Country Report November North Korea. November The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

Transcription

1 Country Report November 2003 North Korea November 2003 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 15 Regent St London SW1Y 4LR United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) dantecantu@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2003 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN X Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

3 North Korea 1 Contents 3 Summary 4 Inter-Korean relations 9 Political structure 10 Economic structure 10 Annual indicators 11 Outlook for Political outlook 13 Economic policy outlook 14 The political scene 20 Economic policy 21 The domestic economy 22 Foreign trade and payments List of tables 24 North Korea-Thailand merchandise trade List of figures 5 Major railway networks, North and South Korea

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5 North Korea 3 Summary November 2003 Inter-Korean relations Outlook for The political scene Economic policy The domestic economy Foreign trade and payments The North Korean nuclear stand-off, which began in late 2002, has not inhibited continued inter-korean co-operation, despite some hiccups. Crossborder travel is growing and in September Southern tourists flew directly to Pyongyang for the first time. An eighth round of family reunions was held in September. Although the North Korean government is likely to maintain a firm grip on power, threats such as internal dissent or even a push by China for regime change in Pyongyang cannot be ruled out. The North may test a nuclear missile, but this risks alienating Russia and China, both of which fear that an openly nuclear North Korea would spark off a regional arms race. There are, however, some encouraging signs of serious and irreversible market reforms, although the process remains limited. The North Korean leader, Kim Jong-il, disappeared from public view for much of September and October this year for reasons that remain unclear. One of Kim Jong-il s closest confidants, Kim Yong-sun, died at end-october in circumstances that could be suspicious. The newly elected parliament, the Supreme People s Assembly, convened for the first time in August. A limited cabinet reshuffle was undertaken in September, mainly affecting economic portfolios. The September cabinet reshuffle offers some hope that pragmatists, or at least technocrats, are on the rise. The new prime minister, Pak Pong-ju, visited South Korea in 2002 on an economic study tour, apparently impressing his hosts. The new agriculture minister, Ri Kyong-sik, may be a rising star. Moves towards economic reforms now look irrevocable. Daily life appears to be improving for some North Koreans. The electricity supply is improving in Pyongyang and some east coast cities, and bicycles are now common. According to a report published by the Bank of Korea (the South s central bank), consumer price inflation rose rapidly in July 2002 following the removal of price controls for certain items. A Japanese newspaper, the Asahi Shimbun, reported in October that since mid North Korea has operated a floating exchange-rate system in an apparent bid to soak up US dollars traded on the black market. Merchandise trade with Thailand fell in the first half of According to South Korea s Ministry of Defence, North Korea has sold missiles and components worth at least US$110m to Iraq, Yemen, Iran, Pakistan and Syria over the past five years. Editors: Robert Ward (editor); Graham Richardson (consulting editor) Editorial closing date: October 30th 2003 All queries: Tel: (44.20) london@eiu.com Next report: Full schedule on

6 4 North Korea Inter-Korean relations Inter-Korean contacts remain brisk The latest ministerial talks fall foul of the nuclear issue The North slashes its team for Jeju and arrives late Business agreements are implemented The North Korean nuclear stand-off, which began in late 2002, has not inhibited continued inter-korean co-operation. In an important departure from even the recent past, on any given day up to 1,000 South Koreans are visiting the North. These include tourists, families divided since the Korean war, businesspeople, non-governmental organisations and aid workers, civic organisations, educators, journalists, cultural figures, government officials, railway technicians, nuclear engineers and more. Exceptional events that were once newsworthy such as direct flights between the South s capital, Seoul, and the North s capital, Pyongyang, or land travel across the demilitarised zone (DMZ, the de facto border between the Koreas) are becoming regular, even mundane. As a result, there is a creeping normalisation of North-South ties, even though the broader political and security context remains anything but normal. Still, there have been hiccups of late. The 12th ministerial talks, held in the North s capital, Pyongyang, on October 14th-17th, reached deadlock when North Korea refused to discuss the nuclear issue. The North also demanded that the South punish demonstrators against its visiting sports teams (see below). A thin final press release agreed only the date of the next meeting: February 3rd-6th 2004, in Seoul. However, the seventh round of the joint Economic Co-operation Promotion Committee (ECPC) is due in Pyongyang in early November. Unlike in the past, disagreement did not mean that meetings were cancelled. Instead, the North vented its displeasure on Jeju. The Southern island province has forged its own ties with North Korea, with regular gifts of tangerines and carrots. Its reward was a sports and cultural festival in late October; the North was to send a 400-strong team, including its famed glamorous cheerleaders and female brass band, as earlier seen in the Southern cities of Busan and Daegu. But at the last minute, North Korea halved the size of its delegation, apart from the cheerleaders and band. This reduced party arrived too late for the opening ceremony. Jeju s goodwill for the North palpably declined. Similarly, the ministerial talks deadlock went down badly in the South, since on their eve it had given the North a further 100,000 tonnes of fertiliser worth US$26.6m. This was an active quarter for inter-korean relations. Economic and business ties have made real progress lately. At a working-level meeting in the Northern city of Kaesong just inside the DMZ on July 29th-31st, the two Koreas finally agreed to implement four agreements investment protection, dispute resolution, settlement of payments and dual taxation that were first drawn up in December Further delayed by the suicide in early August of Chung Mong-hun, the chairman of the Southern chaebol (conglomerate), Hyundai, the agreement was finalised at Panmunjom, on the DMZ, on August 20th. The Kaesong meeting also agreed certificate of origin procedures for inter-korean trade (measures to stop Chinese goods from being passed off as North Korean to evade duties) and chose specific banks on each side to clear inter-korean accounts. However, an agreement was not reached on general procedures for using two new trans-dmz road corridors the Kyongui corridor linking Seoul

7 North Korea 5 and the Northern city of Sinuiju, and the Donghae corridor running from Seoul to Wonsan on the North s east coast. Economic co-operation forges ahead on all fronts A month later the higher-level Economic Co-operation Promotion Committee (ECPC) held its sixth meeting on August 26th-28th in Seoul. Its nine-point joint statement had a wide agenda: expediting crossborder transport, the planned industrial zone at Kaesong, tourism at the North s Mt Kumgang resort, direct trade and processing on commission, Imjin river flood control, mutual economic visits, food aid and inspections, and more. Unlike in the past, these are not mere aspirations, but projects actively under way. Crossborder travel grows Especially notable is the growing traffic across the once wholly sealed border. Railway and other officials now routinely commute across the DMZ for meetings. Southern tourists to Mt Kumgang now go overland rather than by sea, as did Southern attendees at the eighth round of family reunions in

8 6 North Korea September. Most strikingly, on October 6th more than 1,100 South Koreans travelled by bus from Seoul to Pyongyang for the dedication of a new US$50m gymnasium built by Hyundai. But not all is plain sailing. As noted above, in August Chung Mong-hun committed suicide. He was facing trial for making illicit payments of at least US$500m to North Korea just before the June 2000 inter-korean summit this was the so-called cash for peace scandal. At least US$100m of the sum paid to North Korea was on behalf of the South s government. This was on top of the more than US$1bn that Hyundai has paid above board for operating (the heavily loss-making) tours to Mt Kumgang and other projects. That burden was a major factor in Hyundai s decline from being South Korea s largest chaebol. Chung Mong-hun s estranged brother, Chung Mong-koo, head of the now separate and successful Hyundai Motor, has said bluntly that he has no plans to do business in the North. Samsung, now the largest chaebol, shared this sentiment, denying reports that it will invest in the Kaesong zone. The cash for peace case is concluded The first Southern tourists fly directly to Pyongyang The Unification Church s Pyonghwa edges out Hyundai The South becomes the North s main export market In September the remaining five defendants in the cash for peace case, including senior officials of the former Kim Dae-jung administration, were convicted, but given suspended sentences as they had acted in the national interest. This divisive issue may now die down, but in future South Korea will insist on transparency from the North (easier said than done), and aid will be given in kind rather than cash. One hopeful sign is that in September Southern inspectors were allowed to monitor the distribution in three Northern ports of part of the South s 400,000 tonnes of rice aid sent this year. Although North Korea mourned Chung Mong-hun, even accusing the Southern opposition Grand National Party (GNP) of virtually murdering him, its other actions have hardly helped the beleaguered Hyundai. On September 15th 114 Southern tourists flew directly from Seoul to Pyongyang on a plane of the North Korean carrier, Air Koryo, for a five-day tour. This was the first ever regular tourist trip between the two capitals; several more are planned in the remainder of This plum route, sure to be more popular than the highly controlled Mt Kumgang tours, went not to Hyundai but Pyonghwa: a company controlled by the Unification Church. Despite the Unification Church s anti-communist image, it has been active in the North for a decade: its founder, the Northernborn Reverend Sun-Myung Moon, met the North s late leader, Kim Il-sung. Its main venture, Pyonghwa Motor, assembles Fiat cars imported as kits from Vietnam in Nampo. In September Pyonghwa was reportedly allowed to erect Pyongyang s first commercial billboards with the proviso that they not look as though they were selling anything. Despite such coyness, inter-korean business has been brisk, if as yet a fraction of its potential. In the first eight months of 2003 North-South trade reached US$406m, an increase of 45% on the year-earlier period. If most of the US$245m worth of exports from the South to the North was more aid than trade, the US$161m worth of Northern exports to the South was genuinely

9 North Korea 7 commercial, including made-to-order garments, seafood and minerals. In 2002 South Korea overtook China as North Korea s top export market, with imports from the North of US$272m. This has been little noticed, as the South excludes inter-korean commerce (as ostensibly internal ) from the figures that it compiles of North Korea s merchandise trade. The SPA shuffles economic portfolios The two Koreas play games, but not altogether sportingly Another round of family reunions is held A leading Southern dissident returns home Meeting on September 3rd the SPA reshuffled seven economic portfolios. Three of the newly promoted ministers had participated in an intensive two-week tour of South Korean industrial facilities, the first of its kind, in November They include the new prime minister, Pak Pong-ju, at that time chemicals industry minister, whom his hosts recall as being well briefed and an assiduous note-taker: he lamented not having several extra pairs of eyes to take it all in. Also on this trip were Pak Nam-gi, who moves from running the State Planning Commission (SPC) to chairing the SPA budget committee and Kim Kwang-rin, promoted from SPC vice-chairman to replace him. In August North Korea, for the second time in as many years, attended an international sports meeting in the South, the Daegu Universiade (world student games). As at the 2002 Asian Games in the Southern port city of Busan, the Northern athletes did well, cheered on by the Southern crowds, to finish ninth out of 174 nations in the medals ranking. South Korea came third, but received less attention than the North Korean support squad of comely cheerleaders and a female brass band. The tabloids drooled, but not all was amicable. Initially, North Korea threatened a boycott in protest at anti-north demonstrations where its flag and images of its leader, Kim Jong-il, were burnt. It took an expression of regret by the South s president, Roh Moo-hyun, to appease the North Koreans. The athletes flew in at the last minute, and despite a generally warm welcome, twice threatened to pull out during the games, alleging various slights. At one point Northern journalists no slouches at tae kwon do assaulted peaceful protesters; Southern police were slow to intervene. September 20th-25th saw an eighth round of reunions of separated families at Mt Kumgang when 556 elderly South Koreans met 346 of their Northern kin. (The Southerners went overland rather than by sea, cutting the travel time from four hours to one.) Over the past three years 8,051 people have met, briefly and once only: they cannot write, phone or thereafter. At this rate, most of the 122,000 aged Southerners who have applied for reunions will die, as 20,000 already have, before their turn (chosen by lot) comes. Those impatient at this snail s pace, or too young to be eligible, are making their own arrangements. According to the South s Ministry of Unification, in the third quarter there were 441 cases of private family reunions or letter exchanges, mostly in China. It is unclear whether North Korea is tacitly allowing this as policy, or if border guards are simply bribed. Amid growing North-South communication come echoes of a fiercer past. In September, Song Du-yul, a well-known dissident who teaches philosophy in Germany, returned to South Korea, ending a 37-year exile and triggering a storm. He is accused of being a Northern agent, indeed a deputy member of the ruling Korean Workers Party (KWP) politburo under the alias Kim Chul-su.

10 8 North Korea Questioning by the South s National Intelligence Service (NIS) was said to have confirmed this, prompting controversy between conservatives who want him tried for treason, and liberals who excuse him as a victim of history. As he is a German citizen, deportation is the likely outcome; one can only wonder why they ever let him back in. A leading Northern figure dies The number of refugees grows rapidly A death in Pyongyang on October 26th may also prove contentious. Kim Yongsun, a veteran diplomat, was North Korea s point man on inter-korean ties he played a key role in the June 2000 summit. (For more on his wider career and the implications of his death, see The political scene.) He had reportedly been ill and out of action since June, so his death should not portend any change of policy in North Korea. However, suggestions that South Korea should send a message of condolence, or even a delegation, are bound to be controversial in Seoul, as right-wingers will oppose this. Although the cumulative total of Northern defectors to South Korea remains tiny at just 3,384 in half a century, the flow is growing, with 1,140 in 2002 alone. On October 6th South Korea temporarily shut its consulate in Beijing to clear a backlog of about 100 Northern refugees camped out there. China lets those that attain such sanctuary go to Seoul, but is slow to process them. Closing the consulate, which inconveniences Chinese seeking South Korean visas, is thus a signal to China to hurry up. Formerly tight security around foreign missions in Beijing has eased somewhat, amid reports that China is in delicate talks to secure passage to the US for up to 300,000 North Korean fugitives on its territory who live in fear of repatriation.

11 North Korea 9 Political structure Official name Form of government The executive Head of state National legislature Regional legislatures National elections National government Main political parties Democratic People s Republic of Korea One-party rule, based on the ideology of juche (self-reliance) Constitutional revisions in September 1998 abolished the Central People s Committee, renamed the State Administration Council as the cabinet, and reaffirmed the National Defence Commission (NDC) as the highest state body, albeit nominally under the Supreme People s Assembly (SPA, the parliament) In September 1998 Kim Il-sung (who died in 1994) was dubbed eternal president. The president of the SPA presidium performs the formal duties of the head of state, but ultimate executive power lies with the chairman of the NDC The unicameral 687-member SPA, directly elected for five-year terms. Its presidium, formally the standing committee, substitutes for the legislature when the SPA is not in session Each province, city, county and district elects people s assemblies or committees. These committees elect local officials to carry out centrally decided policies The 11th SPA was elected on August 3rd 2003; the next election is due to be held in These are communist-style elections, with a single list of candidates; the claimed turnout and yes votes approach 100% The Korean Workers Party (KWP) controls all arms of the state. Since the death of Kim Il-sung, military figures have grown in influence Government: the KWP is nominally in coalition with the Social Democratic Party and the Chondoist Chongu Party Key holders of state & party positions Key ministers Chairman of the State Planning Commission National Defence Commission chairman First vice-chairman Vice-chairmen SPA presidium president Vice-presidents Prime minister Vice-premiers Key politburo members Agriculture Commerce Defence Finance Foreign affairs Foreign trade Light industry Metals & machine-building Public security Kim Kwang-rin Kim Jong-il Jo Myong-rok Yon Hyong-muk; Ri Yong-mu Kim Yong-nam Yang Hyong-sop; Kim Yong-dae Pak Pong-ju Kwak Pom-gi; Ro Tu-chol, Jon Sung-hun Kye Ung-tae; Chon Byong-ho Ri Kyong-sik Ri Yong-son Kim Il-chol Mun Il-bong Paek Nam-sun Ri Gwang-geun Ri Ju-o Kim Sung-hyon Choe Ryong-su

12 10 North Korea Economic structure Annual indicators Real GDP growth (%)a Population (m)ab Exports (US$ m)c ,007 Imports (US$ m)c -1,170-1,212-1,686-1,847-1,895 Trade balance (US$ m)c , Exchange rate (av; Won:US$)d Origins of gross domestic product 2002a % of total Agriculture, forestry & fishing 30.2 Mining 7.8 Manufacturing 18.0 Construction 8.0 Electricity, gas & water 4.4 Services 31.6 Main exports 2002ef US$ m Main imports 2002ef US$ m Animal products Minerals Textiles Machinery & electronic goods Machinery & electronic goods 85.6 Textiles Minerals 69.8 Chemicals Main destinations of exports 2002e % of total Main origins of imports 2002e % of total South Korea 27.0 China 24.7 China 26.9 South Korea 19.5 Japan 23.3 India 9.8 Thailand 4.4 Thailand 9.1 a Bank of Korea (Seoul). b National Statistical Office (Seoul). c Korea Trade-Investment Promotion Agency (Seoul); includes inter-korean trade. d Large wage and price rises implemented from July 2002 inevitably had exchange-rate implications. Although as ever nothing was formally announced, drastic devaluation was confirmed in February 2003, at which point the official Won:US$ rate stood at Won148:US$1. Against a background of continuing inflation and citizens mistrust of the local currency, black-market rates of up to Won1,000:US$1 have been reported. e Korea Trade-Investment Promotion Agency (Seoul). f Excludes inter-korean trade.

13 North Korea 11 Outlook for Political outlook Domestic politics North Korea keeps its real politics as distinct from the theatre of a rubberstamp parliament and frequent mass displays of loyalty well hidden. Therefore, forecasting can do little more than raise a range of imponderable, but nonetheless real, issues. The most important of these is regime stability. Since North Korea has outlived the collapse of communism elsewhere by well over a decade, it is tempting to suppose that the regime can endure indefinitely. That would be an error. A state so out of tune with global trends patently and wilfully dysfunctional at home, and menacing abroad would be by definition at risk. Although a soft landing of gradual reform and disarmament is the best outcome, there is no guarantee that this will happen. Regime or state collapse cannot be discounted. Although the main risk is external that the threat from North Korea will goad the US, or maybe China, to seek regime change one way or another internal frictions should not be overlooked. Either of the two theories explaining the long recent disappearance of North Korea s leader, Kim Jong-il that his consort is seriously ill, or that a power struggle has started among his sons to succeed him is potentially destabilising. The North Korean elite, the first family included, is well informed; it can hardly be unaware of the plight of the country, the perils inherent in current policy and the risks to the elite personally if it all unravels. Most may see no alternative but to close ranks, but some will be tempted to defect, if not rebel. Grassroots protests cannot be ruled out, as the rise of economic liberalisation exacerbates poverty and inequality. The now routine illicit migration to and from China, although at one level is a safety valve for famished households, is also an eye-opener on other and better ways to live. Above all, in so highly militarised a society, an army revolt or even a coup attempt are possible; indeed, localised plots, so far foiled, have been rumoured. There may, for example, be more than meets the eye to the death in late October of Kim Yongsun, a senior government figure and close confidant of Kim Jong-il, reportedly after a traffic accident. There is no sign of moves by the regime to ease its tight grip or even to abide by its own due process and hold a long overdue party congress. If the congress is ever held, it might be to anoint a successor, announce a new policy turn or both. As discussed below, there are signs at long last of serious moves towards market reform, including some promising new appointments. Yet this may be too little too late. Moreover, reformers have little room for manoeuvre as long as the regime s songun (army-first) policy ensures that the military take the lion s share of resources, and nuclear and other tensions with the wider world keep away much-needed investment.

14 12 North Korea International relations The nuclear stand-off, which began in late 2002, is no nearer a substantive resolution. On the contrary, in the absence of international scrutiny (it expelled International Atomic Energy Agency, or IAEA inspectors from its Yongbyon site in January this year) it must be assumed that North Korea will take the opportunity to press ahead with the two separate nuclear weapons programmes it is thought to have. These are its plutonium-based programme, which involves reprocessing spent fuel rods from Yongbyon, and its highly enriched uranium (HEU) programme, a technology probably transferred from Pakistan in exchange for missile expertise. For external consumption, North Korea will continue its now well-honed pattern of ambiguity and provocation, in both word and deed. The verbal pattern is twofold: ambiguous threats, often on the eve of negotiations, coupled with less veiled boasts and menaces during talks but spoken on the sidelines or during a break, and hence deniable. Among the former are regular claims that the reprocessing of 8,000 or so fuel rods from Yongbyon is well under way, or even complete, whereas the latter include admissions of having nuclear weapons and threats to test or even sell them. Amid this deliberate fog and suspected bluff, at least North Korea now explicitly admits that it is seeking a nuclear deterrent; it no longer pretends that the aim of Yongbyon was to generate electricity. North Korea has strongly hinted that it may test a nuclear weapon, which would confirm it as the world s ninth de facto nuclear-armed state. That is a high-risk strategy, but it may not constitute a red line for the administration of the US president, George W Bush, which appears more concerned about problems in Iraq and will soon face an election campaign. The US Central Intelligence Agency (CIA) thinks North Korea has had one or two nuclear devices for a decade, and the US policy emphasis is already shifting tacitly from prevention towards non-proliferation. A test may yield more clarity on what North Korea actually possesses. But a risk for Kim Jong-il is that a test would alienate Russia and China, both of which fear that an openly nuclear North Korea would spark a regional arms race. Formally, meanwhile, China and others will try to convene a second round of the six-party talks between the two Koreas, China, the US, Japan and Russia, possibly by end Whether this will achieve any more than last time is another matter, as there is growing fear that for Kim Jong-il the bomb may not be negotiable. As of late October no meeting was yet fixed. With predictable posturing, North Korea alternates protestations of lack of interest with assertions of commitment. Thus, on October 25th it said that it would, after all, consider a new US offer for a multilateral security guarantee, which days earlier it had dismissed as laughable. The fact that at long last the US seems to have shifted from simply demanding disarmament to offering something concrete, as it did not do in August, makes it likely that the hexagonal table in Beijing will be rolled out at least once more. There are also unknowns among, and differences between, North Korea s five main interlocutors. Over almost three years the Bush administration has failed to articulate a unified, coherent policy on North Korea. Difficulties in Iraq and

15 North Korea 13 re-election concerns may explain the recent US shift towards dialogue, but Mr Bush may revert to a harder line if he wins a second term. How Kim Jong-il will use the window is unclear. The fear must be that he may perceive it as a chance to provoke with impunity, rather than to seek a settlement on the more favourable terms that could now be on offer. If, however, a Democrat president is elected, the US may revert to the clear-cut engagement that characterised the policy of the adminstration of the former president, Bill Clinton, from late 1994 onwards. Another key power is China, whose policy is in transition. In contrast to the passivity of his predecessor, Jiang Zemin, China s current president, Hu Jintao, has swiftly adopted a proactive approach, initiating and hosting first three-way and then six-way talks in Beijing. Having built strong ties in just a decade with South Korea, whose largest export market it has become, the question is how hard China will lean on Kim Jong-il. The recent dispatch of up to 150,000 Chinese troops to the north-eastern border region sends a strong signal to all concerned, especially North Korea, that China is ready for anything. If Kim Jong-il remains defiant, hitherto unimaginable scenarios, such as China moving in favour of a change of regime in North Korea, could unfold. Wu Bangguo, the second most senior figure in the Chinese Communist Party hierarchy who after two postponements is due to visit Pyongyang on October 29th-31st may not have so blunt a message as that, yet. However, China is growing impatient, and with reason. It wants North Korea to be a buffer zone, not a threat to regional stability. Nor can Kim Jong-il draw comfort, as he had hoped to not long ago, from either Russia or Japan. No longer is he invited to take his train through Siberia. Furthermore, Russia holds naval exercises with South Korea, and it conducts border civil defence drills based on mass refugee scenarios. Unlike China, Russia now gives almost no aid; nor will it, as it is still owed US$3.8bn in Soviet-era debt. Japan too, where a year ago the expected settlement of the kidnap issue looked set to release an aid package of up to US$10bn, is now more hostile than ever, which plays much better with public opinion. Japan is also clamping down on remittances and other flows from Chongryun, the pro- North association of Koreans living in Japan. Economic policy outlook Policy trends This gathering gloom and the tightening of the noose come just when on the economic front North Korea is finally starting to see sense. Despite many false dawns before, there is now no doubt that, in intention at least, serious and irreversible market reforms are under way. The price and wage rises of 2002 have been followed by a long overdue official acceptance of the local markets, which in recent years have largely supplanted the sclerotic state distribution system. A technocratic and outward-looking turn in the latest cabinet reshuffle also signals a shift towards pragmatism. Indeed, the Economist Intelligence Unit has learned from sources involved in the growing (if still small-scale) training of North Koreans in market economics that Kim Jong-il has decreed a three-year plan to learn about and participate in

16 14 North Korea the global economy. Although that is good news, the downside must also be noted. For one thing, North Korea has long been involved in the global economy: it has debts of at least US$2bn to Western banks from the 1970s, still not repaid. Yet even now this seems to be touted merely as an experiment, rather than a definitive turn. Clearly, market reform is still a limited process. There are apparently no plans, for example, to resume the publication of economic statistics after a 40-year hiatus, even though these are essential if new local entrepreneurs are to act on anything better than blind faith or political compulsion, and a sine qua non if North Korea wants to do what serious participants in the world economy do, namely, apply to join the World Bank and IMF and thus gain access to essential investment funds that are wholly lacking at home. Furthermore, the fact that this new three-year plan is not publicly promulgated similarly, July 2002 s price and wage increases remain to this day officially unpublished bespeaks a system still unwilling to adopt even minimal transparency. Above all, Kim Jongil is sorely deluded if he thinks such a project of reform is compatible with his security posture. No one will trust, or invest in, a nuclear North Korea. He cannot have it both ways. The political scene Kim Jong-il goes to ground again Such disappearances are politically significant His consort may be seriously ill For much of September and October this year the North Korean leader, Kim Jong-il, was not seen in public, nor were his activities reported. After attending ceremonies for the 55th birthday of the North Korean state on September 9th, Kim Jong-il did not appear again until October 21st. He thus missed, unusually, the other main autumn festival: the 58th founding anniversary of the ruling Korean Workers Party (KWP) on October 10th. The low-key celebrations for the latter may reflect the KWP s reduced status, compared with the Korean People s Army (KPA). Not only has there been no full party congress (supposed to be held every five years) since 1980, but since the death in 1994 of Kim Jong-il s father, Kim Il-sung, neither the politburo nor the central committee have even been reported as meeting. For Kim Jong-il to go to ground is not unusual, but it tends to signal that something is up. His even longer sequestration earlier in 2003 during the invasion of Iraq is seen as a precaution lest he were next on the US hit list after the Iraqi president, Saddam Hussein. His longest absence was for three months after Kim Il-sung died in Attributed to mourning, this may also have entailed manoeuvring to secure his sudden succession. There may be problems of health and inheritance this time too. One rumour is that Kim Jong-il s consort, Ko Yong-hee, is seriously ill, either from a traffic accident, or with cancer. Ko Yong-hee, a former dancer, is not married to Kim Jong-il and does not appear in public. A KPA campaign since last year to glorify the comrade who serves the leader closest to his body is thought to refer to her, and to be a signal that her son is being groomed for eventual succession.

17 North Korea 15 Several sons are rivals to succeed Kim Jong-il A hitherto unknown scion may be the favourite The death of Kim Yong-sun raises questions The newly elected parliament convenes Kim Jong-il s marital (mostly extra-marital) history is, however, tangled and opaque. Recent revelations by assorted former courtiers, although confirming an image of Neronian excess, muddy the waters by introducing hitherto unknown offspring. The oldest son is Kim Jong-nam (in North Korea, daughters apparently do not count). His mother, Sung Hye-rim, a former actress and Kim Jong-il s great love, died in Moscow in 2002 after a long mental illness. Kim Jong-nam himself is reportedly in quasi-exile in Beijing, after blotting his copybook by being unmasked at Tokyo s Narita airport in 2001 on one of several illicit trips to Japan, carrying a false passport. With Kim Jong-nam seemingly out of contention, the new heir-presumptive was Ko Yong-hee s son, Kim Jong-chol: aged 22, Swiss educated like his halfbrother and said to be the KPA s choice. Not so, according to a Japanese man who, writing under the pseudonym of Kenji Fujimoto, claims in a recent book, Kim Jong-il s Chef, to have been Kim Jong-il s long-time sushi chef and confidant. In this account, Kim Jong-il despises Kim Jong-chol for being too effeminate. Instead, he favours his younger son, Kim Jong-woon, aged 20 and said to resemble his father in every way. Kim Jong-woon was hitherto unknown, so his mother may be Ko Yong-hee or someone else. Whatever the line-up, succession rivalries can be assumed, just as Kim Jong-il had to see off his three half-brothers to claim his throne. The best-known, Kim Pyong-il, served as ambassador to Finland and then Poland, both suitably distant. Questions are also raised by the reported death of Kim Yong-sun on October 26th. A veteran diplomat who represented North Korea at its first ever bilateral talks with the US in New York in 1992, Kim Yong-sun was in charge of inter- Korean ties, latterly as chairman of the North s Asia-Pacific Peace Committee. The official account blames a road accident in June this year, apparently after inspecting a goat farm; presumably he had been in a coma since. This explanation may be suspicious, considering rumours that in 2001 he was briefly arrested and interrogated until released on Kim Jong-il s orders. He was a confidant of Kim Jong-il through friendship with his sister, Kim Kyong-hui, and was a regular at his parties. In the realm of visible politics, the 11th Supreme People s Assembly (SPA), North Korea s rubber-stamp parliament, was duly elected on August 3rd. As usual, 99.9% of electors reportedly voted all save those abroad or at sea and 100% endorsed the single list of candidates. The new SPA met on September 3rd and its own credentials committee offered some data on its composition. Workers make up 33% of the membership, and farmers 9%; put another way, over half of the assembly is non-proletarian. Just over 20% of the new line-up is female. The proportion of soldiers was not given. Just over 50% are aged between 36 and 55; 48% are older, and only 2% are 35 or under. Almost 92% are graduates, of which 90% are described as recipients of academic degrees or titles such as professors and doctors, scientists, technicians and experts. The total number of members is unchanged at 687; in the past this had risen as the population grew, so this may signal a static population since the famine of the

18 16 North Korea late 1980s. Analysts in South Korea noted that as in 1998, more than one-half of the membership is new, including at least five leading lights in inter-korean ties. There is no sign of a power struggle at the top A civilian ex-premier is promoted onto the NDC The new public security minister joins the NDC North Korea s first known bank robbery is alleged The SPA presidium sees four of seven members replaced A new cabinet and other leading positions were also announced at the SPA meeting. As usual, these changes require decoding. The platform party at the SPA is a guide to the top echelons of the power elite. On this basis, there is no sign of change, much less struggle, at the top. All the usual names were there, even Kim Yong-ju, Kim Jong-il s uncle and one-time rival for the succession, who has rarely been seen since Also present were the former prime minister, Hong Song-nam, and the former public security minister, Paek Hakrim, which suggests that their dismissal was not a wider fall from grace. North Korea s highest executive body, outranking the cabinet, is the National Defence Commission (NDC). Kim Jong-il was confirmed as chairman, and Jo Myong-rok as first vice-chairman, despite his rumoured illness. Vice-marshal Jo Myong-rok is the KPA s political director, and in practice the second most powerful figure in the regime. The defence minister, Kim Il-chol, was demoted from vice-chairman but remains on the NDC and presumably in post, and Yon Hyong-muk, a rare civilian on the NDC, becomes a vice-chairman. As prime minister in , Yon Hyong-muk visited Seoul four times and went down well there. Demoted to party chief of the northerly Jagang province, a post that he still holds, he staged a comeback, joining the NDC in Rightly or wrongly, Yon Hyong-muk is perceived as a moderate, so his rise is encouraging. Three veterans have left the NDC: Ri Ul-sol, the only KPA full marshal besides Kim Jong-il; Kim Chol-man, a general and alternate politburo member; and Paek Hak-rim, who, aged 84, stepped down as public security minister in July this year. The fact that all three appeared in the SPA platform party suggests that these are normal retirements, not purges. They are replaced by two new members, both complete unknowns. One, no doubt ex officio, is the new public security minister, Choe Ryong-su, who also replaces Paek Hak-rim as chair of the SPA s legislative committee. The other new name on the NDC is Paek Sebong; about whose background, as with Choe Ryong-su, nothing is known, not even if they are military or civilian. For apparent novices to be parachuted into such high posts is rare. Clearly, Kim Jong-il has confidence in them. Public security is a particular headache, with the risk of poverty breeding rebellion or crime. A South Korean daily newspaper, Chosun Ilbo, claims that Pyongyang s first known bank robbery took place in August when three men stole US$40,000 from the Foreign Trade Bank in broad daylight. Although Kim Jong-il is said to be personally on the case, no arrests have been reported. Petty crime is common, but this if true escalates the challenge to order and to the regime. As the full SPA meets for only a few days each year, most legislative business is done by its presidium. The presidium s office-holders presidents, vicepresidents, honorary vice-presidents, secretary are unchanged, but four of the eleven ordinary members are new. Most striking is a comeback by Hong Sokhyong: a former chief planner and alternate politburo member, he is now party

19 North Korea 17 secretary in North Hamgyong in the north-east, the province worst hit by famine and the source of most migrants to China. Other new members are Kim Kyong-ho, secretary of the youth league, which has undergone a major purge; Pak Sun-hui, who chairs the women s union; and Pyon Yong-rip, the former education minister who had been appointed earlier in 2003 to chair the Academy of Sciences. It is hard to read any single political trend into this turnover. Of the four presidium members ousted, only one is known to have gone to a new post: Ri Kil-song, formerly party secretary in South Pyongan province, now appointed as prosecutor-general. A veteran is put in charge of culture Six-party talks are held in Beijing in August That the talks take place at all is progress Russia changes its tone The partial cabinet reshuffle, held in early September, mainly affected economic portfolios (see Economic policy). One exception is a new minister of culture, Choe Ik-gyu, a senior party vice-director since This suggests an experienced and possibly hardline pair of hands. Keeping out what the North Korean media condemn as capitalist ideological infiltration is a fraught task, even though North Korea still bans Internet access and foreign publications to all except a tiny elite. He may also be entrusted with trying to bring North Korea s leaden and cloying official culture up to date. Mass games, its acme, impress, but also spook visitors. Yet change is afoot. Snow Melts in Spring, a recent Northern film just screened at the international film festival held in the South s second city of Busan in October, is a love story that even contains some nudity: a trend hitherto confined to Kim Jong-il s private parties. Reading the runes of opaque domestic politics in North Korea was, as usual, upstaged by international alarms and excursions over the nuclear issue. The most significant event was, of course, the six-party talks held in Beijing in August 27th-29th. This meeting cemented China s new role seen earlier in three-way talks in April in Beijing, with just North Korea and the US as an active mediator on the peninsula. China s president, Hu Jintao, is said to be personally running Chinese policy towards its maverick neighbour and notional ally (under a 1961 mutual defence treaty, which is in practice a dead letter). This should warn Kim Jong-il that China s new leaders will be less indulgent of his antics. The talks resolved no substantive issues: the US and North Korean delegates had the authority only to stake out their positions and listen, not to negotiate. Yet the fact that they took place at all is in itself progress, after ten months during which the second North Korean nuclear stand-off, a decade after the first one, had seemed to be escalating out of control. Moreover, six is the proper number. Besides the two Koreas, the four powers tightly enmeshed in the peninsula by geography or history are China, Japan, Russia and the US. The US government had demanded a multilateral forum, but insisted only on adding its allies in Japan and South Korea to the troika that met in April. It was Russia, keen not to be left out, that pushed for six-way talks. It was also from Russia that word of the talks first came. But if that provenance, which annoyed China, means that Kim Jong-il reckons that Russia will fight his corner, he had better think again. Whereas the last two summers saw Kim Jong-il s train trundle across Siberia to summits with

20 18 North Korea Russia s president, Vladimir Putin, this August the Russian far east was the scene of civil defence war games, premised on an influx of North Korean refugees fleeing hostilities on the peninsula. Meanwhile, Russia s Pacific Fleet held its first joint exercises with the South Korean and Japanese navies in August. North Korea was asked to send observers, but denounced these manoeuvres, saying that they would lead to a raising of tensions on the Korean peninsula. North Korea hints at a nuclear test The six-party post mortems differed sharply The US point man on North Korea resigns in frustration President Bush offers a multilateral security guarantee North Korea considers the proposal If nothing else, the six-party talks vindicated the Bush administration s insistence on a multilateral rather than a bilateral process. On his return to Pyongyang, the deputy foreign minister, Kim Yong-il (no relation), must have reported the unanimity of the other five in insisting on a nuclear-free peninsula: a stance only stiffened by a threat from Kim Yong-il made in an aside, typically of a possible nuclear test. If North Korea were to carry out such a threat, it would risk an open breach with both Russia and China. The US assistant secretary of state, Jim Kelly, called the meeting a productive start for a peaceful solution, but added that there was a long way to go. By contrast, North Korea s Ministry of Foreign Affairs on August 30th dismissed the talks as a stage show to force us to disarm not only useless but harmful in every aspect, and threatened to continue strengthening our nuclear deterrence. China publicly chided the US too for not offering North Korea anything concrete. Such frustration was echoed in the US and even within the Bush administration. On August 25th, on the eve of the six-party talks, Charles Jack Pritchard announced his resignation. Since the Clinton era, he had been the nominal US point man on North Korea, and had regular meetings with North Korean diplomats to the UN in New York. Taking up a post at a US think-tank, the Brookings Institution, he confirmed speculation that he had quit in dismay by calling for the US to recommit to serious and sustained engagement with North Korea. There are signs that his former boss has now taken on board some of these critiques. Although the Bush administration continues to speak with several voices, confusingly, by October it seemed to be shifting towards accommodation. In comments during his swift tour of several Asian countries, including the Asia-Pacific Economic Co-operation (APEC) summit in Bangkok where he breakfasted with South Korea s leader, Roh Moo-hyun, Mr Bush said that the US was ready to offer North Korea a multilateral security guarantee, but ruled out either a purely bilateral process, or the formal peace treaty demanded by North Korea. North Korea promptly dismissed this offer as laughable. Yet in a volte-face on October 25th it said that it would consider this, if the US accepted its own agenda of simultaneous actions. If that means a proposal floated earlier this year for the US to give aid and diplomatic recognition, while North Korea by degrees accepts nuclear inspections, halts missile exports, and eventually disarms, then it is a non-starter: the US rejected this as demanding too much too soon while conceding too little, too late. For the US to soften its refusal to

21 North Korea 19 reward misbehaviour, North Korea needs to appear both more realistic and more sincere. As for simultaneous actions, its test firing of up to three shortrange ground-to-ship missiles in the same week sends distinctly mixed signals. This may be a sop to Chinese pressure Kim Jong-il s sequestration delays diplomatic visits China is said to have beefed up its border forces The US presses China to ease up on North Korean refugees Human rights concerns are heavily politicised North Korea s latest overture is a response to Chinese pressure. It came just before Wu Bangguo, the second most senior figure in the Chinese Communist Party, was due to visit Pyongyang on October 29th-31st. Although North Korea did not commit to a further round of six-party talks, there is now every chance that the hexagonal table in Beijing will be rolled out again before the end of the year. Wu Bangguo s visit, the most senior by a Chinese leader since the former Chinese president, Jiang Zemin, briefly came in 2001, was planned for September, only to be twice postponed during Kim Jong-il s invisible period: perhaps a rebuff to China for uncomradely pressure. Then again, on October 2nd the governor of Russia s Far Eastern region, Sergei Darkin, was invited to Pyongyang by the dear leader, yet was unable to meet him. China is, however, not placing its trust in diplomacy alone. In September the Hong Kong press reported that up to 150,000 troops were being deployed along its north-eastern border. The official line is that they are replacing border police, to bring the north-east into line with practice on China s other frontiers. Even if true, to adopt procedures in force in Tibet and Xinjiang, where there are perceived security threats, tells its own story. Whatever the specific intent, as a gesture this will have caused worry in Pyongyang. This move may be related to the up to 300,000 although the true figure may be much smaller North Korean migrants estimated to be hiding in north-east China. Thus far China has refused to recognise any as refugees; they are regularly rounded up and repatriated to an uncertain fate. China has been much criticised for this, and the US is now pressing it privately both to ease up in general and to allow some North Koreans to leave for the US. At the moment, those that gain access to foreign embassies are in time allowed to go on to South Korea, but others face arduous onward treks to south-east Asia or Mongolia so as to seek asylum. From the US side, the impulse is not solely humanitarian. In conservative circles committed to regime change in North Korea, recognition that a military option is too risky to be realistic is prompting exploration of other ways to harry Kim Jong-il. Just as the opening of Hungary s border to the West in 1989 helped to precipitate the collapse of East Germany, it is hoped that creating a safe escape route via China would prompt North Koreans en masse to rise up and try to decamp. In a similar vein, the publication in the US on October 22nd of the most detailed report to date on North Korea s gulag, with many witnesses testifying to terrible cruelties as routine, is intended to mobilise opinion against negotiating with such an appalling regime. The report, The Hidden Gulag: Exposing North Korea's Prison Camps, is published by the US Committee for Human Rights in North Korea, and is available at