North Korean Economy Watch

Austrailian Associated Press
4/27/2007

Australia will provide almost $4 million in humanitarian aid to a hungry and malnourished North Korea.

Millions of the 23 million people in the communist country are living in poverty.

Foreign Minister Alexander Downer said Australia’s $4 million commitment will focus on improving the health, hygiene and nutrition of North Koreans.

“Thirty-seven per cent of North Koreans suffer from chronic malnutrition, and two-thirds of North Korean children do not receive enough food because of a one million tonne food shortfall,” Mr Downer said in a statement.

“Many North Koreans also lack access to clean water and sanitation.”

Mr Downer said Australia’s assistance will be provided through a number of United Nations agencies and the International Red Cross.

About $1.5 million will go towards UNICEF’s water and sanitation program.

A further $1.5 million will provide food for 1.9 million people through the World Food Program.

The rest of the money will be spent on emergency health and essential medicines, disaster management, water supply and sanitation.

Asia Times
Bertil Lintner
4/24/2007

The state of North Korea’s information-technology (IT) industry has been a matter of conjecture ever since “Dear Leader” Kim Jong-il famously asked then-US secretary of state Madeleine Albright for her e-mail address during her visit to the country in October 2000.

The answer is that it is surprisingly sophisticated. North Korea may be one of the world’s least globalized countries, but it has long produced ballistic missiles and now even a nuclear arsenal, so it is actually hardly surprising that it also has developed advanced computer technology, and its own software.

Naturally, it lags far behind South Korea, the world’s most wired country, but a mini-IT revolution is taking place in North Korea. Some observers, such as Alexandre Mansourov, a specialist on North Korean security issues at the Honolulu-based Asia-Pacific Center for Security Studies (APCSS), believes that in the long run it may “play a major role in reshaping macroeconomic policymaking and the microeconomic behavior of the North Korean officials and economic actors respectively”.

Sanctions imposed against North Korea after its nuclear test last October may have made it a bit more difficult for the country to obtain high-tech goods from abroad, but not impossible. Its string of front companies in Hong Kong, Singapore, Thailand and Taiwan are still able to acquire what the country needs. It’s not all for military use, but as with everything else in North Korea, products from its IT industry have both civilian and non-civilian applications.

The main agency commanding North Korea’s IT strategy is the Korea Computer Center (KCC), which was set up in 1990 by Kim Jong-il himself at an estimated cost of US$530 million. Its first chief was the Dear Leader’s eldest son, Kim Jong-nam, who at that time also headed the State Security Agency, North Korea’s supreme security apparatus, which is now called the State Safety and Security Agency.

Functioning as a secret-police force, the agency is responsible for counterintelligence at home and abroad and, according to the American Federation of Scientists, “carries out duties to ensure the safety and maintenance of the system, such as search for and management of anti-system criminals, immigration control, activities for searching out spies and impure and antisocial elements, the collection of overseas information, and supervision over ideological tendencies of residents. It is charged with searching out anti-state criminals – a general category that includes those accused of anti-government and dissident activities, economic crimes, and slander of the political leadership. Camps for political prisoners are under its jurisdiction.”

In the 1980s, Kim Jong-nam studied at an international private school in Switzerland, where he learned computer science as well as several foreign languages, including English and French. Shortly after the formation of the KCC, South Korean intelligence sources assert, he moved the agency’s clandestine overseas information-gathering outfit to the center’s new building in Pyongyang’s Mangyongdae district. It was gutted by fire in 1997, but rebuilt with a budget of $1 billion, a considerable sum in North Korea. It included the latest facilities and equipment that could be obtained from abroad. According to its website, the KCC has 11 provincial centers and “branch offices, joint ventures and marketing offices in Germany, China, Syria, [the United] Arab Emirates and elsewhere”.

The KCC’s branch in Germany was established in 2003 by a German businessman, Jan Holtermann, and is in Berlin. At the same time, Holtermann set up an intranet service in Pyongyang and, according to Reporters Without Borders, “reportedly spent 700,000 euros [more than US$950,000] on it. To get around laws banning the transfer of sensitive technology to the Pyongyang regime, all data will be kept on servers based in Germany and sent by satellite to North Korean Internet users.” Nevertheless, it ended the need to dial Internet service providers in China to get out on the Web.

Holtermann also arranged for some of the KCC’s products to be shown for the first time in the West at the international IT exhibition CeBIT (Center of Office and Information Technology) last year in Hanover, Germany. The KCC’s branches in China are also active and maintain offices in the capital Beijing and Dalian in the northeast.

Another North Korean computer company, Silibank in Shenyang, in 2001 actually became North Korea’s first Internet service provider, offering an experimental e-mail relay service through gateways in China. In March 2004, the North Koreans established a software company, also in Shenyang, called the Korea 615 Editing Corp, which according to press releases at the time would “provide excellent software that satisfies the demand from Chinese consumers with competitive prices”.

Inside North Korea, however, access to e-mail and the Internet remains extremely limited. The main “intranet” service is provided by the Kwangmyong computer network, which includes a browser, an internal e-mail program, newsgroups and a search engine. Most of its users are government agencies, research institutes, educational organizations – while only people like Kim Jong-il, a known computer buff, have full Internet access.

But the country beams out its own propaganda over Internet sites such as Uriminzokkiri.com, which in Korean, Chinese, Russian and Japanese carries the writings of Kim Jong-il and his father, “the Great Leader” Kim Il-sung, along with pictures of scenic Mount Paekdu near the Chinese border, the “cradle of the Korean revolution”, from where Kim Il-sung ostensibly led the resistance against the Japanese colonial power during World War II, and where Kim Jong-il was born, according to the official version of history. Most other sources would assert that the older Kim spent the war years in exile in a camp near the small village of Vyatskoye 70 kilometers north of Khabarovsk in the Russian Far East, where the younger Kim was actually born in 1942.

The official Korean Central New Agency also has its own website, KCNA.co.jp, which is maintained by pro-Pyongyang ethnic Koreans in Japan, and carries daily news bulletins in Korean, English, Russian and Spanish, but with rather uninspiring headlines such as “Kim Jong-il sends message of greetings to Syrian president”, “Kim Jong-il’s work published in Mexico” and “Floral basket to DPRK [North Korea] Embassy [in Phnom Penh] from Cambodian Great King and Great Queen”.

On the more innocent side, the KCC produces software for writing with Korean characters a Korean version of Linux, games for personal computers and PlayStation – and an advanced computer adaptation of go, a kind of Asian chess game, which, according to the Dutch IT firm GPI Consultancy, “has won the world championship for go games for several years. The games department has a display showing all the trophies which were won during international competitions.”

Somewhat surprisingly, the North Koreans also produce some of the software for mobile phones made by the South Korean company Samsung, which began collaboration with the KCC in March 2000. North Korean computer experts have received training in China, Russia and India, and are considered, even by the South Koreans, as some of the best in the world.

More ominously, in October 2004, South Korea’s Defense Ministry reported to the country’s National Assembly that the North had trained “more than 500 computer hackers capable of launching cyber-warfare” against its enemies. “North Korea’s intelligence-warfare capability is estimated to have reached the level of advanced countries,” the report said, adding that the military hackers had been put through a five-year university course training them to penetrate the computer systems of South Korea, the United States and Japan.

According to US North Korea specialist Joseph Bermudez, “The Ministry of the People’s Armed Forces understands electronic warfare to consist of operations using electromagnetic spectrum to attack the enemy by jamming or spoofing. During the 1990s, the ministry identified electronic intelligence warfare as a new type of warfare, the essence of which is the disruption or destruction of the opponent’s computer networks – thereby paralyzing their military command and control system.”

Skeptical observers have noted that US firewalls should be able to prevent that from happening, and that North Korea still has a long way to go before it can seriously threaten the sophisticated computer networks of South Korea, Japan and the US.

It is also uncertain whether Kim Jong-nam still heads the KCC and the State Safety and Security Agency. In May 2001, he was detained at Tokyo’s airport at Narita for using what appeared to be a false passport from the Dominican Republic. He had arrived in the Japanese capital from Singapore with some North Korean children to visit Tokyo Disneyland – but instead found himself being deported to China. Since then, he has spent most of his time in the former Portuguese enclave of Macau, where he has been seen in the city’s casinos and massage parlors. This February, the Japanese and Hong Kong media published pictures of him in Macau, and details of his lavish lifestyle there – which prompted him to leave for mainland China, where he is now believed to be living.

Whatever Kim Jong-nam’s present status may be in the North Korean hierarchy, the KCC is more active than ever, and so is another software developer, the Pyongyang Informatics Center, which, at least until recently, had a branch in Singapore. Other links in the region include Taiwan’s Jiage Limited Corporation, which has entered a joint-venture operation with the KCC under the rather curious name Chosun Daedong River Electronic Calculator Joint Operation Companies, which, according to South Korea’s trade agency, KOTRA, produces computers and circuit boards.

The US Trading with the Enemy Act and restrictions under the international Wassenaar Arrangement, which controls the trade in dual-use goods and technologies (military and civilian), may prohibit the transfer of advanced technology to North Korea, but with easy ways around these restrictions, sanctions seem to have had little or no effect.

North Korea’s IT development seems unstoppable, and the APCSS’s Mansourov argues that it can “both strengthen and undermine political propaganda and ideological education, as well as totalitarian surveillance and control systems imposed by the absolutist and monarchic security-paranoid state on its people, especially at the time of growing conflict between an emerging entrepreneurial politico-corporate elites and the old military-industrial elite”.

So will the IT revolution, as he puts it, “liquefy or solidify the ground underneath Kim Jong-il’s regime? Will the IT revolution be the beginning of the end of North Korea, at least as we know it today?” Most probably, it will eventually break North Korea’s isolation, even if the country’s powerful military also benefits from improved technologies. And there may be a day when the KCNA will have something more exciting to report about than “A furnace-firing ceremony held at the Taean Friendship Glass Factory”.

Bertil Lintner is a former correspondent with the Far Eastern Economic Review and is currently a writer with Asia-Pacific Media Services.

Kyodo News
4/20/2007

About 16 million children and adults have been immunized against measles in North Korea in one of the fastest responses to a major outbreak of the disease, it was revealed Friday.

The mass vaccination was organized by the U.N. Children’s Fund, the World Health Organization, the International Federation of the Red Cross and Red Crescent Societies and North Korea after the government asked for help in February.

According to the international organizations, the immunization campaign was done in two phases, with 6 million children aged 6 months to 15 years vaccinated last month and 10 million people aged 16 to 45 years immunized earlier this month.

The campaign was arranged following the appearance of several cases of measles in North Korea last November. By February this year two adults and two children had died and more than 3,600 had been infected.

Measles had not been reported in North Korea before this outbreak since 1992, according to a joint press release from the international organizations involved, and many health workers in the country were unfamiliar with the disease.

“This was a remarkable example of good cooperation between different organizations,” said Jaap Timmer, the International Federation’s head of delegation in North Korea.

“The Red Cross mobilized more than 15,000 of its volunteers to visit families and explain the importance and benefits of the vaccination campaign.”

Measles is spread by contact with fluid from an infected person’s nose or mouth and is highly contagious. Symptoms include fever and a rash.

Sending vaccines and syringes to North Korea cost about $6 million, the press release said.

Korea Times
4/17/2007

A close aide to North Korean leader Kim Jong-il was in critical condition due to kidney failure, a civic aid group here said Wednesday.

Jo Myong-rok, first vice chairman of North Korea’s National Defense Commission (NDC), was in critical condition after his kidney was damaged, said Good Friends, a Seoul-based civic relief organization, in a monthly newsletter. Kim Jong-il is the NDC chairman.

Jo is widely known as a close confidant of Kim Jong-il, as he paid a visit to then U.S. President Bill Clinton in 2000 as Kim’s special envoy.

Doctors expect the 79-year-old vice marshal to live another month or two, as he already had one of his kidneys removed 10 years ago, and has gone through treatment for cancer in his intestines, the organization said.

“There were rumors of Jo’s illness,” a South Korean government official, asking not to be named, commented, adding that specifics of the illness were not known.

Korea Herald
4/17/2007

London investor Colin McAskill yesterday said he would attempt to transfer $7 million from Macau’s Banco Delta Asia, which the U.S. Treasury has labeled a money launderer, to test if North Korean-linked accounts have access to the international financial system.

The money is part of some $25 million in Banco Delta accounts belonging to North Korean entities and individuals that Macau authorities froze in 2005 after the United States said the bank was laundering money for the communist state. The funds were unfrozen last week as a concession in talks with North Korea to end its nuclear weapons program.

McAskill, who has agreed to buy North Korea’s Daedong Credit Bank and advises a fund that seeks to invest in the country, said legitimate bank transfers of all the deposits are needed to demonstrate the U.S. Treasury is not shutting North Korea out of the international financial system. He declined to name the bank or country he would attempt to move the funds to.

“I am not sending a truck, or queuing outside in a trench coat with a battered old suitcase to bring the money out in cash, and neither should the DPRK,” McAskill said, using the initials for the Democratic People’s Republic of Korea, the formal name of North Korea. “The money should and has to be moved through the international banking system to verify both the efficacy and the integrity of the apparent concession by the United States.”

North Korea on Friday said it will only implement a Feb. 13 accord on ending its nuclear program once it confirms “valid” release of the entire $25 million. It missed an agreed upon deadline on April 14 to begin shutting down its nuclear facilities and allowing inspections by the United Nations’ atomic energy agency.

North Korea should “realize fully its commitments under the Feb. 13 agreement by inviting back the IAEA immediately” and sealing the Yongbyon nuclear reactor, U.S. State Department spokesman Sean McCormack said in a statement posted on the department’s website on Sunday.

Maria de Lurdes Costa, a lawyer and member of Banco Delta Asia’s administration committee, said yesterday that she did not know which if any North Korea-related depositors had been talking with the bank about withdrawing their funds. Even if she knew, “still I wouldn’t tell you,” she said, emphasizing the matters are confidential.

She declined to say if the bank had enough dollar reserves to disburse the full $25 million in U.S. currency. “I would not reply to any of those questions,” she said.

The administrative committee chair, Herculano Jorge de Sousa, received similar queries by fax, a secretary in his office said, but had not had time to respond. The Banking Supervision Department at Banco Delta Asia declined to comment.

The U.S. Treasury ruling that Banco Delta Asia is a “money-laundering concern” becomes final on Wednesday this week, raising the possibility international banks will not do business with the Macao institution. (Bloomberg)

Joong Ang Daily
Lee Young-jong and Ser Myo-ja
4/7/2007

South Korea hand-delivered $400,000 in cash to North Korea yesterday for Pyongyang’s purchase of video communication equipment. The North will spend the money to buy computers and display screens to reunite families separated for more than a half century by the demilitarized zones through video conference calls.

Two South Korean Red Cross officials boarded a cargo ship in Incheon for Nampo of North Korea Thursday morning. They carried a suitcase containing 40 bundles of one hundred, $100-dollar bills. The ship arrived in North Korea yesterday morning.

According to Red Cross officials, the cash was handed over to their North Korean counterparts at the port. “We told the North Koreans to inform us of the specific spending of the money,” an official was quoted as saying, adding that he received a receipt from the North Koreans for the cash.

The two Koreas’ Red Cross societies agreed last year that the South will fund the equipment for high-tech reunions and the promise was reaffirmed in March. South Korea was unable to provide equipment directly to the North because of U.S. regulations banning the export of dual-use goods to the North. Under the U.S. export administration regulations, strategic goods that include more than 10 percent of U.S.-made components or technology are banned for export to state sponsors of terrorism.

The money was from the inter-Korean cooperation fund. The Unification Ministry wired it to the South Korean Red Cross bank account and informed the Bank of Korea about taking the large sum of foreign currency out of the country. The money had to be hand-delivered because North Korea has had trouble accessing the international financial system since its funds were frozen at the Banco Delta Asia.

“It is sad that the North Koreans do not have a proper bank account that we can wire money to,” a Roh administration official said. “It shows the unfortunate reality of North Korea as an outsider of the international community.”

Yonhap
4/6/2007

South Korea sent $400,000 in cash to North Korea Friday via the country’s Red Cross officials to help the North purchase computers and other supplies for video-link reunions of families between the two Koreas, officials said.

This is the first time for the Seoul government to send cash aid to the communist North, though bilateral trade exceeded $1 billion for the second consecutive year last year.

“Officials from the National Red Cross left for North Korea Thursday on a boat, carrying funds for the North’s video reunion center,” an official from the Ministry of Unification told reporters on condition of anonymity.

The boat carrying the South Korean officials, as well as 50 construction trucks promised to the impoverished North as aid for its flood damages last year, left Incheon on Friday.

The boat arrived at the North’s Nampo Port earlier Friday, according to ministry officials.

The money is to be used to purchase computers and TV monitors needed for the special kind of reunions between separated families via video conferencing.

North and South Korea have held more than a dozen rounds of face-to-face reunions since the historic inter-Korean summit in 2000, involving over 10,000 people from both sides.

However, over 90,000 South Koreans remain separated from their loved ones in the North since the end of the Korean War in 1953.

“We had no choice (but to give cash) because we could not provide actual goods,” most of which are prohibited from entering the communist nation under the U.S. law on the control of strategic goods, an official said.

Yonhap
3/29/2007

A group of 143 South Koreans made a four-day visit to North Korea starting from March 22 to celebrate the opening of a North Korean digital library built with South Korean technology, a local foundation that has a leading role in the project said.

During their stay in Pyongyang, Rep. Im Jong-seok of the ruling Uri Party and other delegates attended the opening ceremony of the digital library at the North’s top school, Kimilsung University, on March 23 and toured the city’s landmarks.

The library’s computer network was built with aid from South Korea’s Hanyang University, the Kim Dae-jung Presidential Library and the Korean Foundation for South-North Economic and Cultural Cooperation, a private foundation for the promotion of such inter-Korean cooperation.

Kimilsung University is the first North Korean school to introduce the South’s advanced digital library system.

Jo Chol, vice president of the North’s university, said he hopes to see an exchange of teaching staff between the universities of the two Koreas, saying the exchange in academic fields will promote the improvement of inter-Korean relations.

Washington Post
William Foreman
3/27/2007

A British investor who is buying a North Korean bank said Tuesday he is trying to block the transfer of money it holds in a Macau bank in a move that might complicate a deal with the North to shut down its nuclear programs.

North Korea refused last week to return to nuclear disarmament talks until about $25 million of its funds frozen at a Macau bank is transferred to the Bank of China.

The transfer was supposed to occur last week, but was delayed for reasons that have not been fully explained.

The British investor, Colin McAskill, told The Associated Press he “would take whatever steps necessary” to stop the unauthorized transfer of $7 million of the funds held in Macau’s Banco Delta Asia. He said he has written twice to the territory’s bank regulator, the Macau Monetary Authority, without receiving a reply.

McAskill has agreed to buy North Korea’s Daedong Credit Bank, which is majority foreign-owned, and is representing it in discussions with Macau authorities.

He denied a report that he threatened legal action but said that is an option.

Asked whether the money came from legitimate ventures, McAskill said in an e-mail, “I have answered this question many times and been widely quoted as saying, Yes it is.”

The $25 million was frozen in September 2005 after the U.S. accused Banco Delta Asia of helping North Korea launder money and handle counterfeit U.S. currency.

The move enraged the North Koreans, who boycotted the nuclear talks for more than a year. They recently returned to the negotiations after the U.S. agreed to settle the banking issue. The funds were to be transferred to a North Korean-owned account at the Bank of China to be used for humanitarian purposes in North Korea.

McAskill said Daedong wants to be allowed to move the money to a temporary account at another Macau bank and later move it one of Daedong’s correspondent banks.

The U.S. has decided to cut off Banco Delta Asia from the American financial system, and McAskill said Daedong wants to move its money before that ban takes effect in mid-April, making it difficult to transfer money out of U.S. dollar accounts.

On Monday, a senior Treasury Department official held talks with Chinese officials to try untangle the dispute over North Korea’s frozen funds.

Daniel Glaser, deputy assistant secretary for terrorist financing and financial crimes, met officials from China’s Foreign Ministry to discuss the money held at Banco Delta Asia, said Glaser’s spokeswoman, Molly Millerwise.

Glaser’s meeting was “positive and cordial,” with officials focused on “solutions to the implementation matters and our common interest in addressing this issue as quickly as possible,” Millerwise said in an e-mail.

A statement from the U.S. Embassy in Beijing said Glaser met with officials from the People’s Bank of China and the China Banking Regulatory Commission, but it gave no details.

The U.S. agreed to let the money be transferred to a North Korean account at the Bank of China in Beijing, but the release was delayed by the Chinese bank’s concerns about accepting money that had been linked to counterfeiting and money-laundering.

Chris Gelken has an interesting insight into the Banko Delta funds…

“It was quite a rude awakening to hear on the news that my money was going to be used for charity,” the holder of an account with the Macau-based Banco Delta Asia told me on the condition that I didn’t reveal his identity.

“What needs to be understood,” he said, “is that not all the funds belong to the North Korean government, but that a substantial amount belongs to private customers.”

Bloomberg quoted Colin McAskill, chairman of the London-based fund Koryo Asia Ltd, as saying he contacted the Macau Monetary Authority warning them that the money held by private businesses based in Pyongyang did not belong to the North Korean government and must not be included in the proposed transfer to settle the 18-month dispute between the North and the U.S. Treasury.