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Viewing cable 08SEOUL2408, NORTH KOREA ECONOMIC BRIEFING - NOVEMBER 2008

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Reference ID Created Released Classification Origin
08SEOUL2408 2008-12-16 05:56 2011-08-25 00:00 UNCLASSIFIED Embassy Seoul
VZCZCXRO7089
RR RUEHVK
DE RUEHUL #2408/01 3510556
ZNR UUUUU ZZH
R 160556Z DEC 08
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC 2647
RUCPDOC/USDOC WASHDC 7899
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEAUSA/DEPT OF HHS WASHDC
RHEHNSC/NSC WASHINGTON DC
RUEHKO/AMEMBASSY TOKYO 5181
RUEHBJ/AMEMBASSY BEIJING 5074
RUEHGP/AMEMBASSY SINGAPORE 6154
RUEHHK/AMCONSUL HONG KONG 3745
RUEHSH/AMCONSUL SHENYANG 3889
RUEHVK/AMCONSUL VLADIVOSTOK 1570
RUEHIN/AIT TAIPEI 2893
UNCLAS SECTION 01 OF 05 SEOUL 002408 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - NOVEMBER 2008 
 
Domestic Economy 
---------------- 
DPRK Bond Prices Low and Falling 
DPRK Cuts Food Ration for Farmers 
DPRK Records 43 Percent Worsening in Hunger Index Score 
UN: DPRK Urgently Needs Food for 40 Percent of Population 
 
Foreign Aid 
----------- 
Italy Provides Food Aid to DPRK 
German NGO Working to Complete Water Purification Project this Year 
Swiss NGO Installs Wind Power Project, Considers More 
WFP Seeks More Food Aid for DPRK 
ROK Allocates USD 460 Million in Possible Aid to DPRK 
Fourth U.S. Shipment of Food Aid (25,060mt) to DPRK 
Australia and Canada Respond to WFP's Emergency Food Aid Request 
Kuwait-DPRK Sign Loan Agreement 
 
Inter-Korean Economic Cooperation 
--------------------------------- 
DPRK Halves ROK Staffers at KIC, Suspends Kaesong Tour and Railway 
October Inter-Korean Trade Falls 23% to USD 160 Million 
KEPCO Loses USD 14 Million on KIC Electricity Supply over Four 
Years 
Number of South Korean Tourists to DPRK Plunges 88 Percent in 
September 
A ROK Chicken Franchise in Pyongyang Succeeds Business 
 
Foreign Trade and Investment 
---------------------------- 
Japan Extends Economic Sanctions against DPRK; More Actions 
Possible 
DPRK Reportedly Bans Chinese/Russian Goods from State-run Stores in 
2009 
DPRK-Kuwait Sign an Air Service Agreement 
Air Koryo Plans to Replace Aircraft to Compete with Air China 
Refurbishment of Rajin-Khasan Railway Link Begins 
MasterCard Will Not Enter DPRK 
 
 
Domestic Economy 
---------------- 
 
1. (U) DPRK Bond Prices Low and Falling:  Radio Free Asia (RFA) 
reported November 7 by quoting Exotix Limited, a United 
Kingdom-based investment bank, regarding North Korean bond prices -- 
"The price has fallen since July this year.  The market then was in 
the mid 20 cents, but it is now in the teens."  RFA also quoted 
Stuart Culverhouse, chief economist of ICAP, a British financial 
firm, as saying "I don't think removal of North Korea from the list 
of state-sponsoring of terrorism has any real practical consequences 
at this stage.  I think the slower pace of the Six Party Talks is 
making progress from here harder."  RFA said that North Korea's 
outstanding bond debt is estimated at USD 1.6 billion. 
 
2. (U) DPRK Cuts Food Ration for Farmers:  Good Friends, a South 
Korea-based civic group helping North Korea, alleged on October 23 
that North Korea has ordered cuts in the food ration level for 
farmers and is shifting the allocation to ensure the military has a 
full food supply. 
 
3. (U) DPRK Records 43 Percent Worsening in Hunger Index Score: 
North Korea recorded a 43 percent increase (worsening) in the 
International Food Policy Research Institute's 2008 Global Hunger 
Index report.  The DPRK's overall hunger rating was at the upper end 
of the 'serious' level but still below the threshold for the 
'alarming' or extremely alarming' levels.  The report was footnoted 
regarding the unreliability of data for North Korea. 
 
4. (U) UN: DPRK Urgently Needs Food for 40 Percent of Population: 
According to a FAO/WFP Crop and Food Security Assessment Mission 
report widely cited in the ROK press, North Korea will urgently need 
food aid for about 8.7 million North Koreans, mostly young children, 
pregnant, nursing women and elderly people (40 percent of its total 
population of 23 million) for the year through October 2009.  It was 
the first time such comprehensive field assessment mission since 
2004.  The FAO/WFP join mission consisting of six experts visited 
six regions including Hwanghae and Pyongan Provinces in the North on 
October 9-24 this year to assess fall harvests.  The report 
estimates total food production to be 4.21 million metric tons for 
 
SEOUL 00002408  002 OF 005 
 
 
November 2008-October 2009.  The report concludes that North Korea 
will face a cereal deficit of 836,000 metric tons, assuming 
commercial imports of 500,000 metric tons.  The report attributed 
the low output of the farming sector in the North to: 
 
-- Long-term decline in soil in fertility; 
-- Shortages of inputs; 
-- Extreme weather events; 
-- Structural issues including constraints on market activities 
-- Low fertilizer supplies (60 percent of 2007 levels) 
-- Low fuel supplies (70 percent of 2007 levels) 
 
 
Foreign Aid 
----------- 
 
5. (U) Italy Provides Food Aid to DPRK:  RFA reported November 12 
that the Development Cooperation Office of the Italian Foreign 
Ministry decided to provide USD 320,000 worth of grain to North 
Korea.  The Italian government said that the food aid was a part of 
its bilateral assistance program.  The food will be delivered to 
North Koreans in the first half of next year. 
 
6. (U) German NGO Working to Complete Water Purification Project 
this Year:  RFA reported November 11 that an NGO, German Agro Action 
(GAA), plans to complete water purification projects in North 
Pyongan and Gangwon Provinces in the North by end of this year.  GAA 
replaced obsolete water pipes and refurbished water tanks and pump 
facilities.  Once the projects are completed, 30,000 North Korean 
will benefit from the improvements.   North Korea has been 
requesting assistance in water purification and sewage systems since 
2000.   Several South Korean and European civic groups including 
GAA, UNICEF and IFRC have been involved in drinking water and 
sanitation projects in North Korea. 
 
7. (U) Swiss NGO Installs Wind Power Project, Considers More:  RFA 
reported November 18 that Campus feur (actual spelling: f - u umlot 
- r) Christus, a Swiss NGO, provided a 300W windmill and a 2KW 
windmill last year and installed them in Hwangjoo County, North 
Hwanghae Province, in North Korea.  If the current evaluation shows 
the project to be successful, the NGO will install more windmills in 
the North next year.  The NGO also plans to provide technical 
training beginning next March. 
 
8. (U) WFP Seeks More Food Aid for DPRK: Officials from FAO and WFP 
visited the ROK's Ministry of Unification (MOU) in late October and 
urged the government to help resolve food shortages in North Korea. 
Jean-Pierre de Margerie, WFP's Pyongyang Office Director said to the 
MOU that "millions" of North Koreans still face malnutrition and 
warned of a "humanitarian emergency."  The MOU, however, said "It's 
our assessment that the current condition does not represent a 
serious crisis in North Korea this year.  North Korean officials 
have told NGOs that grain crop yields this year are not bad."  Kim 
Ho-nyeon, an MOU spokesperson, said that rice and potato farming 
have gone well in the North despite South Korea's decision to 
withhold fertilizer assistance this year.  WFP set a goal of 
providing more than USD 500 million worth of emergency food aid to 
North Korea in the next 12 months.  WFP officials have been seeking 
aid from donor nations to help meet that goal.  WFP asked to provide 
up to USD 60 million worth of aid last August.  WFP reported that 
much of the farming equipment in the North, including tractors and 
trailers, are in a state of poor repair.  North Korea also lacks 
energy to run its farming equipment and does not have enough 
chemical fertilizer. 
 
9. (U) ROKG Allocates Budget for USD 460 Million in Possible Aid to 
DPRK:  The MOU announced in October that it earmarked 643 billion 
won (USD 460 million) for a possible shipment of rice and fertilizer 
to North Korea in 2009, categorized as humanitarian aid.   Based on 
ROKG policy pronouncements, an improved political environment would 
be required before the aid would be procured and provided. 
 
10. (U) Fourth U.S. Shipment of Food Aid (25,060 mt) to DPRK: 
Yonhap News Agency reported that the United States aid agencies 
including Mercy Corps, World Vision, Samaritan's Purse, Global 
Resource Services and Christian Friends of Korea, shipped 25,060 
metric tons of bulk corn and soy beans arrived in Nampo port, North 
Korea in late November.  The food is to be distributed to 894,000 
vulnerable North Koreans through public distribution centers, 
orphanages, schools and hospitals and nurseries in Jagang and North 
 
SEOUL 00002408  003 OF 005 
 
 
Pyongan Provinces.  This is the fourth shipment since the U.S. 
government committed to provide 500,000 metric tons of aid through 
USAID. 
 
11. (U) Australia and Canada Respond to WFP's DPRK Emergency Food 
Aid Request:  RFA reported in late October that the Australian and 
Canadian governments have decided to contribute USD 3 Million and 
USD 2 Million, respectively, to the WFP emergency operation to help 
tackle food shortages in North Korea due to poor harvests, flood 
damage and the sharp rise in fuel prices. 
 
12. (U) Kuwait-DPRK Sign Loan Agreement:  Voice of America reported 
November 20 that Kuwait Fund for Arab Economic Development (KFAED) 
and North Korea's Ministry of Urban Management signed a cooperation 
agreement on November 19 in Pyongyang, North Korea.  The agreement 
lends USD 21.7 million to North Korea to finance a sanitation system 
project in Pyongyang.  KFAED said in a statement that the project 
will help improve the environment and public health by raising the 
performance of the city sewage systems. 
 
 
Inter-Korean Economic Cooperation 
--------------------------------- 
 
13. (U) DPRK Halves ROK Staffers at KIC, Suspends Kaesong Tour and 
Railway: North Korean authorities demanded on November 24 that South 
Korea halve the number of South Korean staffers at the KIC beginning 
from December 1 this year.  North Korea also asked Hyundai Asan 
Corporation (HAC), which has operated the Kaesong city tour since it 
began in December 2007, to suspend the tour.  In addition, the North 
Korean authority asked the South Korean government to halt 
inter-Korean railway linking Munsan, South Korea and Bongdong, near 
the KIC in North Korea and to close down the Inter-Korean Economic 
Cooperation Office at the KIC, a communication channel for economic 
cooperation projects between the two Koreas out of the KIC. 
 
14. (U) Over 4,000 South Korean managers and construction workers 
belonging to the Kaesong District Management Committee (KIDMAC), 
HAC, HAC's subcontractors and South Korean state-owned firms such as 
KEPCO and 88 South Korean factories were operating in KIC until late 
November.  MOU spokesman Kim Ho-nyoun said November 30 that the 
South Korean government asked the North to allow 1,628 South Koreans 
to stay at KIC, however, the North's final notification was set at 
880 South Koreans.  The 880 include 31 South Korean government 
officials and employees of state-owned firms such as KEPCO; 40 HAC 
staff; nine supervisors for cafeterias and other convenience shops 
and a medical center in the KIC; and, 800 managers working for KIC 
firms.  The 880 South Koreans were authorized to stay in KIC for 
only a week per visit (previously two weeks).  South Koreans are 
also prohibited from carrying any South Korean newspaper into KIC, a 
practice previously allowed.  The MOU official said that the KIC 
firms may experience management disruptions, logistical constraints 
and other difficulties due to the restrictions. 
 
15. (U) In the meantime, the South Korean firms in the KIC will ask 
the South Korean government to compensate them for their losses if 
inter-Korean relations continue to deteriorate.  About 130 South 
Korean firms at KIC say that their sales dropped by 60 percent in 
November due to escalating tensions between the two Koreas.  Experts 
agree that closing down of theKIC could seriously hurt the 
investment environment in North Korea. 
 
16. (U) October Inter-Korean Trade Falls 23% to USD 160 Million: 
MOU said November 23 that inter-Korean trade in October this year 
dropped 23 percent year-on-year to a total of USD 160 million, 
mainly due to worsening ties between the two Koreas.  It was the 
first time that inter-Korean trade recorded such a reduction on a 
yearly basis in recent months.  An MOU official suggested that other 
factors were also involve: "The reduction in inter-Korean trade 
appears to reflect the economic recession in South Korea including 
depreciation of the won against the US dollar and the suspension of 
Mount Geumgang tour." 
 
17. (U) KEPCO Loses USD 14 Million on KIC Electricity Supply over 
Four Years:  Kim Ki-hyun, a lawmaker from the ROK's Grand National 
Party, quoted materials presented by the Ministry of Unification on 
October 16 that Korea Electric Corporation (KEPCO), South Korea's 
electricity monopoly supplier, has lost 14 billion won 
(approximately USD 14 million) for electricity supply for the 
Kaesong Industrial Complex (KIC) over the last four years, 29 
 
SEOUL 00002408  004 OF 005 
 
 
percent of it in just the first nine months of this year.  KEPCO 
supplied KIC with 7,131 MWh in 2005, 28,157 MWh in 2006, 45,574 MWh 
in 2007 and 50,733 MWh through September of 2008 at subsidized 
rates.  The low prices were set at the request of the South Korean 
government. 
 
18. (U) Number of South Korean Tourists to DPRK Plunges 88 Percent 
in September:  Due to stalled inter-Korean relations, the number of 
South Korean tourists to North Korea was down by 88 percent in 
September this year over the same month a year ago.  The total 
number of South Korean tourists to North Korea (Kaesong) in 
September was 5,206 persons; the popular Mount Geumgang tour was 
suspended in July following the killing of a South Korean tourist. 
 
19. (U) A ROK Chicken Franchise in Pyongyang Succeeds:  Choi Won-ho, 
President and CEO of Mattdaero Chondalk (Delicious Country Chicken) 
told Yonhap News Agency in late October that the Rakwon Chicken 
Restaurant, a joint venture chicken home delivery with North Korea's 
Rakwon General Trading Company, is doing good business since its 
opening in Pyongyang in June this year.  Choi said that the 
restaurant's monthly sales turnover amounted to 18,000 Euro (USD 
22,300).  Turnover is approximately 100 chickens per day, Choi said. 
 Chicken is sold at a price similar to that in South Korea (USD 11), 
which is expensive when contrasted with North Korean workers' 
average monthly income of USD 20-40. 
 
 
Foreign Trade and Investment 
---------------------------- 
 
20. (U) Japan Extends Economic Sanctions against DPRK; More Actions 
Possible:  The Korea Trade and Investment Promotion Agency (KOTRA) 
quoted Sankei Shimbun on November 12 as saying that the Japanese 
government has recently extended economic sanctions against North 
Korea for six months.   In addition, the Japanese main opposition 
Democratic Party said on November 5 that the Party would adopt a 
bill of additional economic sanctions against North Korea.  The bill 
consists of 14 provisions including restriction of exchanges of 
goods, personnel and cash.  The bill would also have Japan designate 
North Korea as a state sponsor of terrorism. 
 
21. (U) DPRK Reportedly Bans Chinese/Russian Goods from State-run 
Stores in 2009:  RFA quoted a Japanese source in late October 
indicating that North Korean authorities announced a ban on sales of 
Chinese and Russian goods at state-run shops from next year. 
According to the notice, state-run shops in North Korea will be 
allowed to sell only North Korean agricultural products, fishery 
goods and goods processed for re-export.  RFA also cited Chinese 
traders doing business with North Korea as saying that currently 
around 90 percent of industrial goods, food and daily necessities 
sold in the North are imported from China. 
 
22. (U) DPRK-Kuwait Sign an Air Service Agreement:  KCNA reported in 
late October that North Korea and Kuwait signed an air service 
agreement.  Jong Ho, the North Korean Ambassador to Kuwait, and 
Fawaz Abdul Aziz Al-Farah, chairman of the General Council of the 
Civil Aviation of Kuwait, signed the agreement.  North Korea 
currently operates direct air service with China, Russia and 
Thailand.  The report did not contain specifics on whether the 
countries anticipate the initiation of scheduled air service. 
 
 
23. (U) Air Koryo Plans to Replace Aircraft to Compete with Air 
China:  RFA quoted a Chinese tour agency that jointly operates North 
Korea tour programs as saying that North Korea's Air Koryo 
reportedly plans to replace some of its aircraft with Illyushin 
II-96 or Sukhoi Super Jet 100s.  Air Koryo already bought one 
Tupolev-204 last December.  The Chinese company said that Air 
Koryo's planned move is intended improve competitiveness with Air 
China on the Pyongyang and Beijing route.  The new aircraft are 
reportedly to be equipped with business-class seats, LCD display 
screens and music players for passengers.  North Korea has already 
replaced Russian airport buses. 
 
24. (U) Refurbishment of Rajin-Khasan Railway Link Begins:  North 
Korea and Russia held a ground breaking ceremony to refurbish 
Rajin-Khasan railway link in October.  Representatives from the 
Russian Railway Corporation and North Korea's Rajin Port Management 
Company, and North Korea's Railway Ministry together with foreign 
diplomats from Britain, Germany, Czech Republic, India and Mongolia 
 
SEOUL 00002408  005 OF 005 
 
 
were present at the ceremony.   Chosun Sinbo, a pro-North Korea 
newspaper based in Japan quoted Vladimir Yakunin, president of 
Russian Railway Corporation, on October 14 as saying that the 
Rajin-Khasan railway will be able to transport 35,000 containers in 
2011, 70,000 containers in 2012, and 100,000 containers in 2013 
respectively.  Bae Ho-chol who is responsible for running the Rajin 
port in North Korea gave a very different set of numbers to Chosun 
Sinbo -- 200,000 containers as of end of October 2010 when the 
container terminal of the port is completed.  He added that the new 
port terminal will be able to handle up to 400,000 containers. 
South Korea's Railway Corporation and a consortium consisting of 
several logistics firms have decided to invest 40 percent stakes in 
the DPRK-Russia railway project as the project is evaluated as a 
profitable one unlike other investments in the North, Dr. Ahn 
Byung-min at Korea Transport Institute said. 
 
25. (U) MasterCard Will Not Enter DPRK:   RFA reported October 22 
that MasterCard International Corporation will not enter the North 
Korean market due to the lack of a financial system.  MasterCard 
said it would consider exploring the North Korean market if its 
financial organizations and system are developed to handle credit 
card business.  China's Koryo Tour Agency that runs North Korea tour 
programs said that many foreign tourists visiting North Korea 
reportedly wish to pay with credit cards there. 
 
STEPHENS