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Cablegate: North Korea Economic Briefing - February 2010

VZCZCXRO3904
RR RUEHVK
DE RUEHUL #0318/01 0560805
ZNR UUUUU ZZH
R 250805Z FEB 10
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 7203
RUCPDOC/USDOC WASHDC 9742
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAUSA/DEPT OF HHS WASHDC
RHEHNSC/NSC WASHINGTON DC
RUEHVK/AMCONSUL VLADIVOSTOK 1817
RUCNKOR/KOREA COLLECTIVE

UNCLAS SECTION 01 OF 04 SEOUL 000318

SENSITIVE

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN EINV ENRG ETRD KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - FEBRUARY 2010

1. (U) This cable is sensitive but unclassified and not/not
intended for Internet distribution.

-------------
In This Issue
-------------

-- Grain Output Declines in 2009
-- Market Restrictions Eased
-- Finance Chief Sacked Over Currency Debacle
-- Scholar: Currency Reform Goal Was to Expand Public Finance
-- National Development Bank Established to Attract FDI
-- DPRK-China Trade Declines in 2009
-- Reports of USD 10 Billion of Chinese Investment
-- DPRK Patent Applications
-- Mobile Phone Users Reach 100,000 Subscribers
-- Air Koryo Suspends Pyongyang - Shenyang Flights
-- DPRK Lifts Travel Ban on Americans
-- Additional Labor for the KIC
-- Inter-Korean Trade in 2009 Fell Eight Percent
-- WFP Winds Down Food Aid Program
-- U.S. NGO Sends Medical Supplies to the DPRK
-- German NGO Builds Solar Energy Green House in DPRK
-- New Zealand Sends English Teachers to the DPRK
-- Australia Cuts DPRK Aid in 2010
-- Business Training for DPRK Officials
-- ROKG May Resume Fertilizer Aid
-- ROKG Delivers USD 87,450 Worth of Hand Sanitizer

Domestic Economy
----------------

2. (SBU) Grain Output Declines in 2009: According to the Korea
Rural Development Administration (RDA), the DPRK's 2009 grain and
staple food production was an estimated 4.11 million metric tons,
down five percent (or a drop of 200,000 metric tons of grain) from
2008. Rice production was estimated to be 1.91 million metric tons,
three percent higher than in 2008, while corn output fell 16 percent
to 1.3 million metric tons due to unfavorable weather conditions
last summer. The total amount falls 1.3 million metric tons short
of what the DPRK needs in 2010 to feed its population. The estimate
is based on a RDA simulation which analyzed the DPRK's initial
production figures on climate and soil conditions last year.
(Yonhap News, February 10, 2010)

3. (SBU) Market Restrictions Eased: The DPRK authorities have
reportedly started lifting market regulations across the nation.
Since February 1, market restrictions in Yanggang Hamkyung Provinces
have been completely lifted. Rice prices, previously more than 400
DPRK won, are now reported to have stabilized between 250 - 300 DPRK
won. However, it is not clear whether authorities have completely
opened the market or they are temporarily opening the market to
avert a possible food crisis. At a February 2 symposium, Seoul
National University's Dr. Kim Byung-yeon, stated that a complete
abolishment of markets in the DPRK would be difficult because the
DPRK relies heavily on such unofficial economies, such as illegal
market activities, despite strict control of those activities.
(Daily NK, February 3, 2010, Yonhap News , February 2, 2010)

4. (SBU) Finance Chief Sacked Over Currency Debacle: The DPRK
government dismissed Workers' Party's Finance Director Pak Nam-gi,
reportedly because of the failed currency reform late last year.
Pak was appointed as Finance Director in July 2007 overseeing the
DPRK's economic policies and has spent the past few years attempting
to create a market economy. Meanwhile, DPRK Premier Kim Yong-il has
apologized for inflation and confusion in the aftermath of the
currency reform, according to Good Friends, a ROK-based NGO.
(Chosun Ilbo, February 3, 2010)

5. (SBU) Scholar: DPRK Currency Reform Goal Was to Expand Public
Finance In an interview with the Chosun Sinbo on January 29, Kim
Cheol-jun, Director of the (North) Korea Institute of Social
Sciences speculated that the DPRK currency reform implemented last
November was aimed at filling the DPRK's public finance coffers. He
pointed out that following the currency reform, the North Korean
government failed to introduce any policies to address concerns to
stabilize the lives of ordinary citizens. Instead the government
banned foreign currency use, closed the markets and took other
measures which added to inflation and instability. (Chosun Sinbo,
January 29, 2010)

6. (SBU) National Development Bank Established to Attract FDI: The

SEOUL 00000318 002 OF 004


DPRK National Defense Commission recently ordered the establishment
of a "National Development Bank" to carry out investments with
international financial institutions on projects relating to
national. This could be an indication that the DPRK leadership is
more aggressively striving to entice foreign capital, but it is not
yet clear if the move will have any significant impact. Economic
sanctions by the international community have made it difficult for
the DPRK to attract direct foreign investment. (Korea Central News
Agency, January 20, 2010)

Foreign Trade and Investment
----------------------------

7. (SBU) DPRK-China Trade Declines in 2009: In 2009, two-way trade
between the DPRK and China fell four percent to USD 2.69 billion.
The decline was mainly due to worsened relations between the two
countries following the North's second nuclear test conducted in May
2009 and unstable economic conditions created by its currency
reform. Trade in December 2009 dropped 21 percent from the same
period of the previous year. Chinese exports to the DPRK in 2009
fell 7.1 percent to USD 1.89 billion, while Chinese imports from the
DPRK in 2009 also dropped 4.3 percent to USD 0.80 billion.
(Japanese Nihon Keizai Shimbun and ROK Yonhap News, February 2,
2010)

8. (SBU) Reports of USD 10 Billion of Chinese Investment: Quoting
an unidentified source, on February 15 the media reported that China
will soon invest USD 10 billion in North Korea. According to these
reports, several Chinese banks and multinational companies will soon
complete negotiations with North Korea's Daepung International
Investment Group, a newly established international cooperation
agency to move forward with investments in railroads, harbors and
houses. A signing ceremony will be held in mid-March. (Yonhap
News, February 15, 2010)

9. (SBU) DPRK Patent Applications: According to the figures
recently released by the World Intellectual Property Organization
(WIPO), North Korea has registered a total of 14 patent cases in the
last five years. The DPRK patents registered with the WIPO include
basic materials, machinery, food, and culture sector. The DPRK
joined the WIPO in 1974 and signed a Patent Cooperation Treaty in
1980. In 2006 an international seminar on IPR was held in
Pyongyang. The DPRK trails other Asian nations in patent filings,
but is reportedly enthusiastic about participating IPR-related
international seminars and training programs organized by the WIPO.
(Radio Free Asia, February 17, 2010)

10. (SBU) Mobile Phone Users Reach 100,000 Subscribers: Orascom
Telecom, the Egyptian-based mobile network operator, said its
subsidiary in the DPRK, Kyorolink, acquired 100,000 subscribers in
December 2008 and expects to add millions more in the next five
years. Khaled Bichara, chief executive of Orascom stated that, "We
see that there is a very big plan for an economic boom in the DPRK
and we predict a much stronger economy by 2012. We believe that
mobiles are the future of communication and we will definitely be
part of this." Bichara also noted that mobile phone subscribers
were not limited to elite members of the military and communist
party, as many observers had speculated. Koryolink offers only
basic voice and text message service. International and roaming
services are not provided but Bichara said that starting those
services would be fairly easy given the sophistication of the
network being installed. (Financial Times, February 2, 2010)

11. (SBU) Air Koryo Suspends Pyongyang - Shenyang Flights: Due to
falling demand, Air Koryo has suspended flights between Pyongyang
and Shenyang, China. Air Koryo has been operating twice weekly
direct flights between the two cities. An Air Koryo official said
operations would resume soon. (Yonhap News, January 28, 2010)

12. (SBU) DPRK Lifts Travel Ban on Americans: The DPRK has recently
lifted a travel ban imposed on Americans. Walter Keats, owner of
U.S.-based Asia Pacific Travel Agency which specializes in North
Korean tours, claimed that Americans can now visit the DPRK. Until
now, Americans were only granted visas to the DPRK between August
and October, 2009. Restrictions on the duration and travel routes
of DPRK tours remain the same. Thus, U.S. citizens are not allowed
to stay longer than four nights in the DPRK, nor to travel via train
through China. Many experts view the North's recent move as the
DPRK's attempt to bring in more foreign currency. (Radio Free Asia,
January 28, 2010)

Inter-Korean Economic Cooperation
---------------------------------

SEOUL 00000318 003 OF 004

13. (SBU) Additional Labor for the KIC: The DPRK authorities are
considering supplying 700 additional North Korean workers for ROK
firms operating in the Kaesong Industrial Complex (KIC). The
additional workers would be high school graduates from around the
Kaesong city. After three months of on-the-job training, the newly
recruited North Korean workers would be supplied to KIC firms in
June this year. (Radio Free Asia, February 9, 2010)

14. (SBU) Inter-Korean Trade in 2009 Fell 8 Percent: According to
figures released by the Ministry of Unification (MOU), inter-Korean
trade in 2009 fell eight percent to USD 1.68 million. South Korea's
exports to the DPRK in 2009 fell by 16 percent to USD 745 million,
while imports remained the same as the previous year totaling USD
934 million. The MOU attributes the decline in inter-Korean trade
to stalled inter-Korean relations. Overall inter-Korean trade
accounted for 98 percent of inter-Korean commercial transactions
that include general trading, processing based on commission and
revenue generated from Kaesong Industrial Complex (KIC). However,
non-commercial transactions such as humanitarian aid shipments from
ROK civic groups and the ROKG, totaled USD 37 million, accounting
for only two percent of total inter-Korean trade. Trade involving
KIC rose 16 percent to USD 941 million. The South's shipment of raw
materials to the KIC increased by a small margin of one percent to
USD 523 million while outbound shipments of finished KIC products to
the South rose 44 percent to USD 418 million. Trade involving Mount
Geumgang tourism remained stagnant due to the continued suspension
of tours. (MOU Website)

Foreign Aid
-----------

15. (SBU) WFP Winds Down Food Aid Program: Lena Savelli,
spokesperson from the World Food Program (WFP), announced that it
would end its emergency food aid operation project in the DPRK. The
WFP had planned to operate the Emergency Operation for the DPRK from
September 2008 through November 2009, spending USD 540 million to
feed 6.2 million North Koreans, but due to significantly reduced
donations by international communities such as the United States and
South Korea, the WFP had to scale down the program. The WFP secured
only 18 percent of the targeted donation amount by the end of 2009.
(Radio Free Asia, February 4, 2010)

16. (SBU) U.S. NGO Sends Medical Supplies to the DPRK: The
Institute for Strategy and Reconciliation (ISR), a U.S.-based NGO,
will send medical supplies worth USD 4.8 million of to help more
than 20,000 North Korean children and persons with disabilities.
Medical supplies include antibiotics, wheelchairs, crutches,
stethoscopes and various surgical and medical equipment. The ISR
has been sending medical supplies to the DPRK since 1998. It soon
plans to recruit volunteers to assist with post-surgery
rehabilitation programs in the DPRK. (Yonhap News, February 9,
2010)

17. (SBU) German NGO Builds Solar Energy Green House in DPRK:
German Agro Action (GAA), a Germany-based NGO, has been helping the
DPRK to build 15 solar energy green houses in Pyongyang and
Sooncheon City in Pyongan Province in North Korea. GAA has
allocated a total of USD 2 million for the project. The solar
energy green houses are designed for a large-scale vegetable
cultivation and fish farming. Construction has not been completed.
It also plans to offer a training program on farming, in Pyongyang
and Soocheon City by end of this year. Finally, GAA plans to send
625 metric tons of food including rice, soy beans, sugar, salt and
vegetable oil to the DPRK. (Radio Free Asia, 02/16/2010, Voice of
America, February 19, 2010)

18. (SBU) New Zealand NGO Sends English Teachers to the DPRK:
NZ-DPRK Society, a New Zealand-based NGO helping North Korea in the
agricultural and educational sectors, said January 20 that it plans
to dispatch English teachers to teach English to North Korean middle
and high school students for two months. In addition, it plans to
invite North Korean students as part of student scholarship program
to New Zealand to learn English, IT, hygiene and business
management. The NGO had sent English teachers to the DPRK in 2006
and 2008. (Radio Free Asia, January 20, 2010)

19. (SBU) Australia Cuts DPRK Aid in 2010: The Australian
Government Overseas Aid Program (AusAID) plans to cut humanitarian
aid to the DPRK to USD 4.65 million this year, down from USD 6.75
million. Officials said the reduction was mainly due to the North's
nuclear test in May last year. AusAID has been helping the DPRK via
the WFP, UNICEF and the IFRC. (Radio Free Asia, January 15, 2010)

SEOUL 00000318 004 OF 004

20. (SBU) Training for DPRK Officials: The Swiss Government has
allocated 4.5 million Swiss francs (USD 4.2 million) to offer
training programs for executive members of the DPRK state-run
companies and high-ranking government officials on international
trade and business management. The Swiss Agency for Development and
Cooperation (SDC) has been providing such training programs for DPRK
officials at Pyongyang International Business School since 2004 and
all classes have been conducted in English with Korean materials.
The Pyongyang International Business School was jointly established
by the DPRK Government, SDC and the European Business Association in
2004. It is the first Western-style business school in the DPRK.
The SDC, however, suspended all DPRK assistance programs beginning
from 2011 due to strong opposition from the Swiss Parliament.
(Radio Free Asia, January 22, 2010)

21. (SBU) ROKG May Resume Fertilizer Aid: An ROKG official was
quoted as saying that the ROKG is ready to provide the DPRK with
fertilizer even before an inter-Korean summit is held. He said,
"Food aid is difficult because there is a high chance it will be
delivered to the DPRK military, but fertilizer isn't much of a
problem." The ROKG offered 10,000 tons of corn to the DPRK last
October, because corn is less likely to be diverted to the DPRK
military than rice. The DPRK accepted the South's offer only
recently because the ROKG notified it that other aid including
fertilizer would not be given unless it accepted the corn." (Chosun
Ilbo, February 2, 2010)

22. (SBU) ROKG Delivers USD 87,450 Worth of Hand Sanitizer: The MOU
sent 1 billion KRW (USD 87,450) worth of hand sanitizers to help
North Koreans fight the H1N1 flu virus on February 22. This follows
500,000 doses of the anti-flu vaccines to the DPRK last December.
Meanwhile, the World Health Organization (WHO) said although 24
North Koreans have been infected with the H1N1 virus, there have
been no deaths. (Korea Times, February 17, 2010)

TOKOLA

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