North Korean Economy Watch

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About DPRK, Agriculture, China, Economy, Energy, Transition

Time
Donald McIntyre
10/19/2002

Lee Mi Young crossed the Tumen River from North Korea into China a month ago. Now she is hiding in a safe house in China, getting help from a Chinese-Korean missionary, and hoping to start a new life. She is terrified to be talking to the first foreigner she has ever seen, more so because she is painting a negative picture of her country. She could be executed in North Korea for this conversation (Lee Mi Young is a pseudonym).

In her mid-30s, with pretty, bright brown eyes and carefully stenciled eyebrows, Lee says she left North Korea because she was tired of never having quite enough to eat. Things are better than they were during the famine of the mid-’90s, but they have begun to deteriorate since July when North Korea announced a series of economic reforms that many observers said signaled the start of a serious effort to fix the country’s collapsed command economy. The government raised the salaries of workers such as miners and teachers, increased the cost of state rations such as rice and allowed the North Korean won to fall to about 150 to the dollar, much closer to its real black-market value than the 2.5 won to the dollar at which it had previously been pegged.

Lee says that in her hometown north of Pyongyang (she prefers we don’t name it) the price of grain in the black market has risen, but people can’t afford to buy it: Although salaries have been raised, the government has only actually paid them once since July. People need to supplement meager government rations with rice bought at exorbitant prices on the black market. “This was a reform for the rich,” says Lee. “Things are worse than before.”

Kim Jung Il is still fully in control of the country, analysts say. There are periodic reports of small signs of dissent — anti-government leaflets and graffiti, for example. Some defectors say family members will complain among themselves and possibly with friends. But North Korean defectors say that everyone is aware that anybody caught protesting publicly will be sent to a harsh prison camp, where they will be joined by members of their family. Lee, the young woman who fled last month, says she saw an old lady standing in line waiting for rations in August who suddenly said: “It is so difficult to live here. I can’t stand this.” Almost immediately, a man came up, tapped her on the shoulder and led her away. Other members of her family later disappeared without explanation.

What has changed in the past few years is the amount of knowledge about the outside world flowing into the country. Hundreds of aid workers have been in and out of the country in recent years, bringing with them new ideas and information. Thousands of North Koreans have crossed across the Tumen River into China attempting to flee or simply looking for food. Many come back not only with food, but also bearing tales of the wonders of China’s booming cities and stores brimming with goods. According to one defector, Chinese-Koreans are bringing cell phones into North Korea, using them along the border and even leaving them behind for relatives to use — in a country where ordinary people don’t have landline phones in their homes.

For impoverished North Koreans, China’s flashy modern cities seem like paradise and many dream of going there. There is much more knowledge about South Korea as well. North Korean propaganda for years portrayed the South as a land of beggars oppressed by a rich elite. Many average North Koreans now know that isn’t true, according to defectors. One reason: North Korean sailors, traders and workers who have been to places like Cuba and Libya come back with video tapes of American action movies. These are secretly circulated, with eager audiences gathering at the house of the very rare family rich enough to have a VCR player, sometimes with an English-speaker on hand to translate the dialogue. A record 600 North Korea defectors arrived in Seoul last year — this year’s figure could top 1,000.

Some analysts argue the clash in the West Sea on June 29 (in which North Korea patrol boats fired on South Korea naval vessels, killing five sailors) was the work of disgruntled military leaders trying to warn Kim Jong Il to keep a lid on change. The conventional wisdom has always been that North Korea is afraid to open the door a crack because the system could unravel so quickly. Some defectors and aid workers report that there is a sense of instability and uncertainty in the country right now. Rather than the start of reform, we may be seeing a country starting to unravel already.

When I visited Pyongyang in August, it looked better than it had even six months earlier. There were open-air restaurants offering grilled meat — just like in Seoul — and people looked healthy and even vibrant. But the capital has always been an oasis reserved for party members and North Koreans loyal to the regime. Aid workers and diplomats say smaller cities lack regular electricity and people still can’t get enough to eat. They probably aren’t starving but malnutrition remains widespread.

North Koreans who live in the countryside may be marginally better-off than their urban cousins, because they are able forage for wild plants in the mountains and are allowed to grow vegetables on small private plots. Life is harsh for city dwellers dependent on the industrial economy. On the road from Pyongyang to the northeast corner of the country, you pass mile after mile of rusting factories — probably less than one third of the country’s factories are actually running.

A Korea-American businessman who visited the city of Kaesong recently was shocked to learn it had had no electricity for 10 days. The only electric lights shining at night in Kaesong those illuminating monuments to the late “Great Leader” Kim Il Sung. Many city have electricity at certain times of the day. Foreign reporters who visited Shinuiju last month, for the unveiling of a plan to turn it into a free economic zone designed to lure investors, were struck by the contrast with the neighboring Chinese city of Dandong. Dandong at night is a blaze of lights; across the river, Shinuiju is in near-total darkness. Apartment blocks in Pyongyang are lit at night these days, but there are few lights outdoors — except, of course, those illuminating the gigantic statue of the “Great Leader.”

To make a go of “special economic zones” such as Shinuiju, North Korea needs to massive foreign investment to rebuild its electrical grid and other key infrastructure. The country has never been self-sufficient in food and needs an industrial economy to make fertilizer to boost agricultural yield and to finance food imports to make up the shortfall. But the disappearance of foreign subsidies following the collapse of the Soviet Union saw a rapid de-industrialization — until the late 1960s, it had been ahead of South Korea economically. North Korea is now dependent on international food aid and donations of fertilizer, and desperately needs to get on the right side of the U.S. in order to get the loans it desperately needs from the World Bank — loans that the U.S. is now blocking. That has many South Korean analysts suggesting that the reason Pyongyang sudden nuclear confession is precisely that it hopes to put its nuclear weapons program on the table and trade it away for economic gains and security guarantees from Washington.

West-Bound Train Leaving the Station: Pyongyang on the Reform Track
Marcus Noland
October 14-15, 2002

Marketization

The North Korean economic reforms that began in July 2002 have four components: marketization, inflation, special economic zones, and aid-seeking. Marketization, in turn, has several features. The government appears to be attempting to adopt a dual-price strategy similar to what the Chinese have implemented in the industrial sphere. In essence the Chinese instructed their state-owned enterprises to continue to fulfill the plan, but once planned production obligations were fulfilled, the enterprises were free to hire factors and produce products for sale on the open market. In other words, the plan was essentially frozen in time, and marginal growth occurred according to market dictates.

The government has announced a scrapping/downsizing/attenuation of the system of distributing goods and services through rationing (including the public distribution system (PDS) for food), meaning that at the household or retail level, the allocation of goods will increasingly occur through markets and on market terms. (Two exceptions are health care and education that will continue to be supplied gratis by the state.)

One can question the extent to which this is a real policy change and how much this is simply a ratification of system—fraying that had already occurred—there is considerable evidence that most food, for example, was already being distributed through markets, not the PDS. In this respect, the North Korean move could be interpreted as an admission that the genie is out of the bottle.

On the production side, enterprises have been instructed that they are responsible for covering their own costs—that is, no more state subsidies. Modest changes in the organization of production have been introduced in agriculture and there are rumors that more dramatic changes in the agricultural sector are on their way. Yet it is unclear to what extent managers outside of agriculture have been given the power to hire, fire, and promote workers, or to what extent remuneration will be determined by the market. Moreover there has been no mention of the military’s privileged position within the economy and domestic propaganda continues to speak of a “military-first” political path.

The state has administratively raised wage levels, with certain favored groups such as military personnel, party officials, scientists, and coal miners receiving supernormal increases. (For example, while it has been reported that military personnel and miners have received wage increases on the order of 1,500 percent, the increases for office workers and less essential employees are less, and the estimated income increase for agricultural workers may be on the order of 900 percent.) This alteration of real wages across occupational groups could be interpreted as an attempt to enhance the role of material incentives in labor allocation.

The state continues to maintain an administered price structure, though by fiat, the state prices are being brought in line with prices observed in the farmers’ markets. This is problematic (as it has proven in other transitional economies): the state has told the enterprises that they must cover costs, yet it continues to administer prices, and in the absence of any formal bankruptcy or other “exit” mechanism, there is no prescribed method for enterprises that cannot cover costs to cease operations, nor, in the absence of a social safety net, how workers from closed enterprises would survive. What is likely to occur is the maintenance of operations by these enterprises supported by implicit subsidies, either through national or local government budgets or through recourse to a reconstructed banking system. Indeed, the North Koreans have sent officials to China to study the Chinese banking system, which although may well have virtues, is also the primary mechanism through which money-losing state-owned firms are kept alive.

Inflation

The likelihood is increased by the second component of the economic policy change, the creation of enormous inflation. At the same time the government announced the marketization initiatives, it also announced tremendous administered increases in wages and prices (Table 1). To get a grasp on the magnitude of these price changes, consider this: when China raised the price of grains at the start of its reforms in November 1979, the increase was on the order of 25 percent. In comparison, North Korea has raised the prices of corn and rice by nearly 4,000 percent. In the absence of huge supply responses, the result will be an enormous jump in the price level and possibly even hyperinflation.

Moreover, when China began its reforms in 1979, more than 70 percent of the population was in the agricultural sector. (The same held true for Vietnam when it began reforming the following decade.) In contrast, North Korea has perhaps half that share employed in agriculture. This has two profound implications: first, the population share, which is directly benefiting from the increase in producer prices for agricultural goods, is roughly half as big as in China and Vietnam. This means that reform in North Korea is less likely to be what economists call Pareto-improving (in other words a change in which no one is made worse off) than the cases of China or Vietnam. Instead, reform in North Korea is more likely to create losers and with them the possibility of unrest. Second, the relatively smaller size of the agricultural sector suggests that the positive supply response will not be as great in the North Korean case as compared to China or Vietnam either. Again, this increases the likelihood of reform creating losers and unrest.

In the short run, the initial jump in the price level is usually accompanied by an increase in economic activity, as households and enterprises mistake increases in the overall price level for changes in relative prices. This is likely to be particularly acute in North Korea, where many households and enterprises can be expected to be relatively naïve about market economics, and where significant alterations in the structure of relative prices will be coincident with the rapid increase in the price level. So in the short run, there may be an increase in economic activity.

In the longer run however, once households and enterprises begin to distinguish more clearly between changes in relative and absolute prices, it will become apparent that some parts of the population have experienced real increases in income and wealth, while others have experienced real deteriorations. The North Koreans have not announced any mechanism for periodically adjusting prices, so in all likelihood, disequilibria, possibly severe, will develop over time. Access to foreign currency may act as insurance against inflation, and in fact, the black market value of the North Korean won has dropped approximately 50 percent since the reforms were announced.

Those with access to foreign exchange such as senior party officials will be relatively insulated from this phenomenon. Agricultural workers may benefit from “automatic” pay increases as the price of grain rises, but salaried workers without access to foreign exchange will fall behind. In other words, the process of marketization and inflation will contribute to the exacerbation of existing social differences in North Korea. Given how stressed a society North Korea has become, the implications for “losers” could be quite severe. It would not be at all surprising to observe a significant increase in mortality rates.

Make no mistake about it: North Korea has moved from the realm of elite, to the realm of mass politics. Unlike the diplomatic initiatives of the past several years, these developments will affect the entire population, not just a few elites. And while there is a consensus that marketization is a necessary component of economic revitalization, the inflationary part of the package would appear to be both unnecessary and destructive. (If one wanted to increase the relative wages of coal miners by 40 percent, one could simply give them a 40 percent raise–one does not need to increase the overall price level by a factor of 10, and the nominal wages of coal miners a factor of 14 to effect the same real wage increase.)

So why do it? There are at least three possible explanations. The first, as alluded to above, is the most benign: by creating inflation, the government hopes to provide a short-run kick-start to the economy, the long-run implications be damned. (From the standpoint of North Korean policymakers, Keynes’ aphorism, “in the long run we are all dead” may apply with a rather short time horizon.) Given the extremely low levels of capacity utilization in the North Korean economy, this argument has a certain surface plausibility. Yet the problems of the North Korean economy run far, far deeper than underutilized resources. In large part the economy is geared to produce goods (televisions and radios without tuners, to cite one example, or Scud missiles, to give another) for which there is only limited demand. Unless there is a significant reorientation in the composition of output, it is unlikely that inflation alone will generate a sizeable supply response. Even agriculture is problematic in this regard: North Korean agriculture is highly dependent on industrial inputs (chemical fertilizers and agricultural chemicals, for example) and agriculture could be disrupted if the farmers find themselves getting squeezed on the input side.

A second possibility is that the inflation policy is intentional, and is a product of Kim Jong-il’s reputed antipathy toward private economic activity beyond state control. One effect of inflation is to reduce the value of existing won holdings. (For example, if the price level increases by a factor of 10, the real value of existing won holdings is literally decimated.) Historically, state-administered inflations and their cousins, currency reforms, have been used by socialist governments to wipe out currency “overhangs” (excess monetary stock claims on goods in circulation), more specifically to target black marketers and others engaged in economic activity outside state strictures, who hold large stocks of the domestic currency. (In a currency reform, residents are literally required to turn in their existing holdings—subject to a ceiling, of course—for newly issued notes.) In July it was announced that the blue won (Korean People’s Won) foreign exchange certificates would be replaced by the normal brown won, though it is unclear if these are convertible into foreign currency. In the case of North Korea, the episode that is now unfolding will be the fourth such one in the country’s five-decade history.

The hypothesis has the strength of linking what appears to be a gratuitous economic policy to politics-Kim Jong-il not only rewards favored constituencies by providing them with real income increases and by going the inflation/currency reform route, but he also punishes his enemies. This line of reasoning is not purely speculative: it has been reported that one of the motivations behind unifying prices in the PDS and farmers’ markets has been to reduce the need of consumers to visit farmers’ markets, and to “assist in the prevention of “illegal sales activities” which took place when the price in the farmers’ market was much higher than the state price” (CanKor, 9 August 2002). A number of unconfirmed reports indicate that the government has placed a price ceiling on staple goods in the farmers’ markets as an anti-inflationary device. The increase in the procurement price for grain has reportedly been motivated, at least in part, to counter the supply response of the farmers, who were diverting acreage away from grain to tobacco, and using grain to produce liquor for sale.

The problem with this explanation is that having gone through this experience several times in the past, North Korean traders are not gullible: they quickly get out of won in favor of dollars, yen, and yuan. Indeed, even North Koreans working on cooperative farms reportedly prefer trinkets as a store of value to the local currency. As a consequence, this blow aimed at traders, may fall more squarely on the North Korean masses, especially those in regions and occupations in which opportunities to obtain foreign currencies are limited.

As an economist I am trained to assume rationality, and it is only with reluctance that I propose arguments that presume ignorance. But my personal experience in China suggests one more possible explanation for the North Korean policy. Demand and supply are not quantities or points—they are schedules indicating quantities as a function of prices. Market-determined prices are thus a signal of scarcity value reflecting underlying demand and supply. Conversations with Chinese officials in the early to mid-1980s, during the first stage of the marketizing reforms, however, revealed that fundamental misunderstanding of the nature of markets was widespread, especially among older officials who had spent many years in a planned economy.

The North Koreans have indicated that they are trying to unify (or at least reduce the differences between) state prices and those observed in the farmers’ markets. In a press report, one unnamed official laid out the logic of the price reform: the administered price of rice would be raised to the farmers’ market price, but since no one could afford rice at the market price, everyone’s nominal wages would be increased commensurately. What this official did not seem to grasp was that the amount of won in circulation was instantly increased by a factor of 10 due to the wage increase, unless there was an immediate supply-response, then the government had effectively caused a 900 percent jump in the price level.

Again, political considerations increase the plausibility of this argument. By all reports, the economic policy changes being undertaken in North Korea are being devised by a small number of senior officials. Moreover, North Korea has a political system in which the political space of discussion and dissent is highly constricted, and the penalties for being on the wrong side of a political dispute can be quite severe. So while the logic of too many won chasing too few goods would seem elementary to those of us raised in market economies, under the circumstances that exist in North Korea, the possibility that economic decisions are being made by people who do not grasp the implications of their actions (or are afraid to voice their reservations and instead engage in preference falsification if they do) should not be dismissed too hastily.

Special Economic Zones

The third component of the North Korean economic policy change is the formation of special economic zones of various sorts. The first such zone was established in the Rajin-Sonbong region in the extreme northeast of the country in the mid-1980s. It has proved to be a failure for a variety of reasons including its geographic isolation, poor infrastructure, onerous rules, and interference in enterprise management by party officials. The one major investment has been the establishment of a combination hotel/casino/bank. Given the obvious scope for illicit activity associated with such a horizontally integrated endeavor, the result has been less Hong Kong than Macau North.

The 1998 agreement between North Korea and Hyundai that established the Mt. Kumgang tourist venture also provided for the establishment of an industrial park to be managed and operated by Hyundai. While the tourism project was obviously the centerpiece of the agreement, from the standpoint of revitalizing the North Korean economy, the establishment of the industrial park, which would permit South Korean small- and medium-sized enterprises (SMEs) to invest in the North with Hyundai’s implicit protection, was actually more important. In the long run, South Korean SMEs will be a natural source of investment and transfer of appropriate technology to the North. However, in the absence of physical or legal infrastructure, they are unlikely to invest. The Hyundai-sponsored park would in effect address both issues. (The chaebols, because of their size and political connections, would not be so reliant on formal rules—they could always go to the South Korean government if they encountered trouble in the North.) The subsequent signing of four economic cooperation agreements between the North and South on issues such as taxation and foreign exchange transactions could be regarded as providing the legal infrastructure for economic activity by the politically noninfluential SMEs.

The North Korean government and the South Korean firm then negotiated for 18 months over the location of the zone, with the North Koreans wanting it in Sinuiju, a city of some symbolic political importance in the northwest of the country on the Chinese border, and Hyundai wanting to locate the park in the Haeju district, more easily accessible to South Korea. In the end, it was agreed that the park would be located in Kaesong-a decision that was hailed at the time as reflecting an increased emphasis on economic rationality in North Korea.

The industrial park at Kaesong has not fulfilled its promise, however: Hyundai’s dissolution forced the South Korean parastatal KOLAND to take over the project, and the North Koreans inexplicably failed to open the necessary transportation links to South Korea on their side of the demilitarized zone (DMZ). Hence the September 2002 initiation of activity on the northern side of the DMZ could be an important step in the take-off of the Kaesong industrial park.

In September 2002 the North Korean government announced the establishment of a special administrative region (SAR) at Sinuiju. In certain respects the location of the new zone was not surprising: the North Koreans had been talking about doing something in the Sinuiju area since 1998. Yet in other respects the announcement was extraordinary. The North Koreans announced that the zone would exist completely outside North Korea’s usual legal structures; that it would have its own flag and issue its own passports; and that land could be leased for fifty years.

To top it off, the North Koreans announced that the SAR would be run by Yang Bin, a somewhat shady Chinese—born entrepreneur with Dutch citizenship who was under investigation for tax evasion in China, and had reportedly fled to North Korea-though he does not speak Korean—during two previous investigations. (Among his various business interests, Yang operates a Dutch-style village in Shenyang complete with a windmill and imitations of Amsterdam buildings. Kim Jong-il, who knows a thing or two about fantasylands, has visited it himself.) At the time of Yang’s appointment, trading in shares of his firm, Euro-Asia Agriculture Holdings, had been suspended on the Hong Kong stock exchange after crashing on the suspicion of fraud. When asked about Yang’s appointment, China’s Foreign Ministry spokesperson declined to endorse it. To paraphrase Senator Lloyd Bentsen’s memorable line from the 1988 US Vice Presidential debate, “Mr. Yang, you are no Tung Chee Hwa.” Indeed, Mr. Yang was subsequently arrested by Chinese authorities. Whether the zone will survive his arrest remains to be seen.

Assuming that these are mere growing pains, the question arises as to how important the Sinuiju SAR may prove to be. It should promote economic integration between North Korea and China, though one should keep in mind that China is a big place and that the most economically dynamic parts are in the southern coastal areas far from North Korea. But the North Korean economy is so far down that even integration with a comparative backwater like Dandong could be a boost.

More important is whether the SAR will generate any spillovers. In conventional terms this will depend on whether any lessons from the Sinuiju SAR experiment are generalized to the rest of the economy. (One ray of hope in recent events is the removal of the less than 50 percent foreign ownership ceiling in joint ventures.) More subtly the SAR might have a positive impact if internally it is regarded as giving Kim Jong-il’s unimpeachable imprimatur to the reform process. Bureaucrats and factory managers who have been reluctant to get ahead of the leadership may take this as a sign that change is safe. Conversely, by taking the SAR completely outside of the normal North Korean governing structures, Kim Jong-il can in effect end-run the party and the bureaucracy, and manage the zone directly out of his office.

Uncle Junichiro…

Meanwhile, as exciting as the establishment of the Sinuiju SAR might have been, its long-run significance is probably less than that of an event that had occurred the previous week—a meeting in Pyongyang between Kim Jong-il and Koizumi Junichiro, a manifestation of the fourth component of the economic plan, passing the hat.

At the first-ever meeting between the heads of government of Japan and North Korea, Kim stunned the world by baldly admitting that North Korean agents had kidnapped 12 Japanese citizens and that most of the abductees were dead. Each of the leaders then expressed regrets for their countries’ respective historical sins and agreed to pursue diplomatic normalization. It is expected that normalization will be accompanied by a large financial transfer from Japan to North Korea in the form of grants, subsidized loans, and trade credits. Japanese officials have not denied formulas reported in the press that would put the total value of a multiyear package at approximately $10 billion, despite the shaky state of Japanese public finances. Taking inflation, changes in the value of the yen, differences in population size, and other factors into account, this sum would be in the ballpark of the transfer that Japan made to South Korea in 1965 when the two countries normalized relations. Given the puny size of the North Korean economy, this is a gigantic sum. The critical issue for North Korea is whether these talks will proceed rapidly enough to generate aid inflows before the dislocations of marketization begin to bite. Given the Japanese public’s revulsion at the disclosure of the probable murders of some of the abductees, the process of normalization may be more protracted than either the North Korean or Japanese governments expected.

In connection with this process, there are rumors that the North Koreans intend to establish yet another special economic zone on the east coast, to be oriented toward Japan. Discounting the failed zone at Rajin-Sonbong, this would give the North Koreans three special economic enclaves, one oriented toward South Korea, one toward China, and one toward Japan, diversifying their portfolios so to speak. Again, given the centrality of politics to North Korean thinking, they may well envision playing the three off against each other. In the long run, however, it is integration with South Korea that will be critical to the development of the North Korean economy.

Uncle Sam

The Koizumi visit amounted to a kick in the pants to the Bush Administration. It brought to a head the disagreement between the hawks and the moderates in Washington. Assistant Secretary of State James Kelly was sent to Pyongyang with greater alacrity than he otherwise would have had. With its two allies in Northeast Asia moving forward with engagement, the “Axis of Evil” characterization will become increasingly difficult to sustain, and the United States will find its options more constrained.

For example, North Korea’s membership on the list of state sponsors of terrorism prevents the United States from supporting the DPRK for membership in international financial institutions such as the International Monetary Fund, World Bank, or Asian Development Bank. The North Koreans have fulfilled most of the terms set out by the Clinton Administration to secure their removal from the list. A major sticking point has been third-party claims by Japan associated with the Japanese Red Army hijackers and the abductees. If the hijackers are returned to Japan and the North Korean and Japanese governments resolve the abductee issue as now seems likely in the near future, a major obstacle to North Korea getting off the list of state sponsors of terror will have been removed. While it is quite possible that the Bush Administration will insist on keeping them on the list and barring their entry into the international financial institutions, this position will be increasingly hard to sustain in the face of South Korean and Japanese objections.

At the same time, the transfer from Japan to North Korea is the single biggest financial claim that North Korea maintains on the international system and dwarfs anything it could hope to get from the multilateral development banks. Unlike the sorts of carrots that the United States might offer, it also contains an element of irreversibility, and no matter how well conditioned the loans, money is at least partly fungible, raising the understandable worry in Washington that the Japanese settlement could be used for military modernization. The apparent lack of consultation between the United States and Japan in the run-up to the meeting has added to Washington’s concerns.

Conclusions

In the end, to understand the meaning of what has occurred in the last several months, one has to make some kind of assessment of the motivations behind North Korea’s policy changes. One argument put forward by some North Korea-watchers is that Kim Jong-il has long understood that the North Korean system is irretrievably broken, but that it has taken a long time for him to consolidate power and implement these far-reaching changes. This is hard to believe. Kim Jong-il was reputedly running the country on a day-to-day basis for ten years before his father’s death eight years ago. This means he has in effect been running the country for 18 years and was the uncontested supreme leader for the last eight. In a political system as hierarchical as North Korea’s, it is difficult to accept that it has taken him this long to consolidate his position.

Indeed, the opposite interpretation would seem more plausible, namely, that Kim Jong-il has reluctantly concluded that the old methods are inadequate to revive the economy and out of political necessity is embracing marketization, inflation, and the former colonial master in a desperate bid to revitalize a moribund system. If this interpretation is correct, then we should expect hesitancy in the implementation of reforms, and a strong reliance on the international social safety net supplied by the rest of the world. In certain respects the plans put forward thus far appear to be ill-conceived, but a combination of marginal increases in economic activity and international aid inflows may put enough goods on the shelves to keep the population pacified, at least in the short run. Ten billion dollars can buy a lot of transistor radios.

However, the initiatives undertaken in the last several months are qualitatively different from the diplomatic initiatives that the North Koreans undertook over the last several years. Marketization and inflation alter economic, political, and social relations on the ground, and raise far higher stakes internally. While the upside potential may be great, failure could mean the end of the regime. The train has left the station, but where it is headed and if it will derail are open questions—even for the conductor.

Table 1: Price Increases
     
Rice   4,000%
Corn   3,700%
Pork   700%
     
Diesel fuel   3,700%
Electricity   5,900%
     
Apartment rent   2,400%
Subway ticket   900%

From the BBC:
9/5/2002

North Korea has announced that it will open up its companies to more foreign investment, as part of a new policy to liberalise its economy.

The Korea Trade-Investment Promotion Agency (Kotra) said that it would now allow foreign investors to take stakes in Korean companies of more than 50%.

“In the case of joint ventures, foreign companies could take only up to 50% of stake in the past, but now there is no problem if their stake goes above the level,” Kotra said, quoting North Korea’s vice trade minister Kim Yong-sul.

The country is hoping that the rule change will encourage Japanese and South Korean businesses to take a greater stake in the North Korean economy.

Economic sea-change

In the past few months, North Korea has devalued its currency and abolished a convertible version of the won used in transactions with foreigners.

The country has also raised prices and wages, and placed more emphasis upon companies being profitable.

Changes to the foreign ownership rules were explained at a conference in Tokyo, which was attended by about 50 Japanese businessmen.

“The measure is an effort by Pyongyang to expand trade and business with other countries,” Kim Sang-shik, a Kotra official, said.

He added that North Korea had attracted $120m (£76.7m) of foreign investment to a special trade zone at the end of 2000 – more recent figures were unavailable.

Socialist profits

The new economic policies aim to wean factories and companies in North Korea off state subsidies and become self-sustained.

North Korea’s planned economy has been in place since the communist state came into being in 1947.

People in the country have been afflicted by droughts and numerous natural disasters, acerbated by an inefficient economy.

The economy grew by 3.7% in 2001, after a 1.4% expansion the previous year, according to estimates from the Bank of Korea – the South Korean central bank.

Following the ownership rule change, Kotra said it expected more South Korean companies to take stakes in companies across the border.

Trade between the two neighbouring countries increased by 8.9% year-on-year to $215m in the first half of this year.

Plans to build railway and road links between the two Koreas were agreed last month.

Time
Donald MacIntyre
8/11/2002

Richard Savage kneels in the rich brown earth of a field on the outskirts of Pyongyang and reverentially spreads out the broad, green leaf of a young paulownia tree. The saplings have been in the ground for only a month but already they are a meter high; the first harvest could take place in just five years. Eyes shaded by his black cowboy hat, the Singaporean native gazes down the rows of juvenile trees, each worth thousands of dollars at maturity, with a satisfied grin. The experimental lumber crop has survived the harsh North Korean winter and is flourishing in the loamy soil. “The paulownia loves this,” he says. Glancing at another leafy plant, a new hybrid, he confides, “We’re going to let the Dear Leader name it.”

Hermit state, international pariah, charter member of the “axis of evil”?North Korea is hardly an obvious place for long-term investments like tree farms. The decrepit Stalinist economy depends on international handouts to prevent widespread starvation. The Dear Leader, strongman Kim Jong Il, runs the country like a medieval fief. But Savage is confident that his $23 million, 20,000 hectare Paulownia plantation south of Pyongyang will pay off. His Singapore-based company, Maxgro Holdings, is investing $5 million in North Korea this year, and he even has plans to build a resort there, complete with a 70-room hotel, horseback riding, trout fishing and all-terrain vehicles. “This is a mega-growth area,” he says. “If you don’t move now, you will have missed the boat.”

Whether Savage has boarded the Titanic remains to be seen, but there are increasing signs that North Korea at last may be opening its barbed-wire gates, economically and diplomatically. Last month, the authoritarian leadership increased food prices, set artificially low by the government, by as much as 50 fold, while increasing miners’ and scientists’ salaries by almost as much. Many observers say the reforms, including the elimination of some manufacturing subsidies, signal that Kim is edging toward a market economy instead of perpetuating a system in which North Koreans rely on virtually free handouts from the government.

Just as intriguing is the sudden burst of sunshine out of Pyongyang diplomats, the normally reclusive North Koreans are now clamoring to talk to Seoul, Tokyo and Washington all at once. Senior North Korean government officials are scheduled to travel to Seoul this week for ministerial-level talks, the first such tete-a-tete in nine months. Says Yim Sung Joon, a senior advisor to South Korea’s President Kim Dae Jung: “This is a very important moment for the two Koreas.”

On the agenda: everything from reunions of separated families to rebuilding a railway across the heavily mined dmz dividing North and South. In a surprise move, Pyongyang has already agreed to send athletes to the Pusan Asian Games next month, the first time North Koreans will take part in an international sporting event in the South. Japanese officials head to Pyongyang next week for talks that will include the awkward issue of Japanese nationals allegedly abducted in the 1970s and ’80s, Japan wants them back before the two countries can normalize relations. Meanwhile, North Korean Foreign Minister Paek Nam Sun met with U.S. Secretary of State Colin Powell for a 15-minute chat on the sidelines of the asean meeting in Brunei two weeks ago, the highest level encounter between the two sides since George W. Bush became President.

Is this the same country whose navy six weeks ago shelled South Korean patrol boats off the west coast of the peninsula, killing five sailors? It is, say observers, who speculate that the naval battle may have been an accidental clash rather than a deliberate provocation. The country’s recent reforms and overtures are, in fact, in keeping with an agenda dating back to the late 1980s, when the Soviet Union unraveled and left its client state, North Korea, without a dependable source of oil and food. The conventional wisdom has been that Kim is too scared of losing control to risk reform. But a devastating famine in the mid-’90s made it clear the country could not go it alone–that it must, to some degree, join the international economic community.

Frequent business visitors to Pyongyang say the North Koreans have been overhauling their investment laws and welcoming international trade delegations in the hope of attracting foreign capital. Government connections are still essential, but there are fewer layers of bureaucracy than in China, say experts on North Korean business practices. Once a joint venture is signed, getting things done is no tougher than in other developing countries. “I find it very refreshing to be here,” says Savage. “The guys are very straight.”

But North Korea’s agricultural output has fallen dramatically and its infrastructure is crumbling. Most of its factories have shut down and its electric power system is in shambles. The country has one of the worst credit ratings in the world and its currency, the won, is not convertible. Building the basic services that might make North Korea alluring to more foreign investors will take billions of dollars in loans from international lenders like the World Bank.

Lending cannot take place without assent from the U.S., and Washington won’t approve until North Korea allows inspections of all its nuclear weapons facilities. The country froze its nuclear program under a 1994 agreement with the U.S., in return receiving oil imports and a commitment–backed by South Korea and Japan–to build two light-water nuclear power plants in North Korea. Ground has been broken for construction of one in the port city of Kumho. But under the agreement, North Korea must allow the International Atomic Energy Agency to assess whether Pyongyang is living up to its promise to come clean on all of its nuclear programs, a process that could take several years. The U.S. and its partners want to begin soon. So far, Kim has refused to allow inspections to resume, and the standoff goes on. Says a Western diplomat: “The North Koreans are going to have to be viewed as extremely clean.”

Nevertheless, a few brave pioneers have set up shop in North Korea in anticipation of better times. Swiss data-processing company Datactivity.com has run a joint-venture data-entry center in Pyongyang since 1997. Some South Korean companies have launched joint ventures in areas like animation and computer software. And Chinese traders do a booming business back and forth across the China-North Korea border. Robert Suter, who heads the Seoul office of Swiss power generation company ABB Ltd., says his firm is staking out a position in North Korea, “It is the same as it was in China years ago. You had to be there and you had to build trust.”

The question on many minds is whether Kim Jong Il, who has a history of trading friendly relations and empty promises for monetary assistance, is merely giving the world another head fake. His market reforms, according to skeptics, are designed not to liberalize the economy but to control the informal black markets that burgeoned during the famine, when the government could not feed everybody.

If North Korea is indeed serious about reform, it will begin by rebuilding its decimated manufacturing sector. The country needs to export goods if it is to earn hard currency to pay for the food and fertilizer it cannot produce itself. Cutting off subsidies to deadbeat factories is just a first step, and there is no evidence the government has a blueprint for moving further. “They aren’t scrapping the socialist system,” says Koh Hyun Wook, an expert on North Korea at Kyungnam University near Pusan. “These are makeshift moves to overcome the current economic crisis.”

Savage, the tree farmer, believes otherwise. He will be in North Korea with his Israeli irrigation engineers this week, setting up greenhouses and touching base with his North Korean partners. But he acknowledges his venture will require patience. The country “may be a bit backward,” he concedes, “but so what? If you are prepared to help, it will take off like a bloody bullet.” Or a paulownia tree.

Dow Jones Newwire

PYONGYANG — At the foreign exchange counter at the self-proclaimed ‘deluxe’ Koryo Hotel, an electronic screen posts the daily rate of the North Korean won against various international currencies.

Quotes for a dozen or so currency pairs light up in red digital numbers, one after the other.

One rate that doesn’t shift too much is the dollar-won, which generally hovers at or around 2.16 won to the dollar. Speculation has it that the government has fixed the won’s rate against the dollar around that level to commemorate the February 16 birthday of Kim Jong-il, the country’s semi-divine leader.

Sounds strange? The fact is, in this quasi-theocratic country, if it looks like adulation, it probably is. This is, after all, the nation that holds a weeklong exhibition (in mid-February, of course) to admire the Kimjongilia, the national flower.

In any case, whether there is a peg at 2.16 or not, North Korea’s currency bears little relation to economic fundamentals.

Indeed in the Rajin-Sonbong trade zone in the north of the country, where the government has experimented with a free market rate, and along the Chinese borders where there is an active black market, the rate of the won tends to be more like 200 won to the dollar, analysts say. That’s a difference of a hundred fold – making the North Korean won one of the most distorted currencies in the world.

“The pricing of the won doesn’t have any particular relationship to any economic cost concept,” explains Bradley Babson, a senior advisor to the World Bank who specializes in North Korea.

That may have made little difference in the Soviet-style planned economy that has characterized this country’s economy to date. However, as the country tentatively opens its doors to international trade and investment and toys with the idea of using at least some elements of a market economy, currency reform will become vital, analysts say.

Ideological Aversion to Money

Unfortunately, other than the experiment in Rajin-Sonbong, there is little sign the country’s Communist leaders are prepared to take this step yet.

Monetary reform North Korean-style, the latest round of which took place in the early 1990s, has normally been focused on confiscating funds from overly rich entrepreneurs – not exactly the kind of adjustment the IMF would endorse.

At issue is the official Communist ideology which views money as a dirty instrument of capitalism. As such, its role within the economy should be kept to a minimum.

As Deok Ryong Yoon, an economist at the Korea Institute for International Economic Policy in Seoul, explains, until 1990, the North Korean won served not as money at all, but purely as an accounting unit.

North Korean residents didn’t need money because all their needs were met by the state distribution system – one of the most complete anywhere in the Communist world.

That is now changing. “Nowadays people use money and monetization is quite advanced,” says Yoon.

What doesn’t seem to be changing, however, is the government’s attitude toward money. “The regime does not admit the reality,” he says.

That means a complete absence of an “institutional framework” to manage money in the economy, leading to inflation rates of around 700%, according to Yoon’s estimates.

True, there is formally a central bank. But western economists who have met with officials from the Choson Central Bank describe them as meek bureaucrats who have little knowledge of even the most basic economic principles.

The result has been an increasing marginalization of the North Korean won – also nicknamed the ‘brown’ won for its brown and grubby appearance – in the economy. North Koreans resort to barter to meet their basic consumption needs – and increasingly just do transactions in hard currency, such as U.S. dollars, Chinese yuan or even Japanese yen.

Worthless Currency

The same is true of foreign investors. North Korea has a ‘foreign exchange certificate’ system – the same type used in China until 1994. Under this system, foreigners exchange dollars not for local currency but for special purple and blue currency notes.

If as a tourist you change money here, such special notes is what you’ll get. But it’s hard to find anywhere to spend them – as hard currency is demanded for most transactions.

“Basically it’s all done in U.S. dollars,” says Roger Barrett, chief representative of a Beijing-based business group that helps foreign businesses interested in investing in North Korea.

“Hard currency is the export focus, and you get your money back in hard currency,” he says.

The large South Korean projects in North Korea, such as Hyundai’s tourist cruises to Mt. Kumgang, have also been structured in U.S. dollars, according to Yoon.

Pending a major reform of the North Korean currency and pricing system, this tendency to use the dollar in any commercial transaction is likely to continue, analysts say.

In the meantime, even investors used to the most exotic instruments rule out the prospects of the North Korean won as a currency play.

“No we can’t really do anything with it,” says Jerome Booth, head of research at Ashmore Investment Management in London. “I’ve never heard of anyone trying to do anything.”

An economist who travels regularly to North Korea was even more scathing. “I don’t think this currency is worth anything anywhere,” he said.

If either project is built, then, it would probably come as foreign aid, probably in exchange for once again putting North Korea’s nuclear weapons program back under international inspection and control. After a six-month break in talks over the weapons program, American diplomats were touring Northeast Asia over the weekend trying to restart the negotiations.

Yevgeny Afanasiev, a senior Russian diplomat, said at the forum that his country “will do our utmost” to promote the two projects. “They do not have to be part of a package, they could be separate,” Mr. Afanasiev said. “But think of private investors, think of the high political risk – would you invest?”

Financing could come as part of a wider package that would gain North Korea entry into the World Bank and the Asian Development Bank. Or the money might be put up by South Korea, which would stand to benefit both directly and indirectly.

“The Russians basically believe that South Koreans will pay for it,” said Yonghun Jung, a Korean executive at the Asia Pacific Energy Research Center in Tokyo.

But many South Korean businesspeople see North Korea as an unreliable money pit.

Korea Gas, favors bringing Russian gas to South Korea through China and an underwater pipeline, bypassing North Korea and denying it any control over the supply.

UNFAO
10/23/1997

A new United Nations mission leaves today for the Democratic People’s Republic of Korea (North Korea) to assess the outcome of this year’s harvest and evaluate food supply prospects and food aid needs for 1998 following the damaging drought and serious storm this summer.

The mission, mounted jointly by the UN Food and Agriculture Organization (FAO) and the World Food Programme (WFP), is the latest in a series sent to North Korea since the country’s agriculture was devastated by floods in 1995. This year serious drought hit the country in the crucial growing months from June to August, and Typhoon Winnie in late August breached sea defences and caused damaging floods.

The last joint FAO/WFP Crop and Food Supply Assessment Mission in August this year advocated urgent international assistance for North Korea in the form of food, agricultural rehabilitation and vital inputs of seed and fertilizers. “Without these interventions the human consequences are likely to be dire,” the mission said.

The report said the food outlook for 1998 was considerably worse than that of the previous two years of disasters. Domestic production of cereals, even under the most optimistic scenario, would cover less than half the country’s minimum food needs, while imports from commercial channels were likely to become increasingly strained due to growing and chronic economic difficulties and the lack of foreign exchange.

The new mission will estimate the size of this year’s harvest, assess prospects for food supply in 1998 and estimate the country’s food import requirements, including food aid, next year. 

By Keith B. Richburg
Washington Post Foreign Service
Sunday, October 19, 1997; A01

Rare Closeup Reveals a North Korea That No Longer Functions

HAMHUNG, North Korea — A visit to this remote and desolate city near North Korea’s eastern coast provides a rare glimpse of the country’s near-total economic collapse. The crisis is over food — or the lack of it — but the country’s problems run much deeper, to the core of a socialist system that simply has ceased to function.

You can start at Hamhung’s local hospital, a dilapidated, cavernous 1,000-bed facility without lights, where the stench of urine fills the dark corridors, and patients recovering from surgery writhe in pain on dirty sheets in unheated rooms. There are no antibiotics, no intravenous drips and no stretchers, so workers carry patients on their backs. There were only 250 patients during a recent visit; few sick people bother coming, since the hospital has no food and no medicine.

“We have a shortage of anesthesia, so the patients have to go through pain during surgery,” said Dr. Lee Huyn Myung, as he points to a man gripping his mattress after a colon operation. Most of the patients have rectal, stomach or liver problems, the result of slow starvation, he said. Almost all are malnourished.

From the hospital, travel across this city past gray cement buildings that look half-finished or simply abandoned, past lots strewed with broken-down Soviet-era trucks that cannot be started because there are no spare parts. Then drive down narrow, winding mud roads until you reach the Hamhung orphanage and talk to its director, Choi Kwang Oak.

The orphanage is divided into several small rooms, with playpens for the smallest infants. Almost all the children are malnourished, with browning hair, bald patches on their scalps and sores on their heads and faces. The most severely malnourished are listless and unresponsive.

There are 198 children under age 4 at the orphanage, and about 20 percent are expected to die because they arrived too late to be helped. About 70 percent of the children here were orphaned when their parents died of malnutrition or disease, Choi said. The other 30 percent simply were abandoned and left for dead by parents too poor and too hungry to feed them.

“Some parents just put them outside on the street and leave them to nature,” Choi said. “Sometimes people pick them up and bring them here.” And other times? “They just die.”

The orphanage is surrounded by high hills covered with graves and stone markers. It is an old burial ground, she said. But there are also many new graves.

The scenes of deprivation and hardship go on and on. There is a massive 1950s-era hotel in the town, but it is cold and apparently empty. Since power is rationed, the electricity has been turned off.

There are factories here, but they stand idle. No smoke comes from the chimneys; there is no activity inside the gates. Outside, people mill around, apparently with little to do. Nearly everyone here — hospital workers, hotel employees, even the official government guides — talked openly about the fuel shortage and lack of electricity.

And not even the capital, Pyongyang, about 120 miles to the southwest, is immune from the hardship, despite long being maintained as a showcase city for outsiders to witness the apparent success of the country’s socialist system. Diplomats and aid workers say some parts of the city have been without water for days. Electricity is strictly rationed, and floodlights are turned off at some of the towering monuments early in the evenings. By 10 p.m., the city is plunged into darkness, with no street lights on and no lights visible from the surrounding high-rise apartment buildings.

What you also see are bicycles. Visitors to North Korea before the famine marveled at the lack of bicycles on the streets, even as people walked for miles or waited endlessly for buses. Bicycles were officially discouraged, since they promoted individualism and could allow people to move more freely. But now that fuel imports from the former Soviet Union have stopped, and with North Korea lacking hard currency to buy what it needs on the world market, many people use bicycles since buses sometimes do not run.

Last week, U.S. Rep. Tony P. Hall (D-Ohio) and this correspondent were permitted an unusual look behind the regime’s wall of secrecy, traveling into areas rarely seen by outsiders, and never by an American journalist. In addition to Hamhung, which we reached in an old Soviet-made helicopter, we also took a 3 1/2-hour drive north from Pyongyang on the country’s main north-south highway into the rugged mountains of Chagang province to the small town of Tongsin, stopping briefly along the way in a slightly larger town, Huichon.

From the air, the extent of the drought damage was apparent — dry brown earth in many areas, as well as dried-up riverbeds and hills that had been cleared of all their trees. Years of overuse of petroleum-based fertilizers have destroyed much of the arable land, experts say, and hills have been stripped of their topsoil because farmers use it to cover paddy fields, causing increased flooding in the plain.

On the ground, the damage becomes more evident. Buildings look abandoned or unfinished until, on closer inspection, you see faces in the holes where the windows should be, and you realize the buildings are occupied. Huichon, particularly, looked like a ghost town — sprawling factories fallen into disuse, cement buildings missing large sections and darkness everywhere because there is no electricity.

In Tongsin, more a large village than a town, the local hospital was washed away in last year’s floods, and the makeshift one built on the same site from the debris has a few patients but no medicines, heat, or supplies. Three teenage girls were checked in because they were starving; from their body sizes, they looked more like 5- or 6-year-olds, with normal-sized heads for their age but tiny necks and limbs.

What emerged from the three-day trip, conducted mostly in the presence of government escorts, was a snapshot of a country in economic free fall and a surprising willingness on the part of the authorities to allow outsiders to see even the worst of the crisis — like the hospital in Hamhung.

“The most difficult part as a doctor is we could treat them well if we had food and medicine,” said Lee, the deputy director of the hospital in Hamhung. “We know how to treat them — but we can’t.” Many patients die here, but Lee says he cannot disclose the figure because death rates are kept secret in this strictly controlled society.

“What you saw is pretty widespread,” said O. Omawale, the special representative in North Korea for the United Nations Children’s Fund. “I have seen kids with IV drips, with tubing you wouldn’t put in your car, and the [fluid] reservoir is a bare bottle.”

North Korea’s predicament largely has been portrayed as a massive food shortage brought on by twin natural disasters — destructive floods last year followed by this year’s drought and record-high summer temperatures. But what was revealed on this trip is that the food crisis is just part of an overall breakdown of the country’s state-controlled and centrally planned system. It has been a long and painfully slow descent that began with the collapse of the Soviet Union in 1991 and the loss of invaluable subsidies, the major petroleum supplier, and the principal market for exports.

In Hamhung, Lee was asked how long the hospital had been in its state of collapse and shortages. The deputy director replied, “It started six or seven years ago, but it became worse this year.” Six or seven years ago would date the decline to the time the Soviet Union collapsed.

Relief workers in Pyongyang seem in agreement that the food crisis, reaching famine proportions in some areas of the remote and mountainous north-central provinces, is just one more tangible sign of a total systemic collapse. “It’s a large economic crisis, but it’s not being addressed,” said Christian C. Lemaire, the resident representative of the U.N. Development Program. “All we want to do is talk about the food problem.”

Neither, it seems, does the North Korean government have a strategy for what to do to stop the free fall.

One of the world’s last Marxist states, North Korea in many ways resembles a theocracy more than a doctrinaire socialist state, with the country’s late founder and revered “Great Leader,” Kim Il Sung, as its high priest. His portrait still hangs everywhere — even over the hospital in Hamhung — and the north-south highway is lined with billboards extolling his exploits.

Kim’s guiding philosophy is called juche, or self-reliance, and it propelled the country’s headlong rush to industrialize in the 1950s and ’60s. It also has made it more difficult for North Korea’s secretive rulers to admit to outsiders the extent of the crisis and to ask for outside help.

On Oct. 8, three years after the death of Kim Il Sung, his son, Kim Jong Il, officially took over leadership of the ruling Korean Workers’ Party. Now some analysts are wondering whether the younger Kim might be willing to break from some of the country’s socialist practices and adopt the kind of reforms needed for the country to survive.

Some relief workers here claim already to see some early, tentative signs of an opening. For one, they say, there are now six foreign relief agencies based in Pyongyang and the outlying provinces, while a year ago there were none. The workers’ movements are restricted but, they say, they are slowly making progress in persuading authorities to allow them access to more places.

John Prout, deputy director of the World Food Program in North Korea, said his group had been to 110 of the country’s 209 counties.

There are other small signs, relief workers say. Farmers in the hard-hit northern provinces, particularly near the Chinese border, have been told to fend for themselves, allowing them to trade privately with China. With help from the U.N. Development Program, there have been a few scattered experiments with “micro-credit,” providing money to individual households to buy chickens or goats and allowing them to sell the eggs or milk on the open market.

Some North Korean farmers are said to be “double-cropping,” or planting twice each year — a practice long forbidden by Kim Il Sung. And some North Korea analysts in the United States report that massive collective farms have been reduced in size.

On the helicopter trip across the northern mountains, a few small and scattered patches of green were spotted, suggesting that some farmers in remote areas were starting private plots. In some villages, beans were being grown on makeshift terraces in back yards.

“Living here you can really see things change,” said Lemaire, the UNDP representative. “But it’s not change that’s coming from the top. It’s coming from the base.”

A hint of the continued hard-line views of top North Korean officials came during the trip. In one meeting, last Tuesday evening, Deputy Foreign Minister Kim Gye Gwan warmly thanked Rep. Hall for U.S. food aid. “We are grateful to the United States government for the several tons of humanitarian food aid as well as the active efforts of the NGOs,” or nongovernmental organizations, Kim said. But a few minutes later, Kim told Hall that North Korea and the United States “are in a state of hostile relations.”

No one is predicting that the hardships will lead to any kind of popular disaffection with the regime — and in fact, many here believe attitudes will only harden.

The personality cult built up around Kim Il Sung remains deep and pervasive, and now officials seem to be trying to transfer some of the popular affection from father to son.

In a rare interview, Foreign Minister Kim Yong Nam referred to Kim Jong Il as “the people’s leader, who is acknowledged as a man of ability,” a man “who has produced immortal exploits,” a general who “enjoys the absolute trust and support of our people,” and who embodies “the destiny of our nation as well as the future of our country.”