North Korean Economy Watch

Institute for Far Eastern Studies
NK Brief No. 07-9-28-1
9/28/2007

Since early this year, North Korean authorities have been systematically implementing a double-entry accounting system to keep track of cross border trade with China, and as of late have been cracking down on private sales of goods imported under state requisitions.

It has become common practice for most traders to keep two sets of books, a private accounting record, and a set of records for government use. As these traders exported state goods to China, they would conspire with Chinese counterparts and make huge profits by recording lower prices than goods were actually being sold for. In many cases, bribes are taken to turn officially imported and exported goods (minerals, seafood, etc.) over to private sellers. These facts came to light through Chinese traders in business with North Korea.

Recently, however, investigations by the Kangsung Trade Company, operated under the supervision of the People’s Armed Forces Bureau, led to the conviction and execution of a foreign currency trader in Kangwon Province, Wonsan City and another from South Hamkyung Province, Hamheung City on charges of funneling company funds for private use. The crackdown appears to be because embezzlement and other forms of corruption are on the rise.

It was also disclosed that the foreign currency trader in Hamheung was accepting money from private business operators and using the company’s name to lend import and export quota chits. Inspectors raided the homes of the suspects and found large amounts of U.S. currency and gold, as well as no small amount of Japanese yen.

The human rights NGO ‘Good Friends’ reported in last month’s newsletter, “ After Oh Moon-hyuk, foreign currency director for the Chosun Fabric 88 Trade Company in Yunsa County, North Hamkyung Province, built a private villa on a plot with a good view, and purchased a Mercedes out of pocket, he drew the attention of General [Kim Jong Il] and was exposed. He was publicly executed in the middle of last July.” The NGO went on to report, “Every day young girls were called to the villa for his enjoyment, and security forces and police made it a point not to stop by the area near the villa often.”

Trade authorities in the area report that the crackdown on these violators has had no effect on DPRK-PRC trade. High ranking officials are aware of the abuse of authority to earn money, but had to some extent turned a blind eye to the issue. The crackdown is a result of the recent considerable growth in the problem.

Yonhap
9/24/2007

North Korea is becoming more transparent and effective in dealing with disasters, spurred by both internal and external factors, an Asia-Pacific regional specialist said in his latest paper.

Dr. Alexandre Mansourov, a securities studies professor at the Asia-Pacific Center for Security Studies (APCSS) in Hawaii, noted five trends in the North Korean government’s responses over the past decade to nationwide shocks, including floods, typhoons, drought and avian influenza outbreaks.

Increasing transparency is one of the trends, with Pyongyang more quickly admitting to disasters that have struck the nation, he said in a paper (download here) released last week through the Korea Economic Institute in Washington.

It took North Korea several years to admit the impact of natural disasters in the mid-1990s that led to massive starvation and chronic food shortages. But in August 2000, when it was hit by Typhoon Prapiroon, North Korea released the news three weeks after it occurred, and in the two following years, when other typhoons struck, North Korea reported it within three to six days, Mansourov said.

Pyongyang immediately acknowledged flooding in August 2007, he said.

“Observers agree that the timeliness, details, and amount of coverage of flood damage and rehabilitation work in August 2007 is unprecedented.”

North Korea is also showing institutional knowledge and a capacity for disaster management, with new organizations growing out of a decade of learning and experience, such as various provincial centers, the professor said.

The North Korean Red Cross Society has been exceptional, he said, working with the International Federation of Red Cross and Red Crescent Societies, and has made itself the leading agency in disaster preparedness and response.

Inter-agency coordination has also increased, with deputy prime minister-level working groups working closely together in each disaster since the flood of 2001, as there are preventive programs through which basic relief supplies are stored in town and villages.

For example, the 10-year strategy against avian influenza, worked out by the emergency commission in 2005, would have been unthinkable a decade ago, Mansourov wrote.

Another notable trend is the increasing cooperation between the North Korean government and international humanitarian community, gradually allowing joint needs assessments and monitoring, he noted.

Mansourov argued that external factors helped bring about the changes.

“International factors did make a difference in what happened in (North Korea), especially through the introduction of innovative ideas and dissemination of best humanitarian practices,” in addition to foreign aid, he said.

The scholar also argued that while the country’s top leader, Kim Jong-il, does control any institutional changes, there is also adaptation driven by needs.

“There has been some degree of autonomous institutional learning and adaptation; it is incremental in nature and caused by both positive and negative feedback from the environment regarding institutional performance in crisis situations,” he said.

Yonhap
9/21/2007

North Korea is at serious risk from contagious diseases following damage from recent floods, an official from North Korea’s Red Cross told a newspaper in Japan on Friday.

In an interview with the Chosun Sinbo, a pro-North Korean newspaper in Japan, Kim Eun-chul, a vice secretary-general at the Red Cross Society of North Korea, said, “What we are most concerned with now is the spread of infectious diseases in the severely damaged areas.”

“The destruction of the water supply facilities could result in various diseases including skin diseases and diarrhea, as well as flue.”

Kim showed his anxiety, saying that the communist country would not be able to cope with the diseases when they broke out, as many of the North’s public health centers are also destroyed from floods.

“More than 560 hospitals were destroyed and 2,100 medical offices were damaged. The medical supplies were wet and useless. We can’t even read charts as they were soaked,” he said.

“New patients with diarrhea are reported one after another. We are now relying solely on the emergency medicines provided by the International Federation of the Red Cross and Red Crescent (IFRC).”

The IFRC shipped US$1,69 million worth of medical aid to North Korea earlier this month, which can be used for three months, according to Kim.

Institute for Far East Studies (IFES)
NK Brief No. 07-9-21-1
9/21/2007

The recent growth in the private-sector economy in DPRK markets and other areas of society has brought with it some significant social changes worth noting. According to most defectors from the North, following the massive famine suffered in the mid 1990s, the biggest change to emerge in the DPRK was the reshuffling of the social class structure. In North Korean society, there are reportedly five identifiable social classes.

The first of these classes is the ruling class, made up of those elite surrounding Kim Jong Il. This class survives off of Kim Jong Il’s government funds, aid sent from South Korea, and from exploitation of the general public.

The second class is made up of business traders with access to foreign capital. A portion of money earned through foreign currency exchange businesses is turned over to the Kim Jong Il regime, while the rest can amassed in order to lead a relatively comfortable life.

The third class is made up of organized thugs who make their money through public trading and markets. These people control regional markets and local trading by using money and violence to employ extortion tactics much like the Russian mafia

The fourth class scrapes by on government rations. This mercantile class comprises an estimated 20~30 percent of the North’s overall population.

The fifth distinct class in North Korea is made up of commoners who support their way of life through farming private plots and selling goods in markets. An overwhelming majority of the population falls into this class; more than 60 percent of the people in North Korea live hand-to-mouth each day on the fruits of their own labor.

The remainder of the population falls beneath even these classes, because they either lack labor skills or are feeble elderly, handicapped, hospitalized, homeless, or wandering from city to city.

From the Koryo Tours website:

The serious flooding in the DPRK has led to loss of life and hundreds of people left without homes and food. We are very aware of the seriousness of the situation and are doing what we can to help. If you would also like to offer your support we can recommend the Rotaract Club who deal directly with the North Koreans and ensure that whatever is sent gets to the people who need it most. They are currently raising funds to buy medicine. If you would like more information please contact Randal Eastman dprk.projects@mac.com

The DPRK pulled a “Ross Perot” with the Arirang Mass Games this year. 

After initially announcing that severe flooding would not interrupt the performance (as it had in 2006) the games were in fact cancelled because much of the population was mobilized for infrastructure repairs.

Well, I guess things are manageable again, at least in Pyongynag, because the Mass Games are back on.  According to Koryo Tours:

September 6th IMPORTANT UPDATE: We have just been informed that the mass games, which were suspended due to the flooding, will be back on from September 17th. All tours going to DPRK between then and October 10th will be able to see the games.

UPDATE:
N. Korea to resume ‘Arirang’ mass gymnastic performance
Yonhap
9/23/2007

North Korea will resume its annual large-scale artistic performance that was suspended last month due to damages from heavy rain, the country’s official media reported Sunday.

“The Arirang Festival will continue … amid strong interest at home and abroad,” the North’s Korea Central Television Station reported.

The first part of this year’s show was held between mid-May and May 20, and ran every day except Sundays for about 80 minutes starting at 8 p.m. The second part, which was to run from Aug. 1 to mid-October, was suspended last last month due to flood recovery efforts by many North Koreans.

In the show, some 100,000 people perform synchronized acrobatics on the field while various images are displayed in the stands. From outside North Korea, the festival is largely considered a propaganda show.

Pyongyang is eager to show off the country’s unity and its tight control over its 23 million people to the outside world amid chronic economic hardships and the standoff over its nuclear weapons program.

The resumption was at least partially expected, as South Korean officials announced earlier this week that they are pushing for the leaders of the two Koreas, Roh Moo-hyun and Kim Jong-il, to sit side-by-side to watch the performance on Aug. 2, during South Korean President Roh’s scheduled visit to the North early next month.

Devastating floods are believed to have destroyed 11 percent of the North’s farmland, and the number of dead and missing is estimated to be more than 300, with the homeless numbering about 300,000. An estimated 46,580 homes of 88,400 families were destroyed or damaged, according to the North’s media.

This year’s performance carries special significance for North Korea, as it celebrates the 95th anniversary of the birth of its founding leader, Kim Il-sung, who died of heart failure in 1994. This year also marks the 62nd anniversary of Korea’s liberation from Japan’s colonial rule and the founding of the North’s ruling Workers’ Party.

Past Stories below:

(more…)

Daily NK
Lee Kwang Baek
9/18/2007

According to the newsletter of “Good Friends” published recently, the students living in the dormitories of technical colleges have not been able to eat anything due to the shortage of food for more than 10 days.

If this were to be true, there is a sentiment of utter despair and helplessness since there is both the South Korea and the international society’s food support going into North Korea at the moment. There has been a food supply of 400,000 ton being exerted to North Korea since July, and there is continually a grand supply of food to assist the flood victims. How is it possible that in spite of all these efforts, there are still starving North Korean youth?

According to the newsletter, the situation has worsened to the point where the teachers and principles in schools and kindergartens have to go out on a limb to retain some food supply. In Wonsan, children of the school age are unable to attend school. They are spending their time at the market selling ice cream, vegetables or carrying goods to earn money for living. There have been schools in Hamkyung province reported to have stopped running due to this reason.

It is difficult to determine whether this phenomenon is spread out nationwide, or simply applicable to some students or specific region. However, in spite of the difficulty in determining the extent of these effects, considering the non-transparent state of the distribution of food provision, it is highly likely that these effects are spread out nationwide.

The newsletter states that students are not only responsible for their own stationeries and backpacks, but they are also for the necessary cleaning tools, desks and chairs, and even the chalks used by the teachers.

North Korean government enforced the students to pay for the operation of schools since the mid 1990s. The government collects fees for school operation, oil, and even the fee for designing tank constructions. It is said that students face hard times in even attending schools if they don’t pay these fees.

The children who should be spending their youth running around and being free are spending their study time in the market earning money. The level of begging has expanded to group theft on the streets. According to the villagers in Donglim, North Pyongan, 1 out of the 3 children is unable to attend school due to the lack of money. This is sufficient evidence of “School Breakdown” phenomenon.

There is a proverb that even God cannot salvage poverty. However, perhaps North Korea may be an exception to this proverb. The fault of school breakdown and poverty lies not in the civilians, but solely in Kim Jong Il. All of these phenomenons after one another are tragic ramifications of the ignorance and inhumane dictatorial leadership of Kim Jong Il. It is difficult to hide our distress and sorrow on the issue.

However, in retrospect, this phenomenon of school breakdown can also be perceived as the breakdown of North Korean free education system. What is the “free education system” that Kim Jong Il has so much bragged about? The nature of North Korean education is nothing but a systematic tool to make children as bullets and bombs to protect Kim Jong Il.

Was it not a tool to crush the creativity of young, intelligent minds to force them into becoming the slaves of the system? It wouldn’t be an exaggeration if we were to say that it was this education system that has created the North Korean society of today.

School breakdown phenomenon can also be interpreted as the destruction of idolization education revolved around Kim Jong Il glorification. The ideology inculcation system that bound all children and students in North Korea is finally coming to collapse.
The reason for the collapse is simple. Kim Jong Il regime is losing the strength to control it. We must carefully analyze this trend. While we must strive to stop the phenomenon of children starving and/or dropping out of schools, we must actively be supportive of the current situation that the North Korean government is losing its reign of its people.

We must focus our attention to the independent economic activities taken by the North Koreans, rather than them being dependent on the government sponsored rations. We must put our focus on restoring the practical right to live for the North Korean civilians and allow them to feel more connected to the international society, rather than Kim Jong Il ‘s regime.

The international community must come up with discerning measures to support the students and the parents to experience their independent economic activities and understand the vanity of the glorification-based education system of North Korea. It is time to carefully discern the possible remedies for individual schools and students, rather than continuing the sponsorship through Kim Jong Il regime and South Korean government.

Daily NK
Yang Jung A
9/16/2007

The “Good Friends” reported on the 12th that there has been an arrest of North Korean women who had jumped into the act of prostitution to support their family.

According to the newsletter published by Good Friends, “There was a nation-wide inspection, while there were regular evaluation meetings in the early September. This is when a large sum of the women in the prostitution business were arrested.”

According to the Good Friends, “Most of these women received a sentence of 3 years were sent to Jeungsang, South Pyongan to the labor-detention facility. Most of these women were from poor families who were talked into prostituting themselves by their mothers to supporting their family.”

The arrested women argued that, “If there were more jobs, salary or even rationing, who in their right mind would do such things for a living?”

The newsletter revealed that, “With the worsening shortage of food the number of underage prostitution has been on the rise. In Wonsan, Kangwon province, restaurants were found with rooms on the underground level in which a large group of underage children were forced into be in the activity of prostitution.”

“The seven restaurant owners and managers were sentenced to execution by a firing squad and the 40 underage children that were involved in the prostitution are currently in jail receiving indoctrination.”

The newsletter revealed that, “With the strict inspections being processed per district, the North Korean government is putting a stricter surveillance on prostitution, infiltration and drug smuggling. Last week at Hwoireong, one drug smuggler was executed in public.”

In addition, the newsletter also revealed that there is a shortage of necessities in North Korea nationwide due to the huge flood this summer.

In North Hamkyung province, the civilians are lacking three crucial necessities: rice, water and electricity.

“Due to the paralysis of transportation methods in North Hamkyung, they are not even able to receive the minimum supply for flood victims. Other regions are able to receive the partial amount of the supply for flood victims given by the South, but North Hamkyung is suffering the most out of all provinces.”

There has been a continuance of water shortage in Shinuiju since July.

The newsletter stated that, “There has not been a single drop of water in the entire city of Shinuiju. Only after September 9 were the civilians able to receive some tap water, but the tap water supply only runs from 3:00 a.m. to 4:00 a.m. for one hour.”

“The people in Shinuiju are not able to go to sleep because they are waiting to receive the water. The electricity is provided for five hours each day, but due to the low electric pressure, they are not even able to use the water pump.”

Korea Herald
9/5/2007

A Boeing 747 carrying 75 tons of emergency relief goods worth $8 million arrived in Pyongyang last week by a direct flight from the United States, while denuclearization talks between the two countries were making progress in Geneva.

Officials here say it was the first time that a full planeload of U.S. emergency relief materials were delivered to North Korea since Pyongyang began accepting private U.S. donations in the mid-1990s after severe floods hit the country. The airlift, provided by Samaritan’s Purse, a North Carolina-based Christian charity organization, consisted of medicine, medical supplies, antibiotics, temporary shelter materials and other items needed for the relief of flood victims.

U.S. transport authorities gave their permission for what was known as “the first direct flight from continental U.S. to North Korea since the Korean War.” Airlifted supplies included goods purchased with a $50,000 grant from the U.S. government, according to a press release from Samaritan’s Purse, currently represented by Franklin Graham, son of the late evangelist Billy Graham. A dispatch from the (North) Korean Central News Agency said Pyongyang’s Foreign Minister Pak Ui-chun met the American visitors who delivered the relief materials.

The American charity group’s swift, large-scale delivery of emergency aid was a noteworthy gesture of friendship, shown in response to the disastrous floods last month. After years of extreme antagonism over the North’s nuclear armament, such a people-to-people exchange of goodwill is inspiring.

The Graham family has special relations with North Korea: Billy Graham’s wife, Ruth Bell, attended Pyongyang Foreign School in the 1930s, Billy Graham visited North Korea twice in the 1990s and other family members traveled to the country in recent years. At a time when diplomatic relations are being explored between the two countries, such personal ties can prove valuable in promoting mutual understanding. Many hope “swords into ploughshares” will not remain a biblical prophecy.

Yonhap
8/31/2007

North Korea’s foreign minister Friday met with a U.S. delegation bringing emergency medical supplies to help North Korean victims of recent floods, the North’s official news outlet said.

The reclusive country has appealed to the international community for assistance to cope with massive flooding caused by heavy downpours that left at least 600 people dead or missing and about 100,000 people homeless in early August. The United Nations is seeking US$14 million to provide North Korea with food, medicine, drinking water and other emergency goods.

“Foreign Minister Pak Ui-chun met with guests from the United States who visited with emergency medical aid equipment donated by the U.S. administration and the non-governmental organization Samaritan’s Purse with regard to flood damage at the Mansudae Assembly hall,” said the one-sentence report carried by the Korean Central News Agency. It did not identify the U.S. guests.

Washington has so far pledged US$100,000 for the U.N. initiative, equally distributing the funds to two non-governmental relief organizations, Mercy Corps and Samaritan’s Purse, to deliver emergency aid to North Korea.

The heaviest rain in 40 years swept North Korea, which is poorly equipped to cope amid wide-spread deforestation. The severe damage caused the second inter-Korean summit to be postponed from late August to early October.