22,224,195 (July 2002 est.)
North Korean won (KPW)
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Following World War II, Korea was split with the northern half coming under Communist domination and the southern portion becoming Western oriented. KIM
Jong-il has ruled North Korea since his father and the country's founder, president KIM Il-song, died in 1994. After decades of mismanagement, the North relies heavily on international food aid to feed its population, while continuing to expend resources to maintain an army of about 1 million. North Korea's long-range missile development and research into nuclear, chemical, and biological weapons and massive conventional armed forces are of major concern to the international community.
Korea is in fact one of the world's older nations. Most of the peninsula was unified in 668CE, when the southern kingdom of Shilla conquered its northern rival, Koguryo. Despite owing much of its civilisation to China, to which it was long a formal vassal, Korea is ethnically and lingusitically quite distinct and was in practice self-governing.
Few countries have known a more painful passage to modernity. The imperialist age found the last Chosun dynasty in decay. Its efforts to keep out the wider world earned it the sobriquet 'hermit kingdom'; but its stubborn refusal to reform made it a "shrimp among whales": prey to whichever power achieved regional dominance. That turned out to be Meiji Japan, which trounced the fading Chinese and Russian empires to rule Korea brutally during 1905-45. This brought some development; yet the scars - such as 'comfort women' (sex slaves) - still poison ties between Japan and today's Koreas.
Those scars include Korea's almost accidental, yet fateful, partition: a 'temporary' US idea in 1945, to stop the Red Army occupying the whole peninsula. Predictably, US and Soviet zones hardened into separate regimes, proclaimed in 1948: the Republic of Korea (ROK) south of the 38th Parallel, the Democratic People's Republic of Korea (DPRK) to the north. In 1950 the north's ex-guerilla leader, Kim Il-sung, invaded the south, but was beaten back by a US-led UN force. The 1953 Armistice - there is still no peace treaty - left both states in place, but terribly ravaged. Four million died. The sealed border, now ironically called the Demilitarized Zone (DMZ), hardly budged.
Thereafter the two Koreas competed economically and diplomatically. The DPRK led at first: its GNP was ahead of the ROK's until the 1970s, giving it clout in the Non-Aligned Movement. But the south's alliance with the US and export-oriented model proved a more lasting formula for success, even before the USSR's demise in 1991 both alarmed the now ageing Kim Il-sung and removed his main source of subsidy.
JUCHE - a myth
That blow exposed the 'Great Leader''s vaunted self-reliance (Juche) as a myth. As in Cuba, North Korea's economy went into free fall. Unlike Cuba, the regime's refusal to adapt led to catastrophe. In a uniquely tragic trajectory, a once industrial economy took a great leap backwards. In 1996-98, famine killed at least one million out of 23m people: some estimates run as high as 3m. The country now relies on food aid, which is falling as needs arise elsewhere (Afghanistan, Iraq) and donors grow exasperated.
Their fustration is threefold. Economically, the DPRK malgre tout still resists market reforms. In July 2002 it imposed drastic wage and price rises; but without supply-side measure to match, these produced little except inflation. Politically, the extreme cult of personality around Kim Il-sung, who died in 1994, passed to his son Kim Jong-il in a system which in the C21 remains Stalinist, ossified, opaque, bizarre, and cruel. Yet even its foes must admit the DPRK's staying power, defying forecasts of its collapse.
Thirdly, rather than reform, North Korea's response to adversity was to rearm. In a policy of militant mendicancy, the threat of weapons of mass destruction (WMD), real or suspected, has been used to parlay resources. Thus after the 1993-94 nuclear crisis, when the Clinton administration considered bombing the Yongbyon nuclear site, the 1994 Agreed Framework (AF) with the US shut Yongbyon - in exchange for fuel oil and two new light water reactors (LWRs), to be built and paid for mainly by the ROK via a consortium, KEDO (Korean Peninsula Energy Development Organization).
Hopes of the AF as a model rose when Kim Dae-jung became ROK president in 1998. His 'sunshine' policy of outreach led to the first ever North-South summit, held in the DPRK capital Pyongyang in June 2000, for which Kim won that year's Nobel Peace Prize. But progress proved fitful, as the US under George W Bush took a harder line: naming North Korea in 2002, along with Iraq and Iran, as part of an "axis of evil".
The nuclear crisis
Last October the US accused the DPRK of having a new covert nuclear programme - and says it admitted it. This sparked a new nuclear crisis. KEDO cut off oil supplies; North Korea expelled IAEA inspectors, restarted its Yongbyon reactor, and became the first of 170 signatory states ever to leave the Nuclear Non-Proliferation Treaty. Provocations continued, in a bid to gain the attention of a US busy with Iraq. North Korea tested two short-range missiles - one spoilt the inauguration of a new ROK president, Roh Moo-hyun, despite his pro-sunshine bent - and buzzed a US spyplane.
Relief came with April's news that the US, North Korea and China will hold talks in Beijing - only to waver when the DPRK seemed to claim it had started reprocessing. That could yield plutonium for several nuclear weapons, and may be a red line for the US. Despite hopes that Kim Jong-il was scared by Iraq, he might conclude that only a nuclear deterrent can save him from Saddam Hussein's fate. Talks may just be a bid to play for time. At best they will be lengthy, with the complication that other powers - South Korea, Japan, Russia - will demand a seat at the table if the talk gets serious.
The issues are many and thorny. On the security front, besides the dual nuclear effort there are missiles, likely chemical and biological weapons (CBW), the million-strong Korean People's Army (KPA), and more. Other concerns include abductions (a major issue for Japan), counterfeiting, drug trafficking, refugees fleeing hunger into China, and human rights. With different interlocutors having varied priorities, it is very hard to see what kind of deal the DPRK can accept that would resolve much or all of this.
Thus Korea now has odd echoes of two older eras. Again a hermit strategy has failed; and again south has trumped north, at least economically. The gap is so wide that the two no longer fit on the same graph. South Korea exports more in two days than the North in a year, and throws away more food than the North eats. The Korean question today is thus not just about nukes, but how this widening chasm can ever be bridged.
Four scenarios are possible. A 'soft landing', with Kim Jong-il gradually embracing peace and reform, is still feasible and devoutly to be hoped and worked for. Secondly, the alarums may continue, and North Korea limp on as is - but surely not indefinitely. Collapse and absorption is a third possibility: sure to be even more expensive than in Germany, but unlikely to be as peaceful. Finally, a second Korean War would inflict vast casualties (again), and cost trillions of dollars to rebuild South as well as North.
Even a world awash in turmoil has few unfolding dramas with stakes as high as this. The chapter in Korea's long history that began in 1945 is coming to a close. Can the DPRK leopard change its spots, and if so how and with what result? As a sub-plot, but of major import: a growing US-ROK rift, with some Koreans seeing Bush as raising tensions, may yet push South Korea into the arms of a waiting China, already its main trade partner. Unlike most of China's neighbours, Koreans feel comfortable with this; so here again history may repeat itself, and shift East Asia's security tectonic plates. The only certainty is that developments in Korea will demand our utmost vigilance.
Update No: 003 - (28/07/03)
The 50th anniversary of the Korean Armistice on July 27 is a reminder that, officially, the 1950-53 Korean War has never ended: there is still no peace treaty. In the current climate that is more than a mere legal curiosity. Needless to say, the commemorations were separate. 2,500 people - including 900 veterans from all 16 countries that fought under the UN banner on the South Korean side - took part in a ceremony at the border village of Panmunjom in the Demilitarized Zone (DMZ). North Korea attacked this as a "disgusting. farce", and as usual held its own celebrations in Pyongyang for what it pleases to call the "Day of Victory in the Great Fatherland Liberation War". This gives scant credit to the Chinese troops who in 1950 saved the fledgling DPRK from being wiped out by MacArthur's counterattack to Kim Il-sung's ill-judged invasion.
With that backdrop, a month of active but inconclusive diplomacy on North Korea's nuclear issue is an opportunity to focus on how this international dimension plays out today. There are two key differences from the Korean War era. Korea is no longer, as an old proverb has it, a "shrimp among whales". Unlike in 1945 when the US and USSR bisected a poor ex-colony too weak to resist, today's Koreas are each in their own way formidable states: quite a match for the four powers - China and Japan are the other two - intimately involved by geography and/or history. Second, the whales no longer line up in the neat two triangles of the Cold War. Instead we see complex and shifting new cross-currents developing - above all, as regards the role of China.
Half a century on, China's new leaders may rue having rescued a state which, despite claims (no longer heard) of comradeship as close "as lips and teeth", has rarely been other than a headache. Since 1992 Beijing has also recognized South Korea, building far more substantial business, political and even military ties with Seoul. Yet it has been careful to keep the North onside, remaining Pyongyang's main trade partner and aid donor. China fears that any collapse of the DPRK would send even more refugees flooding into Manchuria than the 300,000 who may be there already. It also does not want US troops on its borders at the Yalu, should Korea be reunified German-style.
If Beijing had seemed oddly passive as the nuclear crisis developed, it is so no longer. Under the new leadership of Hu Jintao, China has become an active mediator. Having hosted inconclusive US-DPRK talks in April, it is keen to revive these and head off a dangerous drift, where North Korea is racing to build more bombs while the US looks keener to squeeze Kim Jong-il than negotiate with him. This meant a busy month for China's point man on North Korea, vice foreign minister Dai Bingguo. On July 12-15 Dai was in Pyongyang as Hu Jintao's special envoy, bearing a personal letter from the Chinese president to Kim Jong-il. Besides dining with the dear leader, Dai held talks with senior figures including first vice foreign minister Kang Sok-ju, who negotiated the 1994 nuclear Agreed Framework (AF) with the US. Dai then visited Washington, where on July 18 he had lengthy talks with secretary of state Colin Powell. He also saw vice-president Dick Cheney and the national security adviser, Condoleezza Rice.
Others too were on the move.The leaders of two key US allies, the UK and Australia, visited Tokyo and Seoul; Tony Blair went on to China. Unlike their line on Iraq, both premiers stressed the need for a peaceful solution in Korea; Blair cited the peninsula's "special sensitivities". Interestingly, John Howard and the Japanese premier Junichiro Koizumi insisted that nothing is yet fixed re the Proliferation Security Initiative (PSI): a US-led scheme, chiefly aimed at North Korea, to block exports of drugs, missiles, or nuclear materiel. Australia hosted the second PSI meeting on July 10, while Japan has tightened port inspections of DPRK ships. Pyongyang threatens to treat any sanctions or blockade as an act of war. Latest to swing through the region at the end of July is John Bolton, under-secretary for disarmament and the State Department's top hawk, fresh from pressuring Middle Eastern states to buy no more North Korean missiles.
Obstacles to talks
Yet despite all this activity and wide expectation of a new round of talks, as of July 27 nothing had been announced. There are two stumbling blocks: form, and content. The US wants multilateral talks, to include South Korea and Japan - lately Russia too has been mentioned - while North Korea demands a one-on-one with Washington alone (professing to see China as a mere facilitator). Both sides have hinted at flexibility, so this is soluble by a nest of tables: embedding US-DPRK talks in a wider framework.
The bigger obstacle is substance. The US demands nothing less than full and verified nuclear disarmament from North Korea, and refuses to reward bad behaviour: ruling out a deal like Clinton's 1994 AF. But China sees a return to the AF as the basis of a new settlement. How much Kim Jong-il is prepared to yield is unclear, but evidently not enough at this time to offer a basis even for talking, much less sealing any deal.
Another problem is that the Bush administration is split between those such as Powell prepared to engage the DPRK, and hard men who seek regime change. The result is a policy paralysis and drift which alarms some critics. William Perry, who as Clinton's defence secretary during an earlier crisis in 1994 made plans to bomb the Yongbyon nuclear site, in July accused Bush of having no North Korea policy, thus creating "an imminent danger of nuclear weapons being detonated in American cities". Attacking the idea of interdicting nuclear materiel as unworkable, Perry warned that a situation which six months ago could have been manageable is now "on a path toward war".
If that is unduly apocalyptic, on July 18 the head of the International Atomic Energy Agency (IAEA), Mohamed ElBaradei, called North Korea the "most immediate and most serious threat" as regards nuclear proliferation (i.e. more so than Iran). As ever, no one really knows the state of Pyongyang's nuclear progress - some brinkmanship may be bluff - or even its whereabouts. On July 15 the White House confirmed that DPRK diplomats at the UN told the US on July 8 that reprocessing of 8,000 fuel rod is now complete. If true, this could yield enough plutonium for 5-6 nuclear devices.
On July 20 the New York Times cited intelligence sources as saying that krypton 85 (a gas produced in reprocessing) has been detected - but in patterns implying a source other than Yongbyon. If true, this means North Korea has a new reprocessing plant, at an unknown location: possibly underground to avoid detection by US satellites which monitor Yongbyon. It also has a separate highly enriched uranium (HEU) programme, whose exposure by the US last October triggered the current nuclear stand-off, and whose physical sites (quite possibly multiple) are likewise wholly unknown. Yet such intelligence leaks have their own obscure political geography. This latest one could either stoke tension - or, conversely, deter would-be "surgical strikers" on
Seoul, as usual, seeks to play it all down. President Roh Moo-hyun warned on July 21 that unfounded media reports may damage South Korea's economy. Yet on July 9 his own intelligence chief not only confirmed partial reprocessing, but said the North has tested at least 70 nuclear detonators since 1998. On July 19 the ROK defence ministry reported that the KPA has deployed an extra battalion of Rodong missiles, which can reach most of Japan; and moved heavy artillery nearer the (DMZ) - which on July 17 saw a (rare) brief exchange of small-arms fire, possibly accidental, with no casualties.
Within the next two months, the parties must find a way to get around a table in some combination. The hard part starts then. July 27's anniversary of a war that killed four million and razed the peninsula, but no one won, is a sombre reminder of the risks that still remain in Korea. It should concentrate minds on all sides to eschew any sequel.
North Korea lets free markets grow
North Korea is gradually, and grudgingly, allowing the expansion of free markets as its leaders contend with the disintegration of central planning and mounting economic pressure from the US and its allies, the Wall Street Journal Europe has reported.
A dispatch from Pyongyang's official news agency said recently that local markets across the country could sell manufactured goods in addition to food, as part of a government effort to "drastically boost the economy and improve the standard of people's living."
Since last year, North Korea's leadership has been ceding control over economic decision-making to local governments and individual factories, and the pace of change seems to be picking up, North Korea watchers say. Workers are paid based on their performance and the prices of more and more goods are being set in the market place.
There has also been a sharp turn in North Korea's rhetoric, after decades denouncing capitalism. In April, Choe Hong Gyu, director general of the government's State Planning Commission, said in an interview with a pro-North Korean newspaper in Japan that Pyongyang "is determined to provide an atmosphere where markets can serve as a place for social demands to be met."
The change may be less the result of any ideological shift than of the regime's determination to make a virtue out of necessity. With the North Korean economy in shambles and the state-run system of production and rationing in disarray, the government has had no choice but to let people fend for themselves in the open market, many analysts say.
"This isn't perestroika," says Marcus Noldan, an expert on the North Korean economy at the Institute for International Economics in Washington, referring to the economic and political opening of the former Soviet Union that preceded its break up. "They want to make marginal changes. But ultimately, they want to preserve their system."
Indeed, North Korea's government has at times described the moves as simply ways to "address the less-advanced aspects of socialism." North Korean dictator Kim Jong Il - who while his people were starving in the mid-1990s, said "We can live without candy, but we cannot live without bullets" - last autumn declared the foundering national economy would be run according to the principle of "the defence industry first."
North Korea welcomes foreign money
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.
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 US$120m (£76.7m) of foreign investment to a special trade zone at the end of 2000 - more recent figures were unavailable.
Construction for Kaesong complex kicks off
The two Koreas have held a ground breaking ceremony for the Kaesong Industrial Complex, a major economic cooperation experiment creating a capitalist-style industrial zone in the North for South Korean and foreign firms, Seo Soo-min reported for the Korea Times.
Kaesong, located across the Demilitarised Zone only 70 kilometres north of Seoul, some 120 South and 200 North Koreans witnessed the beginning of the construction.
Kim Jin-ho, president of KOLAND, the South Korean contractor for the project, said in his congratulatory speech that the site will give birth to "common prosperity" for the two Koreas.
Chung Mong-hun, chairman of Hyundai Asan, the operating firm that pioneered the scheme in 2000, said the idea bore fruit 15 years after his father, the late Hyundai founder Chung Ju-yung, visited North Korea in 1989, becoming the first South Korean businessman to do so.
"This symbolizes the beginning of active economic cooperation between the two Koreas,'' said Chung, who was recently indicted for his company's involvement in the so-called "cash-for-summit'' scandal.
Choe Hyon-ku, a North Korean official who took part in the event, said the ground breaking ceremony took place despite the difficult situation his country faces.
"It is the by-product of the June 15 Joint Declaration'' between the two Korean leaders, he said.
Some 900 local companies have shown an interest in Kaesong, the ancient capital of the 918-1392 Koryo Dynasty. Under the plan, Hyundai Asan will initially develop 1 million pyong (3.3. million square metres) by 2007, where 300 firms, mostly from the textile and electronics sectors, can move in. It is hoped an industrial park will be created that will provide South Korean investors with cheap labour and North Korea with badly needed cash.
North Korea says it will promote light and high-tech industries at Kaesong. Investors will receive tax cuts and other benefits, but are required to build infrastructure. However, many details have yet to be worked out, and construction is not expected to begin until next year.
In the first phase of the industrial zone, the South Korean government and Hyundai will invest 220 billion won ($184 million) to develop 3.5 million square feet for some 300 businesses by 2007.
Koreas rebuild transport links
North and South Korea have held ceremonies ahead of work to re-link road and rail connections between the two states for the first time in more than 50 years.
Fireworks crackled and balloons were set free at the ceremonies, held simultaneously on either side of the heavily fortified border separating the Koreas.
It is the latest act of reconciliation between the rival neighbours, and came a day after North Korea moved a step closer to normalising relations with Japan following an unprecedented visit to Pyongyang by Prime Minister Junichiro Koizumi.
Work to clear the heavily-mined buffer zone on the border will begin shortly and the first of the rail links is expected to be re-connected as early as November.
The South Korean Prime Minister-designate Kim Suk-soo said he hoped the work would herald a new chapter in relations between the two Koreas.
Speaking at Dorasan train station - the last stop on the South's western rail line - the South Korean prime minister-designate said the two countries had embarked on a "monumental project. We are burying a history marked by the scars of war and the pain of division," he said.
Rail links between the two Koreas have been cut since the end of the 1950-1953 Korean War. North and South Korea agreed to re-link the connections two years ago as part of a series of steps to improve relations.
The project involves two sets of cross-border road and rail links, on the east and west coast of the DMZ. The plan is to link the western line to China and the eastern line to Russia, so freight can travel overland to Europe, significantly cutting costs.
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.
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