FREE GEOPOLITICAL NEWSLETTER

 

North Korea

For current reports go to EASY FINDER

North Korea


 

 

REPUBLICAN REFERENCE

Area (sq.km)
120,540

Population
22,224,195 (July 2002 est.)

Capital
Pyongyang

Currency
North Korean won (KPW)

Leader
Kim Jong-il

a NEW service
 

NEW BUSINESS
OPPORTUNITIES

a FREE service

FREE World audit country reports on democracy, corruption, human rights and press freedom
democracy
 check



CNN.COM
ELECTION WATCH


parties &
elections

Currency converter
currency
converter

 

Background:
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.
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 frustration is threefold. Economically, until recently the DPRK resisted reform. In July 2002 it imposed drastic wage and price rises; but without supply-side steps to match, these produced little except inflation. In 2003, however, it became clear that wider, if cautious, market reforms were under way. 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".
In October 2002 the US accused the DPRK of having a new covert nuclear project - 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. 
A shift to dialogue came when an anxious China brokered talks between North Korea and the US in April. Wider six-party talks followed in August, bringing South Korea, Japan and Russia to the table too. Neither session made substantive progress; at both North Korea hinted that it has nuclear weapons, and might sell or test them. This may be bluff; nor is it clear if any nuclear arsenal is negotiable, or whether Kim Jong-il has concluded after Iraq that only a nuclear deterrent can save him from sharing the fate of Saddam Hussein. With pressure from China, and some signs of a softer line by the US towards meeting North Korea's concerns, the six-party talks may reconvene by December; although as of late November no further meetings had yet been agreed.
If and when talks resume, the next hurdle will be to agree an agenda. North Korea's two nuclear programmes are just the start. On the security front, other worries include its missiles, suspected chemical and biological weapons (CBW), the million-strong Korean People's Army (KPA), and more. Further concerns include kidnaps (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.

 « Top  

Update No: 007 - (01/12/03)

KEDO, adieu?
History may record November 21, 2003 as a fateful day for the Korean peninsula. The executive board - comprising the US, South Korea, Japan and the EU - of the Korean Peninsula Energy Development Organization (KEDO) voted to suspend for a year its main project: two light water reactors (LWRs) being built at Kumho on North Korea's northeast coast. While Seoul spokesmen saw this as a temporary hiatus, Washington made it clear that it saw no future for LWRs in North Korea, period.
So ends, perhaps, one of the odder yet more creative pieces of multilateral diplomacy of recent times. The KEDO consortium was set up under the 1994 US-DPRK Agreed Framework (AF), which defused the first North Korean nuclear crisis. In return for mothballing its Yongbyon nuclear site, Pyongyang was to be given two new reactors, of a type supposedly less susceptible to military abuse. During construction it also received 500,000 tons of heavy fuel oil annually, until this was suspended a year ago when a fresh nuclear crisis blew up over a suspected new covert nuclear programme, this time using highly enriched uranium (HEU) rather than plutonium.

Charade, or breakthrough?
From the start critics, especially US Republicans, condemned the AF and KEDO as rewarding blackmail. Others saw it as a charade: Kim Jong-il pretended to give up the bomb (not that he admitted having one, at that stage: the pretence was that Yongbyon was about electricity) while the US and its allies pretended to build him new reactors - while expecting his regime to collapse before delivery, scheduled for 2003. All this is years late, owing to delays by both sides: the reactors are around one-third built. In any case, North Korea's decrepit grid could not handle the LWRs unless modernized.
Yet the AF and KEDO also did much good: averting a second Korean War (a real risk in mid-1994), shuttering North Korea's known nuclear facilities, and starting a US-DPRK relationship which widened to cover missile talks, food aid, MIA searches and more. (This last still continues.) Many US, Japanese and ROK officials visited North Korea, some often: gaining extensive field experience and first-hand knowledge of the DPRK, in tough negotiations over the many practicalities of such a project. This was a valuable learning experience for both sides, including for the three allies to cooperate.

Practical cooperation
KEDO was also cunning: giving Seoul and Tokyo a say and stake (the EU was a later addition) at a time when Pyongyang refused to talk to either directly. These two were also to foot most of the eventual $5 billion bill; South Korea has spent $1bn already, another reason why it is reluctant to call a halt. In return, KEDO played a crucial role in beginning practical inter-Korean cooperation. Four years before Kim Dae-jung's sunshine policy, this saw South Koreans living and working in the North for the first time: in their hundreds, eventually. To enable this, the first ever regular direct inter-Korean sea, telecoms and air links were created. Recently nuclear training has begun at Kumho, and some trainees have quietly come south to inspect ROK nuclear plants.
While the new nuclear crisis of the past year had put KEDO in virtual limbo, its end - which this may be - is therefore regrettable. The timing is odd too: hardly calculated to encourage Pyongyang to respond to general entreaties to participate in a new round of multilateral talks. Despite much diplomatic shuttling in many directions, as of Nov. 25 there was still no confirmation of, or date for, a second round of six-party nuclear talks in Beijing; although these are widely expected to take place in mid-December.

Market reforms, without doubt
Notwithstanding these question-marks over KEDO and the nuclear crisis, elsewhere North Korea shows signs of progress. There is now no doubt that economic reforms, radical by past standards, are under way. At last, the markets which since the 1996-8 famine have increasingly supplanted the old state distribution system are receiving official acknowledgment: formerly off-limits, they are now on show to visitors. More officials are being sent for training in market and transition economics; Vietnam, significantly, is one such destination. In November, Swedish visitors involved in this training were told that Kim Jong-il has decreed a three-year experiment of opening to the global economy; but that this would not be announced, and would have limits. There are, for instance, apparently no plans to start publishing any economic statistics; even though foreign investors would need these, as would the World Bank and IMF should North Korea ever feel inclined to apply for membership and the loans this would bring. The nuclear crisis, plus an avowed army-first (Songun) policy which sends the lion's share of scarce resources to the Korean People's Army (KPA), also in practice contradict and set limits to these new moves towards opening and reform.
Yet whereas yesterday both North Korea and the peninsula's division seemed frozen in time, it is startling that in late November foreign journalists could join a Hyundai tour group, cross the formerly impassable Demilitarized Zone (DMZ) by bus - two corridors are intermittently open, with rail links and motorways due for completion next year - and tour new pig farm and vegetable joint ventures just north of the DMZ. Another Hyundai project, a planned industrial zone at Kaesong, only 50km north of Seoul, is also forging ahead. But so far Hyundai has lost heavily on these and other Northern projects, and a family feud now threatens to discontinue them unless the ROK government helps or takes them over - as is likely, at least with Kaesong.

Opportunities for foreign business?
If serious, such changes should spell opportunity for foreign business. On November 21 the Financial Times reported that European investors plan to set up a company in Pyongyang, International Development Capital (IDC), to help restructure the financial system and facilitate foreign investment. They may also establish a bond market and a credit card settlement system. According to Dr Tony Michell of Euro Asian Business Consultancy, long active in the DPRK, 20-odd mostly European partners (unnamed) are involved in a London-based Northern Development Consortium, which signed an agreement to form the company jointly with the DPRK Ministry of Finance. 
Another consultant, Michael Hay, said that North Korea wants to license international law and accountancy firms to help attract foreign investment. To do so would put it a step ahead of Seoul, where neither sector is open to foreigners except joint ventures. While these are encouraging signs, Pyongyang's track record as well as the ongoing nuclear crisis may for now deter all but the least risk-averse venture capitalists. 

Pyongyang's pipeline bypass
Symptomatically, a huge $17bn gas pipeline project - at 4,800 km, Asia's longest - signed on November 14 to bring Siberian gas to China and South Korea will bypass North Korea, crossing the Yellow Sea instead. Although elsewhere pipelines often run across politically difficult terrain, such as the Caucasus, and Seoul wanted Pyongyang involved in this, its partners refused. The late Hyundai founder, Chung Ju-yung, first proposed a trans-Korean pipeline 15 years ago. Had North Korea shown willing, both in general and on this in particular, it could now be set to benefit both from charging hefty transit fees, and also itself getting gas to build badly needed new power stations.
As 2003 draws to an end, North Korea exhibits contradictory tendencies: militarism or reform? Kim Jong-il cannot have it both ways, either politically or economically, Hopefully 2004 will see that contradiction resolved, and in the right direction. 

 « Top  

FOREIGN INVESTMENT

European investors move into North Korea

A group of European investors have agreed to set up a capital company in North Korea - a move that could herald further reform of the secretive state's communist economy and signal increased openness towards foreign investment, the Financial Times reported on November 21st.
International Development Capital, the proposed company, would help restructure North Korea's fragile financial system and act as a facilitator for foreign investment of a bond market and credit card settlement system would be among the company's possible roles, according to Tony Michell, president of Euro Asian Business Consultancy, a UK-based organisation involved in the project.
About 20 financial institutions and individuals, mostly from Europe, are involved in the scheme, under the umbrella of the London-based Northern Development Consortium. The consortium has signed a provisional agreement with Pyongyang and is awaiting final approval to set up the company jointly with North Korea's ministry of finance.
Park Suhk-sam, head of North Korea research at the South Korean central bank, said the proposal would be a significant step towards reform of the country's financial system.
Reforms of North Korea's economy have been under way since July last year, when wages and prices were sharply increased in line with market values - an important step towards liberalisation.
Mr Michell said a full opening of North Korea's economy and large-scale foreign investment was impossible until the dispute about its weapons of mass destruction was peacefully resolved. But he added the proposed company would be well-placed to benefit if an agreement was reached.

 « Top  

FOREIGN AID

U.N. Agencies Seek Aid for North Korea 

A group of U.N. agencies is asking for US$221 million in international aid for North Korea, where food shortages, poverty and poor health care services have put the country in a state of "chronic emergency," an agency spokesman, the High Plains Journal reported recently. 
Rick Corsino, director of the World Food Program (WFP) in North Korea, said Pyongyang still faces a tremendous food shortage despite improved harvests, and malnutrition has reached "alarming rates," while health services are "still precarious and likely worsening." 
He said there were some signs of improvement from last year -- most notably in the capital city of Pyongyang -- including more regular power and water supplies, but those were not enough to help in the country's situation overall. 
"It's a continuation of a chronic emergency ... and one without a clear end in sight," Corsino said at a news conference in Beijing. "By all measures, the DPRK remains a country in need of massive humanitarian support," 
DPRK stands for the Democratic People's Republic of Korea, the North's official name. 
Fifteen U.N. agencies and non-governmental organizations launched the appeal in Geneva on Wednesday, Corsino said. The Rome-based WFP is asking for US$192 million; UNICEF US$12.7 million; the World Health Organization (WHO) US$7 million; the Food and Agriculture Organization US$3 million; and the U.N. Population Fund US$672,000. 
Eigil Sorensen, the WHO representative in Pyongyang, said the agency's main focus in the country is the control of communicable diseases, including tuberculosis and malaria, as well as the prevention of HIV and preparedness against diseases like SARS. 

 « Top  

CUSTOMISED REPORTS

 

INVESTMENT BACKGROUND REPORTS 

Our analysts and editorial staff have many years experience in analysing and reporting events in these nations. This knowledge is available in the form of geopolitical and/or economic country reports on any individual or grouping of countries. Such reports may be bespoke to the specification of clients or by access to one of our existing specialised reports. 
 
For further information email:
reports@newnations.com

Considering an investment or a trip to any newnation? First order our Investment Pack which will give you by e-mail the last three monthly newnation reports and the complete worldaudit democracy check for the low price of U$12. The print-out would be a good companion to take with you. Having read it, you might even decide not to go!
 
To order please click here:
Investment background report

 

« Top

« Back

 


 
Published by 
International Industrial Information Ltd.
PO Box 12 Monmouth 
United Kingdom NP25 3UW 
Fax: UK +44 (0)1600 890774
enquiries@newnations.com