[VIEWPOINT]Inflicting some pain on PyongyangOne: North Korean patrol boats deployed in the Yellow Sea have been busy lately capturing Chinese fishing boats operating illegally in North Korean waters. In the past, the guards would simply dismiss them with a word of caution in the spirit of “socialist brotherhood.” Now they’re having none of that ― not when they can fine them $10,000 per boat instead.
Two: Kim Jong-il, the head of North Korea, recently recalled the North’s ambassador to Russia, Park Eui-chun, and made another official, Kim Yong-jae, take his place instead. Park Eui-chun is a veteran diplomat. Kim Yong-jae, on the other hand, is a former vice minister of trade. The new ambassador will be given one important mission from the Stalinist leader: to earn foreign currency.
The scheme headed by the United States to block North Korea’s cash routes is working well, having isolated Kim Jong-il from his main sources of funds. Perhaps three of the four routes have been cut off so far.
The leader of the North has been able to secure his political funds through the four main cash routes since the mid-’80s; bogus dollars, the weapons trade, drug trafficking and pachinko, a Japanese gambling machine. The profits he gained through these routes were used to buy Mercedes Benz cars, American electronic products, French cognac and other luxuries to be generously bestowed on military generals and his key officials. It was his way of maintaining power within his political circles.
Then the Bush administration inaugurated a North Korea Working Group in 2002. This task force comprises 14 U.S. departments including State, Treasury, Defense and the Central Intelligence Agency. They worked intensively to block some of North Korea’s major financial sources for the past three years.
The financial sanctions imposed on Banco Delta Asia of Macao last September are a case in point. The bank was where Chairman Kim’s money laundering took place.
Counterfeit cash: It is estimated that North Korea has been making $15 million -25 million annually from printing a bogus $100 bill known as a “supernote,” a name earned for its amazing likeness to the real one. To counter that crime, the U.S. Justice Department not only indicted a senior figure in the Irish Republican Army, Sean Garland, on charges of distributing the supernotes, but also raised the issue formally in the international arena.
China, too, has already ordered special precautions against North Korea’s supernote. “Although there’s nothing we can do about the supernotes printed already, they won’t be able to print any more,” one North Korea watcher in Seoul said.
Weaponry: Weapons trade, including the sale of missiles, continues to be one of the major sources of foreign currency for North Korea. But this, too, came to a halt after it sold 15 Scud missiles to Yemen in December 2002. According to a reliable source in Seoul, North Korea later offered the missiles to Zimbabwe, Nigeria and Egypt, only to be rebuffed. They were concerned about the Proliferation Security Initiative led by the United States. Thus, missile sales are suspended for now in Pyongyang. Even the sales of its AK-47 rifles aren’t doing well these days because of China, which is fast catching up in the weaponry market thanks to its competitive prices.
Drugs: The U.S. Congres-sional Research Service says that North Korea earns $100 million annually by exporting illegal drugs. Japanese police confiscated 1,500 kilograms of methamphetamines made in North Korea between 1998 to 2000. The harsher crackdown from the United States made the North rely more on local crime rings ― yakuza in Japan, triads in China and so on ― to do its bidding instead. The overall profits have been dwindling ever since.
Funds from Chongryon: Until 2002, Pyongyang was able to collect about 200 million yen per year from the pro-North Korea group based in Japan, cash delivered by a ship, the Mangyeongbong, that regularly plies Japan-North Korea routes. In 2003, when the Koizumi government restricted the entry of the ship from North Korea, the North’s cash supply dropped by half. Also, in order to prevent further funds from finding their way to Pyongyang, Tokyo has strengthened its inspections of insured international mail, which restricts remittances to 480,000 yen, or about $4,200.
Now that these four major sources of cash, the geese that laid golden eggs for North Korea, are either gone or withered, Pyongyang is starting to feel the effects. One foreigner who visited Pyongyang recently said that North Korea’s foreign exchange black market rate, which used to be 3,500 North Korean won per U.S. dollar, has now shot up to 6,000 won. It seems that there was no fun in one of the joyous occasions in the North in February. On the 16th, Kim Jong-il celebrated his 64th birthday, but the central government failed to hand out special gifts to its citizens. Normally, the “Dear Leader” would declare a special holiday and distribute small gifts to the public; that has always been the custom. (But other sources tell me that in some regions the local administration distributed gifts on their own). “It seems like about 40 percent of North Korea’s income has gone away,” said Nam Seong-wook, an expert on North Korea at Korea University. He added that if things kept up this way, a nasty crack might develop in North Koreans’ “undying loyalty” to their leader.
It’s acceptable for military generals and political leaders to see some delay in receiving their perks ― a Mercedes Benz or whatever ― for a year or two. But it that situation persists, it could do some damage to the elite’s absolute loyalty, too.
Washington regards its current tactics as a useful way to push Pyongyang to resume participation in the six-party talks. One senior official in the Bush administration said in an interview with The New York Times on May 10 that economic sanctions on Macao’s Banco Delta Asia have paid off quite nicely in the six months since they were implemented. He added that those steps would be followed by other law enforcement actions aimed at Pyongyang. Washington seems convinced that this series of measures will induce North Korea to return to the table.
Officials and experts here in South Korea remain divided about the latest U.S. operations against North Korea. While right-wingers feel that they only serve Pyongyang right, left-wingers remain unsure.
In fact some dismiss the U.S. steps as foolish measures that drive Pyongyang further away from the six-party talks and into the arms of its “big brother,” China.
“If this is the way the United States decides to handle the North, the North will just try to hold back more,” said Jung Chang-hyun at Kookmin University. In fact, that’s exactly what Pyongyang has been doing, for now, as it tries to improve economic relations with Beijing. China’s investments in the North surged by $100 million last year alone. That’s a huge change from the years around 2003, when such annual investments averaged no more than $1 million.
Trade volume between the two communist nations recorded $1.6 billion last year, exceeding that of inter-Korean trade, which was $1.1 billion. One North Korean defector even testified that 90 percent of daily-use products ― toothbrushes, clothes, corn and so on ― are made in China. There is a worry here of North Korea being subjugated to China economically.
But if we think a bit harder about the situation, we could conclude that all is not lost. According to a recent press release, Washington is aware of not just the $24 million of cash frozen in Banco Delta Asia but also of a number of other accounts, each with at least $50 million. But the Macao bank is the only one that’s been busted so far.
That’s what I call interesting. Why would Washington only attack accounts in Macao and leave the rest alone? It looks suspiciously like Washington is trying to leave room for secret negotiations with Pyongyang. In other words Washington would have a new card ―accounts containing several million dollars each ― to bring Pyongyang back to the six-way talks.
In December 2003, Libya gave up its nuclear ambitions and joined the league of normal nations. Just before Libya’s dramatic change of attitude, intelligence chiefs from the United States, Britain and Libya gathered in London, spending months trying to agree on rewards and compensation. Libya stands as a useful model for both Washington and Pyongyang. It wouldn’t be such a bad idea to send similar signals behind the scenes ― “How about a nice little chat in London or Kuala Lumpur?”
That is, if the two sides are willing.
* The writer is a North Korea specialist at the JoongAng Ilbo.
by Brent Choi