North Korean Economy Watch

Korea Times
Na Jeong-ju
1/26/2007

If at least one member of a North Korean household moves to South Korea after reunification, more than 3 million from the North may head south if the two Koreas are reunited, the Bank of Korea (BOK) said Friday.

According to the BOK’s Institute of Finance and Economy, if such an exodus takes place in North Korea after reunification, the South may face serious economic consequences, the report said.

If Koreas adopt a German model, in which West Germany extended financial support to East Germany before and after reunification, South Korea would shoulder a total of $500-$900 billion in reunification costs. If the money is spent appropriately, it will take 22-39 years for North Korea to top $10,000 in gross national income, the report said.

The institute proposed South and North Korea try to reduce economic gap through economic cooperation programs. If the South supports the North through development programs, using its capital and the North’s cheap labor, it can reduce reunification costs considerably, it said.

“It is desirable for the two Koreas to designate special economic zones to reduce their economic gap and conduct programs to develop the North Korean economy,’’ the report said.

With the development programs, the South can spend much less than adopting the German model, the report said. The reunification costs will be cut to $300-500 billion, while the period for North Korea to see a GNI of $10,000 will be shortened to 13-22 years, it added.

Korea Times
Donald Kirk
1/24/2007

Gold fever is rampaging through the ruling elite of North Korea in the quest for relief from seemingly incurable economic malaise exacerbated by more than a year as a total outcast from the international financial community.

Word from Pyongyang is that trading companies and even individuals are offering payments in gold for imports from across the border with China and also in barter deals for products imported from elsewhere. Gold also has become a form of currency in the internal reward system of payoffs and bribes manipulated by Dear Leader Kim Jong-il to guarantee the loyalty of high-ranking officials.

The rush to sell gold – and, to a lesser extent, silver – has sharply escalated in the 16 months since the US Treasury Department blacklisted Banco Delta Asia (BDA) in Macau, banning all firms doing business with US firms from dealings with that bank. The Treasury Department charged that the BDA had been the principal conduit through which North Korea was shipping counterfeit US$100 “supernotes” printed on a highly sophisticated Swiss-made press in Pyongyang.

It’s well known that the US ban forced the BDA to impose a freeze on North Korean accounts totaling $24 million, but less well known that the bank also stopped purchasing gold produced by North Korea’s historic gold mines, in operation, sporadically, since the late 19th century.

Output of the mines, in mountains about 160 kilometers north of Pyongyang, fell sharply in the late 1990s as a result of flood and famine but, with foreign expertise, has begun to pick up in the past few years.

The impact of the ban, moreover, goes far beyond a single bank in Macau. Although North Korea last spring sold $38 million in gold and silver in Thailand, Pyongyang has been frustrated in reviving its presence on the London bullion market, the world’s largest marketplace for precious metals, amid increased US pressure on the large international banks that are the major buyers of gold.

It was in the aftermath of the ban on the BDA that North Korea’s Chosun Central Bank coughed up the information required by the London Bullion Markets Association (LBMA) for listing as a “good deliverer” of gold. North Korea from 1983 to 1993 had been in the LBMA’s good graces, averaging a ton a month in sales to London buyers that included some of the world’s leading banks, but had slipped off the list after failing to keep up deliveries.

The fact that the Chosun Central Bank again is listed with the LBMA, however, is no guarantee North Korea will be able to sell its gold. The US Treasury ban on dealings with the BDA – as well as sanctions unanimously imposed by the United Nations Security Council after North Korea conducted an underground nuclear test in October – has spooked buyers in London.

While the LBMA disavows “political criteria” in deciding on eligibility for its “good delivery list”, an LBMA memorandum leaves no doubt how buyers are likely to respond to overtures from a country or company on an international blacklist. None of them, according to Stewart Murray, the LBMA’s chief executive, is willing to take delivery from a company or country that is subject to sanctions.

Or, as the LBMA memorandum puts it, “If, for instance, a bullion custodian considered that it was bound by national or international sanctions that were in force against a particular country, it would have to refuse to accept bars from a refiner in that country.”

The memorandum, moreover, does not mince words when it comes to stating the importance of a “good deliverer” rating. “Given the status of London as the world’s leading center for bullion trading,” it says, “the LBMA List has become the de facto world list of quality refiners and Good Delivery accreditation is a highly sought-after accolade.”

In recent years, “the List” – capitalized in the memo – “has grown primarily due to the listing of refiners in China and Russia” and now totals 77 refiners in 31 countries.

Investors see North Korea as competing on a world stage once sanctions are lifted. “What we’re doing is normal business,” said Roger Barrett, whose firm, Korea Business Consultants, operates in North Korea from headquarters in Beijing. By reviving old minesand developing new ones, he argued, “We’re creating jobs for people, in line with the UN basic charter, in line with economic growth.”

Barrett also believes North Korea may somehow get around the sanctions by finding new markets. “Why would you go to the trouble of going to London?” he asked. “They’re totally entitled to sell their gold.” The fact is, however, that London remains the place to sell gold in significant quantities on a regular basis.

Under the circumstances, Colin McAskill, chairman of Hong Kong’s Koryo Asia Ltd and the guiding light of the Chosun Development and Investment Fund, dedicated to investing in North Korea, accused top US Treasury officials of waging a campaign to make sure the ban on banks dealing with the BDA extends to gold and silver.

McAskill accused US officials, led by Treasury Secretary Henry Paulson and Stuart Levey, under secretary for terrorism and financial intelligence, of “using coercion, innuendo and sheer force to intimidate banks from dealing with North Korea”.

Among the victims of the US campaign is one of Koryo Asia’s projects, the Daedong Credit Bank, the only foreign bank based in North Korea, set up primarily to deal with accounts of foreign firms and embassies in Pyongyang. The freeze of North Korean accounts in the BDA, according to McAskill, includes about $7 million funds of Daedong Bank customers.

McAskill avidly supports North Korean demands for the US to lift the ban on the BDA – a move that would not only open up the frozen North Korean accounts but would provide the opening needed for Pyongyang to trade in a wide range of products around the world.

The financial issue is assumed to have ranked at the top of an agenda discussed in meetings in Berlin between the chief US envoy, Christopher Hill, and his North Korean counterpart, Kim Kye-gwan. Hill, reporting on the Berlin talks in stop-offs in Seoul, in Tokyo and Beijing, seemed hopeful about “progress” in the next round of six-party talks on North Korea’s nuclear weapons, expected to open in Beijing next month, after the failure of negotiators to get anywhere in the last round before Christmas.

South Korean media said North Korea had agreed to shut down its five-megawatt reactor at its nuclear complex Yongbyon in return for the US promise of massive aid, the crux of the 1994 Geneva Framework Agreement that blew up in 2002 amid US charges of a separate, secret North Korean program for developing warheads from enriched uranium.

There was no assurance, however, that the US is ready to relent on the BDA or that the UN Security Council will consider lifting its own sanction – enough to dissuade banks in London from buying North Korean gold regardless of the US ban on the BDA.

McAskill believes the rationale for the crackdown on the BDA is flawed. He questions the validity of the counterfeit charge and, in any case, says most of the frozen funds are not those of the North Korean government, even though they’re tired up in North Korean accounts. “We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely,” he said. “We’re at a very delicate stage.”

Whatever happens, McAskill sees North Korea as ripe for investment, with precious metals high on the list of potential exports. “North Korea wants to move back into legitimate business,” he said. “They have a wealth of minerals – gold, silver, zinc, magnesite, copper, uranium, platinum – that needs investment to extract.”

Korea Times
Chang Se-moon
1/23/2007

Obviously, it is important to know the correct answer to this question. Sanctions that have no impact on North Korea’s economy will not change the behavior of North Korean leaders. If sanctions do have a significant impact, the possibility that North Korean leaders may be tempted to resolve the pending security issues through negotiations exists.
In answering the question, however, we need to keep in mind what the British economist John Maynard Keynes (1883-1946) said: “The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking which helps its possessor draw correct conclusions.’’ In plain English, Keynes stressed an unbiased economic way of thinking that could help us draw correct conclusions. In other words, until we review all the facts with an open mind we should not make up our minds.

This is exactly what we will do by assessing the impacts of economic sanctions on North Korea.

The first question that comes to mind is which sanctions are we talking about. If we review U.S. sanctions on North Korea since the outbreak of the Korean War in 1950, there would be too many sanctions imposed on North Korea to be practical. There are three important sanctions that are still in effect, however. One is the U.S. denial of a Most Favored Nation (MFN) trade status on North Korea’s exports.

This sanction was imposed on North Korea’s exports to the United States on September 1, 1951, following the outbreak of the Korean War. MFN tariffs are the lowest tariffs that are levied on imports to the U.S. Over 99 percent of imports to the United States qualify for the MFN tariffs. Without MFN status, tariffs on North Korean exports to the United States are so high that North Korea simply cannot even imagine exporting anything to the United States.

The second of the three important sanctions stemmed from the bombing of Korean Air 858 by North Korean agents on November 29, 1987. The explosion killed 115 innocent passengers and crew members. On January 20, 1988, North Korea was placed on the list of countries that supported international terrorism according to the U.S. Export Administration Act of 1979.

The importance of this sanction is that placement on the list has made it impossible for North Korea to borrow money from international financial institutions including the World Bank and the International Monetary Fund. Like the denial of MFN status, the placement of North Korea on the list of countries supporting international terrorism continues to this date.

The third of these three key sanctions relates to tightening of North Korea’s illegal financial transactions, which culminated in Banco Delta Asia’s termination of business dealings with North Korea as of February 16, 2006. You may know that Banco Delta Asia had long been suspected of handling North Korea’s illicit activities overseas such as laundering of counterfeit U.S. dollars and sales of illegal drugs

Banco Delta Asia is located in Macao, which is a Special Administrative District of China. Tightening of North Korean financial transactions was extended to North Korean trade during 2006. This added pressure on North Korea originated from U.N. Resolution 1540 following North Korea’s test-launching of long-range missiles on July 5, 2006, as well as from U.N. Resolution 1718 which followed North Korea’s nuclear test on October 9, 2006.

Are these sanctions having an impact on North Korea’s economy? Perhaps, a more accurate question is whether these sanctions are placing enough pressure on North Korean leaders to reconsider the possibility of returning to the negotiation table?

One aspect is the status of North Korea’s trade deficit. As you probably know, North Korea buys from other countries much more than it sells to other countries. When the amount of imports exceeds the amount of exports it’s called a trade deficit. North Korea’s annual trade deficit averaged about $800 million from 2003 to 2005. This figure does not include North Korea’s trade deficit against South Korea, since South Korea appears to consider any financial support to the North as a long-term investment rather than a trade deficit.

How has North Korea been paying for the trade deficit? The ways have been unique. Almost the entire deficit appears to have been financed by weapons sales, illicit activities, and funds flowing from South Korea through joint projects.

In fact, a study by the Korean Institute for Defense Analysis indicates that full implementation of U.N. Resolution 1718 would cause North Korea to lose just about the same amount ($700 million to $1 billion) by stopping exports of weapons and illegal drugs and counterfeit money.

The Economist Intelligence Unit is quoted to have estimated in 2003 that “North Korea earned as much as $100 million a year from counterfeit money, while in 2005, a U.S. task force estimated that “$45 million to $60 million in Pyongyang’s counterfeit currency (primarily in U.S. $100 bills) is in circulation,’’ reportedly, including some in Seoul’s Namdaemun Market.

Assuming that recently added sanctions will cause North Korea to lose about $800 million that it has been earning overseas each year, the next interesting question is how North Korea will pay for the annual trade deficit of $800 million in the future? If North Korea does not pay for its imports, other countries will refuse to sell products to North Korea and the North Korean economy will suffer.

North Korea cannot borrow from world financial institutions because of the 1988 U.S. sanctions that branded North Korea as one of countries supporting international terrorism. They cannot use the money from foreign direct investment because China and Korea are the only two countries that have been willing to invest in North Korea, but the combined amount is not even close to paying for the annual trade deficit.

Think of it this way. If you borrow money every year, and lenders believe that your ability to pay off the debt is rapidly declining, will lenders continue to lend you money? Not likely. With sanctions adversely affecting North Korea’s ability to pay for imports, North Korea will find it increasingly difficult to buy what it needs. The breaking point may not be imminent, but the future is predictable.

This is what I think will happen. North Korea will ask China to increase its foreign direct investment in North Korea by giving China more incentives for such investment. These incentives may include low taxes and free land. North Korea will ask South Korea to send more money.

For instance, as of July 1, 2004, Hyundai Asan and North Korea set the entrance fee to Mt. Kumkang at $10 for a day trip, $25 for a two-day trip and $50 for a three-day trip. On May 1, 2005, these fees were raised to $15, $35, and $70. On July 1, 2006, these fees were raised again to $30, $48, and $80. This is just one way.

North Korea may also ask South Korea to lend it a large sum of money with an empty promise of paying it back. This explains in part why it is so important for North Korea to have leaders of the South Korean government who are friendly to North Korea.

These desperate acts are likely to be very short of paying for the majority of the annual trade deficit. If sanctions continue to be effective, the likelihood of North Korea returning to the negotiation table increases. Economics is rarely boring, especially when it deals with real problems.

Christian Science monitor
Donald Kirk
1/22/2007

More than a century after American mining engineers first opened up North Korea’s gold mines, a fortune in gold and other metals and minerals offers the prospect for North Korea to ease the pressures of financial sanctions.

The question, however, is whether North Korea can navigate around a US Treasury order that forbids institutions doing business in the United States from dealing with Banco Delta Asia in Macao, the main avenue for North Korean financial dealings.

The Treasury ban, first promulgated in 2002, has effectively frozen the North’s efforts to conduct international business. While it doesn’t extend to gold, market experts say that US officials have made it clear that banks should not buy North Korean gold.

“The US has been using coercion, innuendo, and sheer force to intimidate banks from dealing with North Korea,” says Colin McAskill, chairman of Koryo Asia Ltd., which invests in North Korea through the Chosun Development & Investment Fund. “We want to get a breakthrough on the six-party talks by getting the sanctions eased or lifted entirely. We’re at a very delicate stage.”

North Korea, says Mr. McAskill, “wants to move back into legitimate business.” Selling gold on the London market – the world’s largest – “is one way they can prove that,” he adds. “They have a wealth of minerals – gold, silver, zinc, magnesite, copper, uranium, platinum – that needs investment to extract.”

One indication of North Korea’s need to sell gold was its decision to provide information needed by the London Bullion Market Association (LBMA) to list the North’s central bank as a “good deliverer” of gold and silver. Listing with the LBMA is essential for refiners who want to sell their products in London. The bank’s listing was suspended 2-1/2 years ago when it failed to respond to LBMA requests for “proactive monitoring.”

The LBMA said it does not “take into account any political criteria,” and will keep the bank on its rolls for another three years without monitoring.

Despite the listing, market experts say the big banks that are major buyers of gold – and form the LBMA’s core membership – are not likely to flout the spirit of the US Treasury order against Banco Delta Asia, through which North Korea exported gold prior to the ban.

“The fact that they’re on the list does not mean they can deliver to the London market,” says Stewart Murray, the LBMA’s chief executive. “When we have sanctions, none of the facilities will accept delivery from a company or a country that is subject to these sanctions,”

Trying to build momentum for talks

The reluctance of buyers in London to deal in North Korean gold, widely seen as the likeliest legal way to mitigate the impact of the banking ban, adds urgency to another effort at six-party talks on North Korea’s nuclear weapons.

The chief US negotiator, Christopher Hill, has been traveling through northeast Asia, stopping off here, in Tokyo, and in Beijing after talks in Berlin last week with his North Korean counterpart, Kim Kye-Gwan. The Chinese are expected to set a date for renewing the talks, which broke off before Christmas amid North Korean demands for the US to lift the ban on Banco Delta Asia.

North Korea raised hopes for renewed six-party talks, saying “a certain agreement” was reached in Berlin last week. Neither Mr. Kim nor Mr. Hill have provided details, but analysts suspect that the two discussed the financial issue and its relationship to the ultimate purpose of six-party talks: getting North Korea to give up its nuclear weapons.

North Korea has been renewing its drive to sell gold for the past year since submitting to the LBMA’s monitoring requirements. At the same time, the North has sold relatively small amounts of gold in Thailand, with which it has developed a strong trading relationship in recent years. Last spring, North Korea exported 1.3 tons of gold to Thailand for nearly $30 million while also looking for markets elsewhere in the region.

“Why would you go to the trouble of going to London,” asks Roger Barrett, whose firm, Korea Business Consultants in Beijing, is helping to develop gold mining in North Korea. “They’re totally entitled to sell their gold.”

No reports of exports since July

Yet there have been no reports that North Korea has exported any gold since testing seven long-range missiles in July. Since the North conducted an underground nuclear test in October, which resulted in deeper sanctions from the UN Security Council, dealers have reportedly been even more reluctant to buy North Korean gold.

Estimates of North Korea’s gold reserves range as high as 2,000 tons, but mining has been sporadic since British, American, and then Japanese interests mined for gold beginning in the 19th century. With foreign expertise, North Korean mining may return to the period between 1983 to 1993, when its central bank sold an average of one ton a month on the London market.

“What we’re doing is normal business,” says Mr. Barrett in Beijing, explaining the efforts at reviving the mining industry. “We’re creating jobs for people, in line with the UN basic charter, in line with economic growth.”

Nautilus Institute
Bryan Port
1/17/2007

North Korea’s recent nuclear test clearly demonstrates that the Korean peninsula is the crux of Asian Security. The Democratic People’s Republic of Korea (DPRK), North Korea’s official name, poses a range of challenges. Though the nuclear challenge appears to be the most extreme and urgent, developments in the DPRK could lead to violent conventional military spasms or humanitarian disaster, each with consequences as grave as those posed by DPRK weapons of mass destruction (WMD). Regardless of the challenges, Korea’s future has significant ramifications for the balance of power in East Asia and by extension on American security and prosperity. One day, DPRK leader Kim Chong-il will pass the keys to the kingdom and the nuclear launch codes to a successor. Kim’s choice and how he goes about the succession process will impact East Asia for decades and consequently requires significant consideration in US strategic planning.

Effective foreign policy requires an in depth understanding of the historical, social, and cultural context of other nations, their leaders, and their people. Though the DPRK is opaque, much is known about its history and even its people. From what we know we can develop significant insight. However, the balance of what we don’t know requires that we conduct considerable alternative analysis to define a range of possibilities to facilitate effective planning and policy development. Alternative analysis is imperative regarding the succession issue. Though it is nearly impossible to confidently predict who Kim will choose to succeed him, much less the successor’s prospects, analysts can define a range of plausible scenarios which can play a positive role in strategic planning, and leave the US a fighting chance of avoiding strategic surprise.

DPRK CONTEXT. Before analyzing scenarios for DPRK leadership succession, one must first consider the context and circumstances of the DPRK. The dearth of information available on the DPRK and its leaders can lead analysts to over emphasize a given aspect of the DPRK and through this narrow prism turn the DPRK into a caricature. We commonly see this in how the media and others portray Kim Chong-il. Analysts are also at risk of mirror imaging or applying one’s own cultural and historical frames of reference to the DPRK.

The DPRK is a deeply stratified society. An individual’s place in DPRK society is based largely on one’s family history (Songbun) and political reliability. Those with blood connections to Kim Il-sung or those who fought with Kim Il-sung against the Japanese (partisans), and their offspring, comprise the majority of the DPRK’s elites. It is rare for someone without this background to ascend to elite status in the DPRK. Some may gain a certain level of stability, power, or privilege, for example members of the military or scientists, however without the right bloodlines they will not climb to the pinnacle of power in the DPRK.

Despite its societal stratification, there is a shared societal and historical perspective that must be taken into account when thinking about North Korea or North Koreans. Understanding what the DPRK is, or understanding its leaders, requires placing oneself in the historical mindset of a North Korean. The DPRK is the most Orwellian society the world has ever known. The DPRK is not a communist nation; certainly not in the sense of Marx or the perversion of Marx that was the Soviet Union. North Korea has never known a pluralistic political system, much less democracy.

For nearly its entire history Korea has been a feudalistic society, constantly on the edge of survival at both the societal and individual level. Korea has been under constant threat of invasion. Koreans have struggled merely to subsist, with bouts of hunger or famine a common occurrence. Even in South Korea, stability, to say nothing of prosperity, is a recent development. It is only in the last 20 to 30 years that South Korea moved beyond its history.

Even for the most elderly of today’s North Koreans, the historical context is Japanese colonization, Korean War, emerging totalitarian state under Kim Il-sung, relative stability, Kim Chong-il’s accession to power, famine, and economic depression. North Koreans lack outside information and thus lack the basis for comparative thought about their society. Of course, comparative thought about politics presumes the freedom, sustenance, energy and time required to engage in political thought or activity. Only the elite in the DPRK are positioned to have the luxury of political thought, and they are the stakeholders in the current system.

Though it is difficult to understand from an American perspective, many in the DPRK, including its leaders, do genuinely fear the United States and for that matter other foreign powers including Japan and perhaps even China. This is based on Korea’s history of being subject to multiple foreign conquests and leads to the desire for self-sufficiency. Kim Il-sung very effectively manipulated this historical perspective and Kim Chong-il continues to do so.

DPRK CIRCUMSTANCES. The DPRK is in dire straights. A crumbling infrastructure, local ad hoc solutions to problems and corruption are the common denominators of government, economy, and society. Resources, privileges and even security are obtained through barter or by outright buying the services of a corrupt official. Almost everyone is corrupt from the lowest private in the Army to the senior members of the Korean Workers Party.

The DPRK remains a pervasive police state with a population that lacks even the most rudimentary elements of a functioning civil society. Though corrupt, the security services are powerful. While individuals within the security services are “for hire,” when the regime is threatened the security services can mobilize quickly and effectively against individual or group opposition, real or perceived.

Still, KCI cannot take for granted the continued effectiveness or loyalty of the security services. Although Kim has multiple security services to perform checks and balances, eventually the deterioration of ideological integrity, to say nothing of ruinous state of physical infrastructure and corruption, are emboldening entrepreneurial security personnel. More mischief is possible, and emboldened individuals are more likely to seek out other like-minded individuals, at first for profit, and then perhaps for power.

At this point it appears that members of the security services are happy to simply use and abuse their positions to survive, or in the case of senior members enrich themselves. However, the security services as a whole, and their individual members, will face tough questions about their futures deriving from succession. Some may still consider a successor in ideological terms. Is the successor worthy? Pure enough? Others may consider the successor in terms of their position in the security services and the maintenance of their privileged positions in society. Is the successor capable enough? Will they be demoted or purged? How the security services react to the successor issue will be a key determinant to the successful installation of a successor, and ultimately the stability of the DPRK.

DPRK ELITES. North Korea’s elites face a paranoid, schizophrenic existence. This is not to suggest that KCI, or other DPRK elites, suffer from mental disease. Though it is not unreasonable to believe that like people everywhere, even leaders, that some North Korean leaders suffer from mental illness. Rather, elites in the DPRK have much to loose in the event of political change and corresponding to the stakes are at best anxious and likely paranoid about maintaining their positions. The only person who is secure in his position in the current regime is Kim Chong-il.

Chang Song-taek is married to Kim Chong-il’s younger sister Kim Kyong-hui. Until 2003, Chang was considered the second most powerful man in the DPRK, and held the title of first deputy director of the Organization and Guidance Department. In 2003 KCI had Chang arrested. No one is certain as to the reasons for Chang’s fall from power, but speculation exists that Chang had been too overt in his support of Kim Chong-il’s oldest son, Kim Chong-nam, in the race for succession. Even though Chang has been rehabilitated and returned to a position of power, his situation shows that no member of the DPRK elite is secure. The security apparatus is ever present and mistakes often lead to a concentration camp or death.

North Korea’s elites face incredible challenges and pressure. They must at once protect their own interests and also take actions that preserve the regime, which is the source of their relatively privileged existence. These two goals are often at odds, and may even be mutually exclusive. North Korean elites must apply the filter of Juche ideology to their actions and/or be prepared to explain or justify actions in ideological terms.

Elites in the DPRK share in common with elites everywhere a calculating nature and wish to position themselves and their allies to survive and prosper in the future. For this reason, it is imperative for elites in the DPRK to analyze the succession issue, and conduct their affairs so as to maintain favor with KCI, but also be at the vanguard of a successor’s regime.

Some elites may reach the conclusion that Kim Chong-il’s successor has little chance of consolidating power. Such a determination requires not only confidence in predicting who KCI will choose, but also mandates determining who will be powerful enough to supplant the successor. Following is the even trickier task of currying favor with KCI, the individual they believe KCI will choose to succeed him, and the individual who they believe will actually take power.

At the top of the elite and the pinnacle of the succession issue is Kim Chong-il. Almost all of the analysis of the succession issue assumes that Kim will choose a successor and that it will be one of his sons. However, Kim has surprised us in the past and will likely do so again. Before moving on to consider a range of options available to KCI in terms of choosing a successor, it would help to more specifically consider the context and circumstances of Kim Chong-il.

KIM’S CONTEXT AND CIRCUMSTANCES. Even though we are not really able to understand how KCI views the world, we can roughly understand the context and circumstances in which KCI exists. Kim presides over a failed, if not collapsed, state. While North Korea’s military remains intact, it is not the existential threat to South Korea that it once was. Kim’s security services are effective, perhaps too effective. Kim must have multiple security services, not to produce the best intelligence or efficiently secure the state, but to watch one another.

China, North Korea’s one remaining ally of any significance, supports the DPRK for negative reasons. China doesn’t want to deal with the humanitarian consequences of a complete DRPK collapse. KCI and other DPRK elites must consider that China has significant potential to play an active role in the DPRK’s succession dilemma, and has ample motive to do so. Still, China is unlikely to be overt and direct in the application of its influence, knowing that doing so could prompt a backlash. However, China can indirectly bring its influence to bear on who KCI chooses as successor by providing access to resources and senior Chinese leaders to select North Korean elites. It is also likely not lost on DPRK elites that China has the capability to more directly intervene in North Korean politics should its vital interests be threatened.

South Korea is in much the same position as China in that it does not wish to deal with the humanitarian consequences of a complete DPRK collapse. However, South Korea has a significant financial stake and also a much more “personal” stake in the DPRK’s future. Collapse or violent military spasm on the part of the DPRK will be hugely costly to the South both in financial and human terms. Due to North Korea’s desperate situation, one cannot rule out that the DPRK could lash out, but truly North Korea’s only effective remaining leverage is the gun it holds to its own head (collapse) and the nuclear tipped missiles it claims to point elsewhere.

Although other countries disagree with US policy toward the DPRK, this does not mean they support the DPRK. Unfortunately for Kim, Japan, the one country that is most able to help the DPRK in the short term with cash and resources, is not inclined to do so for a variety of reasons, including the DPRK nuclear and missile threat to Japan, DPRK international criminal activity, and past DPRK abductions of Japanese citizens. About the only thing that may motivate Japan to reconsider its stance is the prospect of normalizing relations in the near-term to pay out its World War II reparations prior to a collapse of the DPRK to avoid potentially more responsibility in the event of a collapse and absorption of the North by the South.

KCI likely understands the Chinese, Japanese and South Korean perspective. Thus KCI likely appreciates not only the dire domestic straights of the DPRK, but also its grim international position.

NOT HIS FATHERS SON. Though Kim Il-sung (KIS) is not the man that DPRK propaganda portrays him to be, and though he is guilty of horrible crimes against humanity, Kim Il-sung did fight the Japanese and suffered in doing so. Through cunning and calculation, as well as brutality, KIS led the DPRK into existence. For much of the first half of its existence, the north outperformed the south. After the Korean War, life improved for many North Koreans under KIS and there was relative peace and the possibility of future prosperity. Still in spite of his power and the genuine love and respect of many in the DPRK, Kim Il-sung spent the better part of 20 years preparing to transfer power to KCI.

Kim Chong-il lacks the credibility and stature of his father. KCI never served in the military, much less fight in a war. Though he has displayed cunning and brutality, he did not overcome challenges on par with those faced by his father. Instead, whether it was completely his fault or not, since KCI assumed power in 1994, the DPRK has suffered military decline, economic failure, famine, and even in at least one case, organized resistance from the segment of society it most relies on, the military.

KCI faces significant challenges with respect not only to the succession issue, but generally with respect to running the DPRK. Conventional analysis assesses that KCI will choose a successor and that he will choose his second son Kim Chong-ch’ol. There is nothing that starkly contradicts the conventional wisdom, however, there is nothing that boldly confirms it either.

CONVENTIONAL WISDOM. There are three acknowledged sons of Kim Chong-il. In order from oldest to youngest, KCI’s sons are Kim Chong-nam, Kim Chong-Ch’ol, and Kim Chong-un. The conventional wisdom holds that KCI will opt for one of his sons to succeed him, probably Kim Chong-ch’ol (KCC).

Until embarrassing his father in 2001 by being arrested in an attempt to visit Tokyo Disneyland, KCI appeared to favor Kim Chong-nam, even though there were few outward signs that a formal succession process had begun. Kim Chong-un is not considered a serious contender, if for no other reason than his age and the presence of two older brothers.

In the past year or so Kim Chong-ch’ol (KCC) has emerged as the front-runner. Indicators include Workers Party of Korea Central Committee Secretariat Instruction No. 0101 (Reported in South Korean Weekly Chosun magazine March 2006). According to this instruction, Kim Chong-ch’ol is the party’s nerve center.

There are several reports, conflicting in detail, but consistent in stating that KCC occupied a formal government position and that he has advanced to a more senior position. Pins and portraits of KCC have appeared, and the KWP has issued instructions on their wear and display. Additionally, some of KCC’s associates accompanied KCI on trip to China to observe economic development, and KCC himself has been in Europe on official business.

Even if KCI has resolved to anoint KCC as successor, that is not a guarantee that the succession itself will go smoothly or that KCC will be able to consolidate power. Many segments of the power elite will view KCC as weak. So long as Kim Chong-il remains a force to be reckoned with, opposition to KCC as successor would be controllable. However, as Kim becomes infirm or dies, challenges to KCC will mount. This will force KCC to share power or do the bidding of factions whose support he requires, presumably the security services or military.

Knowing that KCC may or will not be able to go it alone, KCI may opt to install KCC as ruler of the DPRK, but only as a front man for others who will actually wield power. There may be liberal elements of the power elite who favor Chinese like reform. Should they support KCC, they might be able to begin reviving the DPRK, particularly if they are willing to take steps to gain legitimacy in the international community. On the other hand, factions of the DPRK elite pessimistic about their status in a reformed DPRK, concerned that KCC is too weak to control factions hostile to them, or critical as to KCC’s ability to control the country as could seek to overthrow KCC or force him to keep the DPRK on its present course.

There are other mo[r]e Machiavellian possibilities. KCI may be using KCC to flush out dissent, in effect using KCC as a lightening rod. Due to Kim’s advancing age, questionable health, and the poor condition of the DPRK, many elites are likely questioning their future prospects in terms of not only prosperity, but also basic stability and even survival. At some point, for example if KCI should become infirm or seriously ill, the concerns of the DPRK elite could reach a tipping point. It would be prudent to flush out the most disaffected among the North Korean elite now, rather than later. To this end KCC could serve as a useful target and distraction.

ALTERNATIVE ANALYSIS. KCI in his switch from Kim Chong-nam to Kim Chong-ch’ol demonstrated that he is flexible with respect to his choice of successor and has not taken any irreversible steps in designating KCC as successor. However, this will be the 2nd succession in the DPRK and thus there is little ground to talk about patterns or precedent. Conventional wisdom has often not held when analyzing the DPRK, making alternative analysis imperative.

It is important to remember that Kim Il-sung (KIS) spent 20 years preparing for KCI to assume power, and still upon Kim Il-sung’s sudden death in 1994 it took several more years for KCI to consolidate power. Between KCI’s health and the challenges faced by the DPRK it is not at all certain that KCI has 20 years to lay the foundation for one of his sons to assume power, assuming that this is what KCI actually intends and that it is possible to accomplish another hereditary transfer of power.

If not Kim Chong-Ch’ol then who? What other options are there for KCI? Is the choice entirely Kim Chong-il’s to make? KCI lacks the stature of Kim Il-sung and the DPRK faces significant challenges. Even Kim Il-sung faced resistance in installing his son as ruler. KCI will face challenges greater than those faced by his father, and from a weaker position in terms of his credentials, the current situation in the DPRK, and his very legitimacy.

North Korean society is still rooted in Confucian values, even though those values are distorted by North Korea’s ideology (Juche). Thus other Kim family members warrant consideration, including Kim Chong-il’s daughter Kim Sol-song, his half brother Kim P’yong-il, and Chang Song-t’aek or Chang’s children.

Kim Sol-song is Kim Chong-il’s daughter by Kim Yong-suk (Kim Chong-il’s official wife and the only one recognized by Kim Il-sung). There are reports that she currently handles important aspects of her father’s life, including his personal security. Even if not succeeding KCI she could act in a powerful supporting role, even key decision making role, to Kim Chong-ch’ol, or other successor.

Kim P’yong-il is KCI’s half brother. By some accounts, Kim P’yong-il is everything that KCI is not. P’yong-il was an active duty military officer that had genuine respect from many in the military. It is not entirely clear how KCI edged him out as successor, but it is conceivable that Kim Il-sung favored KCI, viewing P’yong-il as a threat. It is also likely that P’yong-il is not ruthless enough to rule the DPRK. Since 1988 P’yong-il has served in a series of ambassadorships, primarily in Europe.

Bearing in mind the North Koreans mindset, P’yong-il would make a good transitional figure. He carries the Kim name, and perhaps continuity with Kim Il-sung’s interrupted dreams for the DPRK. While he would certainly face opposition from segments of the elite, P’yong-il has a huge advantage in that he would likely garner the support of the military. There is a good chance based on his personal background that P’yong-il would change the course of the country. Of course KCI won’t choose P’yong-il, but in the event that Kim fails to entrench a successor, waits too long, or simply does not choose, P’yong-il becomes viable for segments of the elite concerned about their future status.

Chang Song-t’aek is married to Kim Chong-il’s sister Kim Kyong-hui and has powerful family ties to the military. Though recently purged and rehabilitated, Chang has been and is now again a powerful player in the DPRK. Even if he is unlikely to succeed KCI, Chang can still influence the succession issue. KCI might have purged Chang due to Chang’s view on the succession issue, but a rehabilitated Chang will likely not have changed his mind on the subject, but now knows to be more careful.

Chang’s children carry as much of Kim Il-sung’s blood as the children of KCI. There are not presently any signs that Chang’s children are under consideration, at least as far as KCI is concerned. However, they are out there and should KCI loose control over the process, or should other alternative scenarios play out, Chang’s children are viable alternates, particularly as a figure head for a king maker.

BEYOND FAMILY. There are other forces beside Confucianism at work in the DPRK, thus requiring consideration of other succession scenarios including king maker/power sharing, alternate successors, and even that Kim may have no intention of choosing a successor.

Realizing that any one individual is not likely to be powerful enough to rule, KCI may intend to set up a kingmaker(s) to support his successor. KCI may even prefer that his successor require behind the scenes support. If his chosen successor will be too weak to supplant him, KCI can be confident that he can continue to exercise power out front or behind the scenes until his death. Further, KCI could co-opt some of the most effective challengers to his successor and reward them for present good deeds, helping to ensure loyalty.

It is conventional wisdom that KCI desires to anoint one of his sons, or at least a relative, as the next leader of the DPRK. What if he doesn’t? There are scenarios where it is not beneficial to KCI to see one of his blood relatives assume power.

KCI is almost certainly aware that his sons might not be competent enough or ruthless enough to run the DPRK. Even if KCI is still alive and active, he may be unable to stave off his opponents once a successor is appointed or operating. This could have dire consequences for KCI.

History weighs heavily on the minds of dictators, and the fate of other dictators, such as Romanian leader Ceausescu or Cambodia’s Pol Pot likely weigh on Kim’s mind. KCI could seek a successor with the requisite competence to ensure that he doesn’t meet a similar fate. This may lead Kim to choose someone other than his sons. Such a choice, though not comporting well with Confucian values, might ultimately serve KCI well.

Moving further along the spectrum of alternative analysis, what if the most prudent move for KCI is to not name a successor at all. The mere act of naming a successor creates a focal point for opposition. Ironically, at the same time, naming a successor could also set of[f] infighting to curry favor with the chosen successor at Kim’s expense drawing from Kim’s power base. Those patient and shrewd enough could hold fast making a power play at a point in time where KCI is weakening, but the successor is not strong enough to consolidate power.

Alternative power bases might not matter if the successor is not competent enough to consolidate power. The weakened state of the DPRK and Kim’s lack of legitimacy compared to his father could lead Kim to plan to die in office or abdicate at some point to avoid empowering and facing potential adversaries while still in office; something which could lead to his own demise.

One final possibility deserves consideration. KCI could die suddenly as did his father. For the US and the DPRK’s neighbors, the key concerns remain the same and center on DPRK WMD and the possibility of extreme instability that could result in outward military spasms or complete collapse.

Under a sudden death scenario, whatever steps had been made toward anointing a successor may not matter. Opponents to KCI’s choice may likewise be neutralized. It could all boil down to which of the key players learns of KCI’s death first, and whether or not they can control the news, acting quickly to capitalize on their first mover’s advantage. A particularly ruthless individual could quickly act against the key players most threatening to them, changing the whole power dynamic, regardless of whether they are ultimately successful in assuming power. It is difficult to analyze what KCI might do in terms of a deliberate succession process. It is close to impossible to analyze how a sudden death scenario would play out.

The recent nuclear tests serve to highlight the importance of the succession issue to the US and the DPRK’s neighbors. While external reasoning may have lead KCI to test a nuclear device, it is more likely that internal considerations are driving decisions not only on WMD development, but also on the issue of leadership succession in the DPRK. It is even possible that KCI conducted the nuclear test to shore up his legitimacy by doing something his father never managed to accomplish. Possibly due to concerns over succession or just internal dynamics, KCI may also have conducted the tests to strengthen his domestic powerbase and position with the military.

No matter what KCI decides in terms of succession, the consequences could include a twenty something year old leader with nuclear weapons or a collapsed state ultimately resulting in a re-unified nuclear Korea. Regardless of how the succession issue plays out, Korea will continue to be integral to US and East Asian security and prosperity.

Yonhap
1/17/2007

North Korea has failed to deliver on its promise to distribute food rations across the communist country on the occasion of the New Year, a civic aid group said Wednesday.

“Except for Pyongyang, no special New Year food rations were issued,” Good Friends, a Seoul-based civic relief organization, said in its latest monthly newsletter.

The group said that North Korean authorities had planned to provide food rations equal to the daily household consumption of rice across the country, but three days worth of rice and 500 grams of bean oil were distributed only for residents in Pyongyang.

“Mid-level officials living in Pyongyang received food rations to last a half month and electricity was provided for the city during the New Year,” it said.

North Korea has suffered from a chronic food shortage since the mid 1990s due to a series of natural disasters aggravated by an overall economic downturn. However, the North had always managed to prioritize food distribution to ensure the inhabitants of the capital Pyongyang do not go without it, experts say.

Aidan Foster-Carter
Nautilus Institute
1/16/2007

Everyone is famous for 15 minutes, at least according to the late American pop artist and cultural icon Andy Warhol.

For Paek Nam Sun, that was literally true. North Korea’s foreign minister since 1998, who has just died, hit the headlines just once in all his 77 years – and then only on the inside pages, mainly of the regional press in Asia.

Coffee with evil in Brunei

That was in August 2002, when for a quarter of an hour Paek sipped coffee with his rather better known US opposite number at the time, Colin Powell. The place was Brunei; the occasion, the ASEAN Regional Forum (ARF).

Senior American and North Korean leaders rarely meet at the best of times, which this was not. Earlier that year, President George W Bush had famously labeled Kim Jong Il’s regime, along with Iran and Iraq, as part of an “axis of evil”. So for his Secretary of State to dally thus with the enemy, even briefly, raised eyebrows in some quarters.

We know now, as suspected at the time, that Powell was keen to engage North Korea. But vice-president Dick Cheney was dead against, and Cheney had Bush’s ear.

Any hopes of renewed dialogue were dashed later in 2002. Accused by Washington of a second, covert nuclear programme, North Korea restarted its first one precipitating a crisis that continues, climaxing (so far) in its testing a nuclear device on October 9.

Paek low in the pecking order

With the nuclear crisis ongoing, we might have expected to see more of Paek Nam Sun. But they do things differently in North Korea.

A senior diplomat (and sometime ambassador to Poland) who had also been active in early contacts with South Korea since the 1970s, as foreign minister the genial Paek was a largely ceremonial figure: trundled out for occasions like the ARF. As such he was in Kuala Lumpur last July, where he reportedly also had medical treatment.

Serious negotiations, on the other hand, were and are the province of Paek’s nominal deputies: two above all. The better known is deputy foreign minister Kim Kye Gwan, who heads Pyongyang’s delegation to the on-off six party nuclear talks. A skilled and confident negotiator, Kim even gave an unscripted if brief press conference after the latest round of talks, held in Beijing last month, ended inconclusively.

But the real heavy hitter is first vice foreign minister Kang Sok Ju. He it was who negotiated the October 1994 US-DPRK Agreed Framework (AF); defusing an earlier North Korean nuclear crisis (plus ca change), back in the Bill Clinton era, which in mid-1994 had come perilously close to unleashing a second Korean War. If the six-party process ever gets anywhere, which is doubtful, Kang will be wheeled on again. For now, the more junior Kim Kye Gwan does the honours.

Puzzling pseudonymy

So Paek Nam Sun’s passing will hardly send a tremor through North Korea’s foreign policy. But it does shed light on the curious way they order matters in Pyongyang.

For one thing, what was his real name? The man who first showed up in the 1970s for Red Cross talks with South Korea was known as Paek Nam Jun. But after he became foreign minister, the J mysteriously morphed into an S.

Peculiar, but not unique. Ri Jong Hyok, Pyongyang’s current point man for ties with Seoul, was Ri Dong Hyok in the 1980s when he headed North Korea’s quasi-embassy in Paris. There are several other such cases. It’s hardly a disguise, so what gives?

(En passant, the French connection is intriguing. Nominally the last EU state to resist full recognition of the DPRK, in practice France has hosted a North Korean legation since the 1970s. And both Kang Sok Ju and Kim Kye Gwan majored in French: the traditional language of international diplomacy.)

Dying off

Another oddity: North Korean elites hardly ever retire. Like Paek, they mostly die in post, often at an advanced age. Communist regimes tend to gerontocracy: think China, at least until recently. But North Korea has taken this, like most things, to extremes.

Since Kim Jong Il succeeded his father Kim Il Sung as leader in 1994, the nominally ruling communist party, the Worker’s Party of Korea (WPK), seems to be frozen – at least at the top. No new appointments to the Politburo have been announced in over a decade. Instead its ranks have been thinned by the remorseless march of mortality.

Latest to go was Kye Ung Tae, who as KWP secretary for national security wielded far more power than Paek Nam Sun. Kye died of lung cancer on November 23, aged 81. That leaves just six full Politburo members. One anti-Japanese guerilla veteran and honorary vice president Pak Song Chol passed 93 last September. Three others are over 80. Titular head of state Kim Yong Nam turns 79 on February 4, just before the “dear leader” Kim Jong Il a mere lad by comparison reaches his 65th birthday.

That would be retiring age in most normal countries. But Kim Jong Il has yet to name a successor, among several competing sons and other contenders. His health is said to be not of the best although such rumors have proved premature in the past.

A nuclear North Korea is indeed a worry, but it is not the only one. The world, and even Pyongyang, will take the death of Paek Nam Sun (who?) in its stride. But Kim Jong Il could go just as suddenly. In that case all bets for North Korea would be off.

Yonhap
1/15/2007

Four infectious diseases have stricken a North Korean city on the east coast, affecting up to 4,000 people, a source claimed Monday.

“Chongjin is overrun by scarlet fever, typhoid, typhus and paratyphoid. About 3,000 to 4,000 are suffering from the diseases,” the source said, asking to remain anonymous.

The source reported the infected people are mostly under 40 years of age. North Korean health authorities have halted railway operations to prevent the spread of disease and have imposed travel bans.

“When scarlet fever erupted late last year, North Korean authorities also imposed travel bans across the country,” the source added.

Good Neighbors International, a South Korean civic organization which provides aid to North Korea, confirmed that the rapid spread of disease in the North has resulted in school closings and travel bans.

Another source also claimed that Chongjin has only one hospital equipped with 150 beds in each district, but about 600-700 patients are seeking treatment in one district.

Last Thursday, South Korea’s unification minister said the government will not provide any medical aid to North Korea to help stem the spread of scarlet fever in the communist country.

But a South Korean civic group already shipped 36 types of medicine such as penicillin and antibiotics, worth approximately US$5 million, to the impoverished North.

Last month, the Join Together Society, a humanitarian aid group in Seoul, shipped a total of 400,000 injectable doses of penicillin to the North.

Scarlet fever is not an intrinsically serious communicable disease, but if not treated properly it can become as serious as cholera or typhoid.

Korea Herald
Lee Joo-hee
1/12/2007

The newest building in the inter-Korean industrial park in Gaeseong will be up for lease from early next month, Unification Minister Lee Jae-joung said yesterday.
The apartment-style factory, with a space of some 8,000 pyeong (25,000 square meters), will be large enough for as many as 40 small manufacturers.

Units in the building, constructed by the Korea Industrial Complex Corporation, will be leased to smaller-sized businesses making garments, accessories and other such goods, the Office of Gaeseong Industrial Complex Project at the ministry said.

The building will be completed this June, it said.

This is the first open lease of a building in the industrial park since North Korea’s missile launches last July.

“We have agreed that there was no reason to delay the lease any longer, considering it would provide momentum to the economy and offer opportunities for small- and medium-sized businesses,” Lee said in a weekly press briefing.

The Gaeseong park is favored by companies seeking low rental and labor costs.

But the sale of the remainder of the main complex is still suspended due to a deadlocked security situation following the North’s nuclear test last October.

Output at the industrial park surpassed $10 million for the first time in December last year, Lee said.

Touching on the reported spread of scarlet fever in the North, the minister said the government will not provide medical aid.

“As scarlet fever is not a fatal infectious disease we deem that North Korea will be able to solve the problem on its own. There will be no aid regarding this matter.”

Scarlet fever broke out in northern Ryanggang Province in October last year.

Good Neighbors International, a South Korean civic organization, shipped 36 types of medicines, including penicillin and antibiotics worth some $5 million, to the region.

Last month, the Join Together Society, a humanitarian aid group in Seoul, shipped a total of 400,000 doses of penicillin to the North.

Yonhap
1/10/2007

A South Korean civic group said Wednesday that it provided medicine to North Korea to help stem the spread of scarlet fever in the communist country.

“We shipped 36 types of medicines such as penicillin and antibiotics worth some US$5 million,” said Good Neighbors International, a South Korean civic organization which provides aid to North Korea.

The group noted that scarlet fever broke out in northern Ryanggang Province in October and spread rapidly to other provinces, which resulted in school shutdowns and travel bans.

Last month, the Join Together Society, a humanitarian aid group in Seoul, shipped a total of 400,000 injectable doses of penicillin to the North.

Scarlet fever is intrinsically not a serious communicable disease, but if it is not treated properly it could become a serious one like cholera or typhoid. The impoverished North lacks medicines.