive industries, construction, a revival of heavy industries, modernization of the consumer-oriented industries and the expansion of the high-tech sector, especially, information and biotechnology.

Despite a decline in inter-Korean commerce and international sanctions imposed after the North’s missile and nuclear tests in early 2009, foreign trade did not contract in any meaningful way thanks to burgeoning ties with China. Moreover, Beijing seems to be committed to dramatically expanding its direct investments in the development of the North’s infrastructure, manufacturing, and service sectors.

There is no question that, for ideological, political, and national security reasons, North Korea’s macroeconomic policy has always been oriented towards the needs of domestic producers. The requirements of large-scale munitions and heavy industries have been the top priority, an orientation that has handicapped the development of domestic consumer-oriented industries. Since the collapse of the government-run, public food distribution system in the 1990s, Pyongyang has largely neglected the interests of individual consumers. It has allowed inflation to eat away at their disposable income, leaving them with only a few possible coping strategies. Those strategies have included pilferage of state assets, official corruption and participation in emerging retail markets where quasi-private merchants have been trading mostly in domestic agricultural produce and Chinese manufactured goods.

As the state-owned economic sector began to recover in the past two years, it had to confront labor shortages, rising production costs, and a powerful competitor-China. Whereas the extractive industries (especially coal and ore mining) benefitted from skyrocketing global raw materials prices as well as proximity and access to the ever-hungry Chinese market, the manufacturing industries hit the “Great Chinese Wall” of cheap consumer goods and industrial products that flooded the country. The competition was killing North Korea’s domestic manufacturers, who had barely begun to recover from two decades of depression.

At the same time, the North’s consumers-always conscious of rampant inflation-dodged mandatory savings requirements and began to increase consumption. They started to develop a clear preference for spending their meager disposable incomes on foreign-made goods in the newly emerging farmers’ and general industrial markets rather than in state-owned stores. Insensitive to the plight of the domestic industries, consumers voted with their purses for better quality, albeit more expensive, imports.

In addition, this development helped drain liquidity from the state banking system. Since the post-July 2002 economic reforms, salaries and money earned by private merchants were rarely deposited in bank accounts and returned to regular state banking channels. Instead, they circulated in emerging markets, were stored in kimchi jars, buried underground, or exchanged for renminbi or euros and taken out of the country by foreign (mostly Chinese) traders. Despite the Central Bank’s proclivity to print more money to increase the supply needed for state investment (which in turn fueled inflation), industrial producers were confronted with increasing difficulty in procuring investment funds from the state banking system, which was running short on previously mandatory individual bank deposits.

Rationale for Current Macroeconomic Stabilization Measures

In formulating the current round of measures, the authorities had to figure out how to cut a political, economic and social Gordian knot. Their options were restricted by an uncertain leadership agenda, ideological confines, political biases, lack of extensive macroeconomic stabilization experience, and scarce resources.

First, they had to reconcile the interests of domestic producers, very well represented by senior managers of state-owned enterprises at all levels of state power, otherwise known as the red directorate, who pressed the government to lower their rising production costs and to protect them from foreign (Chinese) competition. At the same time, consumers, asserting themselves through the nationwide structures of people’s committees and public organizations, sought higher salaries and alternative employment in the non-state sector, with a preference to consume higher quality imports.

Second, they had to reconcile the interests of state bankers-who were urging modernization and re-capitalization of the state banking system in the throes of an unprecedented credit squeeze-with those of the general population worried about inflation, mistrustful of the system, and reluctant to keep their savings in banks.

Third, they needed to find a way to repay the people’s life bond funds “borrowed” from the population in 2003 while also mobilizing additional funds for future capital investment even through confiscatory measures.

Fourth, they probably wanted to restore public confidence in the national currency and must have been motivated by a desire to combat inflationary expectations as well as to signal that inflationary days were over.

Fifth, they probably wanted to curb the growing influence of the new moneyed class demanding fewer restrictions on its businesses and foreign exchange transactions, while placating the regime loyalists, who still believed official propaganda and defended the advantages of the socialist economic system.

Sixth, they wanted to restore the credibility of the state-centered economic management system as demanded by the anti-market neo-conservatives from the party establishment. At the same time, policy-makers wanted to restrain the ever-present bureaucratic class seeking to control, license, and regulate anything and everything, which gave rise to rampant official corruption.

Finally, they wanted to re-assert monetary sovereignty since growing foreign currency substitution was undermining the central bank’s control over the money supply. The loss of monetary sovereignty would have become an insurmountable practical obstacle to building a “strong and powerful state” by 2012, North Korea’s publicly stated objective, and could not be tolerated politically, especially during a leadership transition period.

In an interview with Kyodo News on April 18, 2009, Ri Ki Song, economics professor at the Economic Institute of the Academy of Social Sciences, a North Korean government think tank, pointed out that “redenomination was intended to curb inflation, enhance currency values and create a favorable environment for economic management, and it was also aimed at stabilization and improvement of the people’s livelihood by supplying goods through a systematic national distribution system.”

Outlines of the New “Package Deal”

The currency redenomination began to unfold in late 2009. In November, the Supreme People’s Assembly (SPA) Presidium issued a decree “On Issuing New Currency.” At the same time, the Cabinet of Ministers promulgated two decisions entitled “On Stabilizing People’s Livelihood” and “On Establishing Proper Order in Economic Management System.” These were quickly followed by a series of new regulations issued by the Central Bank, Ministries of Finance and Commerce, Price Regulation Bureau, General Bureau of Customs, and other government agencies.

The purpose of these initial steps appears to have been two-fold. First, the North wanted to reinvigorate domestic production of consumer goods. That would be done through import substitution as well as rebuilding the purchasing power and stabilizing the living standards of the mass of budgetary employees. The livelihood of these people-who constitute the overwhelming majority of the workforce, are employed at institutions such as state-owned industries, hospitals and schools and are paid out of the state budget-had been gradually eroded by marketization and high inflation. Second, the reform was designed to encourage savings as well as induce cash flow from proliferating black markets to the state banking system, which had been rapidly losing its handle on money in circulation.

While this move has been portrayed in much of the Western media as a “failure” that has caused significant tensions inside the North, in fact, it is too early to declare these measures either a failure or success. Such redenominations are almost always a source of tension when they are carried out in any country and often need to be adjusted or implemented again before achieving the intended results. North Korean economist Ri Ki Song admitted that “Price adjustments and other related measures were not implemented quickly enough, and there was a situation where [North Korea] could not open the market for several days.” But he took issue with “some Western reports that did not reflect what actually happened.” Ri noted that “In the early days immediately after the currency change, market prices were not fixed, so markets were closed for some days, but now all markets are open, and people are buying daily necessities in the markets.”[1] If inflation is eventually tamed and the currency exchange rate stabilized in the long run-the verdict is still out on both accounts-then these measures may eventually be viewed as a partial success.

As always, there were winners and losers but, once again, the reality appears to be somewhat less clear-cut than has been assumed by the Western media, economists and other analysts. In view of the ongoing preparations for the leadership succession, the redenomination could be viewed as a populist measure aimed at inflicting pain on less than 10 percent of the population through wealth redistribution in order to win support from more than 90 percent of the population who still live on state salaries and have not seen any improvement in their life despite burgeoning market activities. North Korea is still fundamentally a socialist society, and Kim Jong Il’s regime probably won some measure of support from the vast majority of North Koreans for its crackdown on corruption and abuses by rich traders and corrupt government officials who benefitted the most from bustling activity in black markets.

Private merchants may have felt some pain (although likely had stored their wealth in goods, commodities or foreign exchange rather than the old North Korean currency). But the heaviest losses appear to have been suffered by corrupt low and mid-ranking officials from the “power organs” (People’s Security and State Security officers as well as officials from courts and prosecutors’ offices) and government bureaucrats who wielded licensing, auditing, or controlling authority at the county and provincial levels. They had allegedly accumulated substantial savings through bribes and abuse of power and kept their ill-gotten gains in kimchi jars and under the mattresses at home. As a result, these officials could not find a way to get these stacks of old banknotes exchanged for new ones. According to a knowledgeable South Korean source, it is their money that was reported floating in sacks down the Yalu River after redenomination, not the traders’ capital. In short, the currency move may have ended up as more of a strike against corrupt officials and local elites rather than private traders. With markets re-opening and private trade resuming in late January, the latter rebounded fairly quickly, whereas it is likely to take a long time for the corrupt mid-level bureaucrats to recoup their losses through a new round of bribes and extortion.

In Ri Ki Song’s judgment, “an unstable situation occurred temporarily and partially after the currency redenomination,” but, “it did not lead to social chaos at all, and the unstable situation was quickly brought under control.”[2]

Following the currency redenomination, the next government move was to reset the official prices for commodities, such as grains, meats, and fuel, manufactured goods including textiles and daily necessities, and real estate use and utility fees to the pre-2002 level. Salaries of employees in the state sector of the economy were also adjusted, but at a much higher level. Reportedly, those who previously were paid up to 3,000 old won per a month saw an average 8 percent raise in their salaries, whereas those who used to receive a salary of more than 3,000 old won per month saw a decrease on the average of 10 percent per month. Farmers in the cooperative sector were reported to have received a one-time cash payout from 50,000 to 150,000 won in new money. These economic measures initially increased the purchasing power of most consumers in the country, especially those who depended solely on state salaries and wages for their income.

Even according to the Seoul government, the DPRK’s market prices and currency exchange rate appear to be stabilizing after predictable fluctuations from the surprise government-led currency redenomination last year. In its latest report on North Korea submitted to the National Assembly’s foreign affairs committee, the Unification Ministry said that market prices in the country were on a “downward path” following recent measures by the authorities. A kilogram of rice, which cost around 20 DPRK won immediately after the revaluation, soared to 1,000 won in mid-March but dropped to the 500-600 won range in early April, according to the ministry.

Furthermore, the North Korean government released another broadside of legislation in December and January: the Presidium of the Supreme People’s Assembly revised a number of laws pertinent to economic management ranging from those governing real estate management and commodities consumption to general equipment import, labor accounting, agricultural farms, water supply, sewage, and ship crews. These measures were aimed at bringing the existing regulatory framework in line with the new realities of an emerging market economy, where a growing number of corporate and private interests compete for access to and use of public assets. For example, the Real Estate Management Law is aimed at restructuring existing regulations for the use of public lands, especially for corporate and private purposes, and strengthening the ability of the state to collect real estate taxes and land use fees. It also stipulates the new right to grant “long-term land leases” to foreigners, which is especially important in promoting foreign investment in special economic zones such as Rason and Kaesong.

In January, the North’s Foreign Trade magazine unveiled the contours of the new tariff system established in accordance with the latest revisions in the regulations for the implementation of the DPRK Customs Law and the provisions of the Customs Law. In addition, late last year Kim Jong Il reportedly authorized the restructuring of the foreign trade management system, expanding the prerogatives of general trading companies and upgrading the status of special economic zones, in hopes of boosting domestic production of the export-oriented goods, encouraging import substitution, and attracting foreign investment in the consumer goods sector.

Also in January, the North Korean authorities revealed their intention to seek foreign investment and to reform the state banking system by establishing the second tier of quasi-commercial banks-the State Development Bank, Export-Import Bank, and State Science and Technology Fund-backed partially by the Central Bank and partially by foreign capital.

The stated goals behind this innovation in banking policy are to create favorable financial conditions for the implementation of a 10-year economic infrastructure development plan and five-year science and technology development plan, as well as to facilitate further expansion of foreign trade. The first plan envisions the implementation of six major projects-the development of food production, modernization of railways, construction of roads, expansion of ports, modernization of electric power grid, and development of the energy sector-within the next ten years, to be funded outside the regular state budget channels, primarily relying on Chinese venture capital. The five-year plan stipulates an increase in the state’s investment in science and technology as one of the pillars for a “prosperous, powerful nation,” with a focus on information technology, nano technology and bioengineering.

The notion that all of the measures announced in December 2009 and January 2010 were a hurried response to negative public reaction to problems in the currency revaluation is a little hard to accept. More likely, these were part of a longer-term development strategy of which the currency measures were only one component.

To sum up, North Korea is changing. The latest demonstration of the government’s desire to facilitate change is the new package of economic adjustment measures. Those measures seek to displace imports, restore self-reliance, and consolidate state control over the economic system at the expense of the newly emerging proto-markets in retail trade and the small private merchant class that may create political headaches for the regime down the road.

Subsequently, we may see the establishment of a new-more protectionist and statist-equilibrium in the relationship between domestic producers (industrial factories and plants), importers (trading companies), financiers (state bankers and foreign capital), and consumers (state retail industry and private markets). This might involve the government’s efforts to further control the demand, regulate the supply of imported goods through selective protectionist tariff measures, raise funds for new infrastructure and facility investment, boost the supply of domestically manufactured goods and make them more competitive and affordable.

How this will all work out remains to be seen. Whether the new equilibrium will facilitate economic growth and contribute to increasing production, trade, and consumption, or end up in economic failure causing social chaos and political instability is obviously the core question. Contrary to the rampant, often inaccurate speculation in the Western media, it’s much too soon to tell.

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-05-11-1
5-11-2010

As North Korean leader Kim Jong Il spent four nights and five days in China, meeting with President Hu Jintao, Premier Wen Jaibao, and other top Chinese leaders, it appears that the issue of bilateral economic cooperation was high on the agenda, and was discussed in depth.

‘Strengthening economic and trade cooperation’ was one of the five proposals for bolstering PRC-DPRK relations made by Hu Jintao during the May 5 summit meeting with Kim Jong Il, giving some indication of just how much emphasis he and Kim were putting on economic cooperation during the latest visit.

Hu stated that strengthening cooperation between Beijing and Pyongyang would help both countries build their socialist systems, and would be in their shared interests as it would further development and help to bring peace, stability and prosperity to the region. According to China Daily, the five suggestions made by Hu Jintao are as follows:

1) To maintain high-level contacts. The leaders of the two countries should keep in touch by exchanging visits, as well as sending special envoys and messages.
2) To reinforce strategic coordination. The two sides should exchange views in a timely manner and regularly on major domestic and diplomatic issues, international and regional situation, as well as on governance experience.
3) To deepen economic and trade cooperation. The relevant departments of the two governments should discuss and explore ways of expanding economic and trade cooperation.
4) To increase personnel exchanges. The two sides should expand exchanges in the cultural, sports, and educational fields, and the contacts between the youth in particular to inherit the traditional friendship from generation to generation.
5) To strengthen coordination in international and regional affairs to better serve regional peace and stability.

In response, Kim Jong Il expressed his appreciation for Hu Jintao’s heartfelt invitation and warm greeting, and agreed with Hu’s five suggestions for developing bilateral cooperation. He highlighted the construction of a new bridge over the Yalu River as the latest sign of friendly cooperation between China and North Korea, and added that he “welcomes investment in North Korea by Chinese companies and boosting bilateral working-level cooperation based on the principle of mutual prosperity.”

Economic issues were at the heart of Kim Jong Il’s meeting with Premier Wen Jiabao, as well. Following their meeting, Wen said, “PRC-DPRK economic cooperation has great potential,” and that he actively supports bilateral efforts. He stated that he had high hopes for infrastructure projects and other cooperative efforts in the border region.

He went on to say, “China actively supports North Korea’s economic development and improvements in the lives of its people,” and that he would like to introduce to North Korea “Chinese-style know-how” by sharing China’s experiences with reform and economic construction.

In October of last year, Premier Wen introduced the “Chang-Ji-Tu Development Plan” during his visit to North Korea, pushing hard for the North’s cooperation in developing the border region. That, along with North Korea’s extension of the contract giving Chinese companies access to Rajin Port and the latest talks during Kim’s visit to China give a clearer picture of the future direction of PRC-DPRK cooperative economic efforts.

The Chang-Ji-Tu plan to develop the Jilin and Tumen River regions calls for the establishment of an economic ‘beltway’ by 2020, and the revival of the antiquated industrial areas of China’s three northeastern provinces. To be successful, the plan requires North Korean cooperation on securing access to the East Sea. In 2008, North Korea granted China usage rights to Pier 1 in Rajin Port, and then signed an agreement with China last November on the joint development of the port into an ‘international distribution hub’ providing a link for China to the global market. China’s Jilin Province has already earmarked 3 billion yuan (500 billion won) for Rajin Port’s development.

This, along with the construction of a new border-crossing bridge on the Tumen River and other similar projects, reflects the infrastructure development plans for the border region. Construction on the new 33 meter-long bridge began last October, and China is bearing the burden of a 1.7 billion yuan (290 billion won) price tag. In March, China also began restoration of the bridge over the Tumen River linking Hunchun and North Korea, and is expected to move forward quickly with a road construction project linking the bridge to Rajin Port.

Another cooperative effort is focused on the development of the Hwangeum Industrial Complex, a free trade zone on Hwanggeum Island, in the Tumen River. Ryongaksan General Trading Company, which currently holds the development rights to Hwanggeumpyeong and Uihwa islands, is actively seeking to attract foreign investment. Kim Jong Il’s latest trip to China is seen by some as an opportunity to push for increased Chinese investment and assistance in developing the region.

Workers’ Party of Korea Unification Strategy Department Director Kim Yang Gong, as chairman of the Korea Taepung International Investment Group, traveled with Kim Jong Il in China, and it appears to have been in order to more strongly call for investment in North Korea, and the development of Rajin Port, in particular.

Beijing permitting North Korean sight-seeing tours and joint development in its three northeastern provinces indicates its support for the increasing pace of bilateral economic cooperation with Pyongyang.

UPDATE 2:  (5/19/2010) According to Offshore-mag.com:

LONDON — Aminex says a delegation from North Korea is in London negotiating a new production-sharing agreement (PSA) covering activity in the East Korea Bay basin.

Chosun Energy has become a 50% shareholder in Korex, Aminex’s subsidiary for the region, and will become increasingly involved in management of this project.

Assuming agreement for the PSA can be reached with the government of North Korea, work will start as soon as possible on the next phase of exploration in the area.

UPDATE 1:  A reader passes along a very helpful comment (Thanks!):

I think that some lazy journalism on behalf of the Irish paper has mistakenly linked Colin McAskill of the UK to this.

If you do a background check on Chosun Energy via Singapore Companies House, you will see that it is controlled by a.o. James Passin (an American) of Firebird. McAskill is not on the board and, as far as I can see, there is no connection to McAskill’s Chosun fund.

Interesting to see the Americans preparing to invest in NK!

DYOR of course, I may be entirely wrong of course:)

ORIGINAL POST: According to the Independent (Ireland):

Brian Hall’s AIM-listed resources firm Aminex has agreed to sell a 50 per cent stake in its North Korean interests to a fund fronted by one of the few westerners to have dealt with its erratic leader Kim Jong II.

Aminex received close to €600,000 for a 50 per cent stake in its Korex vehicle, which is currently trying to develop oil assets in the sea around North Korea.

Its new partner, Chosun Energy, is controlled by a fund backed by British businessman Colin McAskill.

Mr McAskill is one of the few westerners with access to the dictator, having advised the country on debt and banking issues.e a prisoner in some re-education camp”.

Read the full story here:
Aminex sells half Korean interests
Independent
Nick Webb
5/9/2010

Koryo Tours is offering a unique travel experience:

At long last we are proud to bring you news of our brand new tour, on a route that no other company offers and that Koryo Tours has spent great effort pioneering. From June 30th to July 10th this year we are offering a 3 country, 3 cultures, 3 time zone tour in an area you may well have never heard of before – we’re calling it the “Tuman Triangle” and if you’re interested in learning more then please hit the following links to download our brochure and itinerary for this remarkable journey:

Information Brochure – click here

Full Itinerary – click here

In brief, this tour travels from Beijing up to the North East Chinese city of Yanji from where we enter North Korea’s Rajin-Sonbong free trade zone, we then journey into DPRK-proper and the industrial city of Chongjin and the stunning and remote Chilbo mountains before heading back up the coast and crossing into Russia by train, visiting some remote areas and then heading by boat to Vladivostok from where we fly back to Beijing having seen a vast variety of sites, experienced several distinct cultures and seen places and things that almost no western tourists have ever been anywhere near.

Simon Cockerell will accompany this tour and we have a mere 20 spaces open for this first time trip, if you’d like to know more then please get in contact with us and we hope you can come along with us, this is the first time such a tour has ever been offered by anyone. Be a part of regional tourism history!

Best regards from Beijing,

Koryo Tours

Paul White has published the latest version of DPRK Business Monthly.

You can download the PDF here.

In this issue, Mr. White discusses:

Russian Firm to Connect Rajin with Transiberian Line
Two More Hydro Dams for Yalu River
Foundation Spurs Academic Exchanges with NK
NK-China Trade Tops US$300 Million
Indian Steelmaker in P’yang Talks
“Europe May Drop Ban on Air Koryo”
NK to Seize 5 ROK Kumgang Properties
Why the Sunshine Policy Made Sense
“NK Fish Exports to ROK Uninterrupted”
“North Korea Needs Practical IT Training”
Buddhists Seek Niche in DPRK Contacts
P’yang: “Black Propaganda” Aims to Check Investment
“NK to Make Own Mobile Phones”
NK Invents New Bearing Material
Computers Speed Iron Ore Transport
“NK to Allow Foreign-owned Factories”
Koryo Tours