NORTH KOREA ECONOMIC BRIEFING - DECEMBER 2009

UNCLAS SECTION 01 OF 03 SEOUL 002008 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EFIN EINV ENRG ETRD KN SUBJECT: NORTH KOREA ECONOMIC BRIEFING - DECEMBER 2009 ¶1. (U) This cable is sensitive but unclassified and not/not intended for Internet distribution. In This Issue -------------- -- ROK Experts: Currency Reform Will Increase Poverty -- DPRK Adopts New Economic Laws -- DPRK Population Exceeds 24 Million -- DPRK Seeks to Develop Wind Power -- DPRK Promotes Eco-Friendly Farming -- Foreigners Temporarily Banned from Entering the DPRK -- FAO to Conduct "DPRK Crop and Food Security Assessment" -- Arms Exports Double in 2009 -- DPRK-Thailand Trade Declines in 2009 -- U.S. Business Delegation Explores DPRK Investment -- PUST to Hold Int'l Science and Technology Symposium in 2010 -- U.S. NGO Seeks Science and Technology Cooperation -- French Cultural Office to Open in the DPRK -- November Inter-Korean Trade Records High in Two Years -- ROKG Sends Antiviral Drugs to the DPRK to Treat the H1N1 Flu Domestic Economy -------------- ¶2. (SBU) ROK Experts - Currency Reform Will Increase Poverty: At a December 7 seminar hosted by the Korea Peace Institute, ROK experts on the DPRK agreed that the recent DPRK currency reform would likely hurt private market activities and increase poverty. Dr. Kim Young-yoon, Senior Research Fellow from the Korea Institute of National Unification (KINU),said the North Korean government was trying to use currency revaluation to control the market activities of North Korean citizens, which would cause the economy to decline. Dr. Dong Yong-seung, Research Fellow of the Samsung Economic Research Institute the currency revaluation has primarily affected ordinary citizens while having no major impact on the rich, who have long had access to foreign currency. Dr. Cho Bong-hyun, from the Industrial Bank of Korea, predicted the revaluation would lead the DPRK to demand a salary increase for Kaesong Industrial Complex (KIC) workers. These workers, he reasoned, probably had stockpiled cash and would have been disproportionately hurt by the revaluation. Dr. Cho Myung-chul, Senior Research Fellow of the Korea Institute for International Economic Policy added that the currency reform aimed to curb inflationary pressure; centralize the DPRK's financial authority; crack down on markets; narrow the gap between the official exchange rate (1USD = 130~150 DPRK won) and the unofficial rate (1USD = 3,000 DPRK won). Cho added that, contrary to the planners' expectations, the currency revaluation would lead to increased reliance on foreign currency in the black markets. ¶3. (SBU) DPRK Adopts New Economic Laws: The Korea Central News Agency (KCNA) reported December 15 that the Presidium of the DPRK People's Assembly has adopted new laws on real estate, commodities consumption, and the import and domestic procurement of equipment for general facilities. The Real Estate Management Law stipulates principles governing the registration and utilization of real estate and payment for its use. The Commodities Consumption Standards Law aims to reduce the costs of industrial complexes by reorganizing the way commodities are provided to them. The Law on Comprehensive Facilities Imports stipulates overall equipment procurement procedures and general operations of public facilities such as hospitals, schools, factories, and broadcasting stations. According to the KCNA, the new laws are aimed at enhancing social and economic efficiency and modernizing production and management activities in the DPRK. ¶4. (SBU) DPRK Population Exceeds 24 Million: KCNA reported December 16 that the DPRK population exceeded 24 million as of October 2008. DPRK Vice Premier Ro Tu-chol said the census would be helpful to the adoption of state policy and the social, economic and cultural development of the country. Citing a census sponsored by the United Nations Population Fund (UNFPA),as of October 2008 the DPRK's total population was 24,052,231, an increase of 3 million from 1993. The male population totaled 11,720,838 while females totaled 12,330,393. North Koreans over 65 accounted for 8.7 percent of the total. The DPRK's birth rate was 2.0 children per woman. North Korea's life SEOUL 00002008 002 OF 003 expectancy is 69.3 years, 3.4 years lower than 2007. ¶5. (SBU) DPRK Seeks to Develop Wind Power: Chosun Sinbo reported December 4 that the DPRK has been collaborating with Germany and China to develop wind power capabilities. The DPRK sent a delegation to the Third International Wind Energy Exhibition held in Shanghai in April 2009 to discuss small-sized windmill power generation with experts from China and the World Wind Energy Association. Meanwhile, the Pyongyang International Information Center for New Technology and Economy (PIINTEC) will pursue academic and other exchanges on renewable energy technology. ¶6. (SBU) DPRK Promotes Eco-Friendly Farming: KCNA reported December 15 that North Korea has built an integrated, eco-friendly farm where fish and livestock are raised with eco-friendly power. North Korea's Natural Energy Development and Use Center has developed a multi-purpose solar greenhouse to grow vegetables, a livestock pen, a methane fermentation tank and a fish farm. The DPRK claims the newly developed solar greenhouse is both efficient and free of environmental pollution. ¶7. (SBU) Foreigners Temporarily Banned from Entering the DPRK: On December 16, ROK media outlets reported that the DPRK banned foreigners from entering the country from December 20 until February ¶2010. The DPRK Embassy in Beijing has reportedly stopped issuing visas. Some experts believe the DPRK is taking security measures to tighten control after the currency reform. ¶8. (SBU) FAO to Conduct "DPRK Crop and Food Security Assessment:" The United Nations Food and Agriculture Organization (FAO) plans to send a due diligence team consisting of four agricultural experts to the DPRK to carry out a "crop and food security assessment" in May 2010, according to the Voice of America on December 15. The team will survey the North's agricultural productivity and harvest. The FAO conducted crop and food security assessments from 1995 through 2004 in cooperation with the World Food Program. Daniele Donati, Emergency Operations Chief in the Asia Pacific Region of the FAO said in an interview with Reuters that, "We estimate that the DPRK may have to import slightly over one million metric tons of food to cover their needs." The FAO estimates that the DPRK needs about 5.1 million metric tons of grain a year for food, animal feed and seed. The shortfall is about the same as last year's. Donati said that the DPRK food shortage was persistent but more or less stable. The FAO estimated that DPRK's total rice output this year would be 2.4-2.6 million metric tons. (Note: FAO is consistently lower than other forecasters in its DPRK grain harvest predictions.) Foreign Trade and Investment -------------- ¶9. (SBU) Arms Exports Double in 2009: On December 17, ROK Daily Donga Ilbo reported that the value of DPRK arms exports will double to nearly USD 200 million in 2009. Experts estimate DPRK arms exports have been rising since 2007. The DPRK has reportedly diversified its arms sales from the Middle East to East Asia, Africa and South America. It has also expanded its scope of arms to include WMD-related items. The DPRK previously focused on exporting conventional weapons such as rockets, guns, and ammunition. The sources said that the Chongsong Union of the DPRK Workers Party is actively involved in DPRK arms sales. ¶10. (SBU) DPRK-Thailand Trade Declines in 2009: On December 10, the Korea Trade and Investment Promotion Agency (KOTRA) reported that two-way trade between the DPRK and Thailand from January to September 2009 fell 43 percent over the same period in 2008 to USD 35.5 million. (Thailand was DPRK's seventh largest trading partner in 2008.) KOTRA analysts said that the decline was due to the global recession. Thai exports to the DPRK from January to September 2009 dropped 34 percent to USD 24.7 million, while imports declined 57 percent from the same period a year ago to USD 10.8 million. Thailand exported goods to the DPRK that included sugar, rubber products and man-made staple fibers. Thailand's major import items are fishery products, machinery, and rubber products. ¶11. (SBU) U.S. Business Delegation Explores DPRK Investment: A U.S. business delegation led by General Charles Boyd, president and CEO of the Business Executives for National Security (BENS),visited SEOUL 00002008 003 OF 003 Pyongyang on December 15-17 to discuss the DPRK's investment climate. The delegation met with DPRK Foreign Minister Pak Ui-chun and Kim Yong-nam, Chairman of the Presidium of the DPRK Supreme People's Assembly, and vice premier, Roh Tu-chol. They also visited Kim Il-sung University, Pyongyang Metro, Pyongyang Textile Factory and the Pyongyang 326 Electric Wire Factory during their stay in the DPRK. ¶12. (SBU) PUST to Hold Int'l Science and Technology Symposium in 2010: During an interview with Yonhap News Agency on December 4, Malcom Gilles, former President of Rice University and co-chairman of the founding committee at the Pyongyang University of Science and Technology, said the university plans to hold an international seminar on science and technology, IT and energy in June 2010 to commemorate its opening. The university is North Korea's first institution of higher education jointly founded with the ROK along with contributions from groups and individuals from China and the United States. It plans to provide lectures on IT, bioengineering and economic development for 200 North Korean university students per year in Korean and English. Dr. Gilles said that he plans to give a lecture on nano-bioinformation technology and lessons on economic development by less developed countries. He also was involved in raising funds for the Pyongyang University project and in training North Korean medical doctors in 2007. ¶13. (SBU) U.S. NGO Seeks Science and Technology Cooperation: A U.S. NGO delegation consisting of representatives from the American Association for the Advancement of Science (AAAS),the U.S. Civilian Research Development Foundation, Syracuse University and the New York-based Korea Society visited Pyongyang on December 10-15 to discuss bilateral cooperation on science research. The six-person team led by Peter C. Agre, a Nobel laureate in chemistry, met with DPRK scientists and university and science policy officials to explore practical opportunities for exchanges and collaboration. ¶14. (SBU) French Cultural Office to Open in the DPRK: The DPRK accepted France's offer to establish a permanent cultural office in Pyongyang, according to the KCNA on December 17. France made the proposal after Jack Lang, special envoy of French President Nicholas Sarkozy, visited the DPRK in November to explore normalization of relations between the two countries. France is the only EU member country yet to establish diplomatic ties with the DPRK with the exception of Latvia. France has cited concerns over the DPRK's human rights record and its nuclear program. Inter-Korean Economic Cooperation -------------- ¶15. (SBU) November Inter-Korean Trade Records High in Two Years: Recent figures released by the Ministry of Unification show that inter-Korean trade in November 2009 was the highest in the past two years, rising 31 percent to USD 187 million. ROK exports to the DPRK rose 48 percent to USD 93 million and imports also were up 17 percent to USD 94 million. Commercial transactions between the two Koreas rose 38 percent to USD 185 million due to increased shipments to Kaesong Industrial Complex, while non-commercial transactions declined 88 percent to USD 1.1 million, which consisted mainly of aid shipments from ROK NGOs. Inter-Korean trade from January to November 2009 fell 14 percent to USD 1.46 billion compared to last year. Foreign Aid -------------- ¶16. (SBU) ROKG Sends Antiviral Drugs to the DPRK to Treat the H1N1 Flu: The ROKG on December 18 sent H1N1 medication (400,000 doses of Tamiflu and 100,000 doses of Relenza) to the DPRK via Kaesong. The aid cost an estimated 17.8 billion won (USD 15 million) which was financed through the Inter-Korean Cooperation Fund. Experts including doctors also traveled across the border to give advice on use of the medication. The ROKG also plans to provide hand sanitizers worth one billion won (USD 863,000) to the DPRK. The aid shipment was the ROKG's first direct humanitarian aid to the DPRK since President Lee Myung-bak took office in February 2008. STEPHENS