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RUEHRC/DEPT OF AGRICULTURE WASHDC
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RUEHGP/AMEMBASSY SINGAPORE 6858
RUEHHK/AMCONSUL HONG KONG 3923
RUEHSH/AMCONSUL SHENYANG 4691
RUEHVK/AMCONSUL VLADIVOSTOK 1661
RUEHIN/AIT TAIPEI 3665

UNCLAS SECTION 01 OF 05 SEOUL 001073 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD KN
SUBJECT: NORTH KOREA ECONOMIC BRIEFING - JUNE 2009 
 
¶1. (U) This cable is sensitive but unclassified and not/not intended 
for Internet distribution. 
 
In This Issue 
 
-- DPRK Intensifies H1N1 Flu Preventive Measures 
-- DPRK Bond Prices Nosedive Following Launch of DPRK Rocket 
-- DPRK Opens Limited Internet Cell Phone Service 
-- WHO Provides Tamiflu to the DPRK 
-- UNDP Officials Visit DPRK to Discuss Suspended Projects 
-- ROKG Shuts Down DPRK Humanitarian Aid Bureau 
-- China Accounts for Half of DPRK's Foreign Trade in 2008 
-- Pyongyang International Trade Fair Held 
-- DPRK and China Agree to Further Scientific Cooperation 
-- Russia-DPRK-China Rail Link Planned to Open in 2009 
-- Inter-Korean Cooperation Fund Spent Only 1.8 Percent of 2009 
Appropriation in First Quarter of 2009 
-- Inter-Korean Trade Drops in April 
-- ROKG Improves Insurance Benefits for KIC Firms 
-- 5,000 DPRK Workers at KIC Granted Paid Leave due to Reduced 
Workload 
-- ROK State Firms May Suffer Due to Inter-Korean Tension 
 
---------------- 
Domestic Economy 
---------------- 
 
DPRK Intensifies H1N1 Flu Preventive Measures 
--------------------------------------------- 
 
¶2. (SBU) Korea Central News Agency (KCNA) reported on May 6 that 
DPRK authorities have recently adopted measures to protect the North 
Korean public from the H1N1 flu.  Pak Myong-su, vice chairman of 
North Korea's State Emergency Anti-Epidemic Commission, said that, 
while there had been no outbreak in the DPRK, foreigners entering 
the DPRK are tested at airports and other points of entry.  Those 
suspected to have been infected with the H1N1 virus are quarantined 
and put under medical surveillance until the presence of the virus 
can be confirmed.  The measures also include: 
 
   -- Steps are being taken to stock up on antiviral medicines to 
cope with a possible outbreak of the H1N1 flu; 
   -- Screening of pork and pork products is being strengthened; 
   -- Researchers are being pushed to develop a vaccine; 
   -- North Korean media are reporting on international outbreaks of 
the H1N1 flu; 
   -- North Korean medical teams are providing medical check-ups to 
citizens in all provinces and are disseminating hygienic information 
and common sense ways to avoid contracting the flu; 
   -- A system to better diagnose the disease and to better report 
potential outbreaks of the virus is being set up nationwide. 
 
DPRK Bond Prices Nosedive Following 
Launch of DPRK Rocket 
----------------------------------- 
 
¶3. (SBU) According to an April 28 report on Radio Free Asia (RFA), 
the price of North Korean bonds plunged 50 percent following the 
North Korean April 5 rocket launch.  The price of North Korean bonds 
slid from 25 cents on the dollar in July of last year to 12 cents in 
March and to 6 cents in April.  Stuart Culverhouse, chief economist 
at the London-based brokerage firm Exotix, told RFA that the decline 
in North Korean bond prices could be attributed to the North's 
nuclear threats.  He went on to say that it was unlikely that the 
price of North Korean bonds would recover anytime in the near 
future.  The DPRK has been issuing bonds since 1994. 
 
DPRK Opens Limited Internet Cell Phone Service 
--------------------------------------------- - 
 
¶4. (SBU) Uriminzokkiri, North Korea's state Website 
(www.uriminzokkiri.com), reported on May 21 that the DPRK had begun 
offering limited internet service to mobile phone users and that it 
had earlier established an advanced mobile phone network with the 
help of Orascom, the Egyptian telecommunications company which 
operates the DPRK's mobile phone system.  The service allows North 
Korean mobile phone users to receive reports from the DPRK's 
 
SEOUL 00001073  002 OF 005 
 
 
state-run news agency as well as local Pyongyang news. 
 
----------- 
Foreign Aid 
----------- 
 
¶5. (SBU) WHO Provides Tamiflu to the DPRK RFA reported on May 7 that 
the World Health Organization (WHO) announced that it had decided to 
provide Tamiflu, an antiviral medicine, to the DPRK to allow the 
country to better treat those infected with the H1N1 virus.  The 
report indicated that the Tamiflu had been shipped from sites in 
Switzerland, the United States, and the United Arab Emirates on May 
5, but did not specify how much of the antiviral medicine had been 
shipped.  WHO spokesperson Steven Lauwer said in an interview that 
there has been no reported outbreak of the H1N1 virus in the DPRK. 
 
UNDP Officials Visit DPRK to Discuss 
Suspended Projects 
------------------------------------ 
 
¶6. (SBU) On May 22, RFA reported that four UNDP working-level 
officials had visited North Korea on May 19 to discuss the reopening 
of its Pyongyang office and the resumption of projects that had been 
suspended in 2007.  The report said the UNDP Pyongyang office was 
expected to reopen in June of 2009 and has already begun recruiting 
local staff.  UNDP projects include the restoration of arable land 
and projects aimed at encouraging the DPRK to adopt economic reforms 
-- projects that were begun in 1981 but suspended in 2007. 
 
ROKG Shuts Down DPRK Humanitarian Aid Bureau 
-------------------------------------------- 
 
¶7. (SBU) The Ministry of Unification (MOU) stated in a briefing on 
May 12 that the ROK Cabinet had approved the MOU's plan to shut down 
its Humanitarian Aid Bureau, a bureau that had been set up in 1996 
to direct ROK humanitarian aid to the DPRK, to arrange reunions of 
families separated following the division of Korea, and to assist in 
the resettlement of North Korean defectors.  The MOU stated that, 
"The restructuring aims to strengthen the Ministry's long-term 
unification policy and intelligence analysis as well as merge 
overlapping low-level units."  The statement went on to say that the 
closing of the bureau would result in no functional changes.  Tense 
inter-Korean relations have considerably reduced the bureau's 
effectiveness.  The MOU has also requested that South Korean civic 
groups refrain from visiting the DPRK following the April 5 rocket 
launch. 
 
---------------------------- 
Foreign Trade and Investment 
---------------------------- 
 
China Accounts for Half of DPRK's 
Foreign Trade in 2008 
--------------------------------- 
 
¶8. (SBU) According to preliminary figures released by the Korea 
Trade and Investment Promotion Agency (KOTRA) on May 18, the DPRK's 
total international trade in 2008 amounted to USD 5.64 billion, a 19 
percent increase from 2007 (and the highest level since 1990). 
DPRK exports were estimated at USD 2.06 billion, up 23 percent, 
while its imports were estimated at USD 3.58 billion, an increase of 
17 percent from a year earlier.  The DPRK's trade with China totaled 
USD 2.78 billion, a 41 percent increase over 2007.  North Korean 
exports to China were believed to be worth USD 750 million.  The 
DPRK's imports from China amounted to USD 2.03 billion.  In 2008, 
China's share of total North Korean trade expanded to 49.3 percent, 
up from 42 percent in 2007.  The ROK's share of total North Korean 
trade fell in 2008 to USD 1.82 billion or 32 percent, down from 38 
percent a year earlier.  KOTRA stated that, "It appears that aside 
from China, North Korea's foreign trade with other countries showed 
no significant change."  Detailed North Korean trade figures for 
2008 are expected to be made publicly available in July. 
 
Pyongyang International Trade Fair Held 
--------------------------------------- 
 
¶9. (SBU) KCNA reported on May 15 that the twelfth Pyongyang 
International Spring Trade Fair was held May 11-14.  KCNA claimed 
 
SEOUL 00001073  003 OF 005 
 
 
that more than 200 companies from over 19 countries participated in 
the fair and displayed more than 15,700 goods.  These countries 
included: China, Russia, Germany, Malaysia, Syria, Sweden, 
Singapore, Vietnam and Thailand.  China dominated with over 100 
companies participating in the fair.  Products on display at the 
fair included:  machine tools, electronic equipment, petrochemicals, 
medicines, daily commodities, and foodstuffs.  Vehicles assembled by 
Peyonghwa Motors, a South Korean auto maker operating in Nampo, 
North Korea, were also exhibited at the fair.  The annual Pyongyang 
International Spring Trade Fair is organized by the (North) Korea 
International Exhibition Corporation.  Wang Jinzhen, vice chairman 
of the China Council for the Promotion of International Trade, said 
the event's "China Pavilion Day" reception for Chinese companies on 
May 12 would further deepen Sino-DPRK cooperation in fields such as 
processing-on-commission trade and natural resources development. 
 
DPRK and China Agree to Further Scientific Cooperation 
--------------------------------------------- --------- 
 
¶10. (SBU) KCNA reported on May 7 that China and the DPRK held the 
forty-third Joint Committee Meeting for China-DPRK Scientific and 
Technological Cooperation and agreed to work together on joint 
projects in architecture, water conservation, and agriculture.  Ri 
Song-bok, vice president of the DPRK's State Academy of Sciences, 
and Cao Jianlin, Chinese vice minister of Science and Technology 
were present at the signing of the agreement.  The Chinese 
delegation reportedly presented 500,000 Chinese yuan (USD 72,000) 
worth of office equipment, computers, and printers as gifts to the 
North Korean National Academy of Science.  The meeting is held 
annually to enhance collaboration in science and technology between 
the two countries. 
 
Russia-DPRK-China Rail Link Planned to Open in 2009 
--------------------------------------------- ------ 
 
¶11. (SBU) RIA Novosti, a Russian online news provider, reported on 
April 22 that a railway linking the Russian city of Khasan and the 
Chinese city of Tumen to North Korea would be opened by the end of 
¶2009.  This announcement follows the signing of a deal between the 
First Air Cargo Company, a subsidiary of Russian rail monopoly RZD, 
and the Chinese Yanbian Haihua Imports and Exports Trading Company. 
The article said that the DPRK is expected to join the agreement 
soon.  According to a representative for the Russian company, "The 
Chinese side has already delivered fuel, a locomotive and variable 
wheel sets, so that Russian rail carriages can travel along the 
narrower North Korean track."  Under current conditions, around 
50-60 railcars a day could use the rail link.  According to the 
report, however, the Chinese company has said that it is willing to 
rebuild the 120 kilometers of the North Korean section of the rail 
line and that doing so would increase its cargo capacity by ten 
times. 
 
--------------------------------- 
Inter-Korean Economic Cooperation 
--------------------------------- 
 
Inter-Korean Cooperation Fund Spent Only 1.8 Percent 
of 2009 Appropriation in First Quarter of 2009 
--------------------------------------------- ------- 
 
¶12. (SBU) On May 29 the MOU released figures indicating that only 
1.8 percent, or 27 billion KRW (USD 20 million), of the 1.51 
trillion KRW (USD 1.13 billion) 2009 Inter-Korean Cooperation Fund 
(IKCF) had been spent.  According to the report, the ROKG had 
provided 10.2 billion KRW (USD 7.6 million) in loans to various 
inter-Korean exchange programs in the first quarter of 2009.  The 
ROKG provided a total of 16.8 billion KRW (USD 12.5 million) in 
financial support to the IKCF in the first quarter of this year for 
inter-Korean cooperation projects such as humanitarian aid programs 
run by South Korean civic groups.  An MOU analyst has attributed the 
decline of IKCF expenditures to the fact that the DPRK had not 
officially requested funding.  In 2005 the ROKG appropriated 674.5 
billion KRW (USD 658.4 million) for the IKCF.  In 2006 this figure 
was 471 billion KRW (USD 493 million); in 2007 it was 716 billion 
KRW (USD 770.3 million); and in 2008 it was 231 billion KRW (USD 210 
million). 
 
Inter-Korean Trade Drops in April 
 
SEOUL 00001073  004 OF 005 
 
 
--------------------------------- 
 
¶13. (SBU) According to MOU figures released on May 22, inter-Korean 
trade fell to USD 106 million in April, down 27 percent from the 
same month last year.  South Korean exports to North Korea fell to 
USD 41 million in April, a 43 percent decrease from 2008.  Major 
South Korean exports to the North included textiles and machinery 
parts used primarily by Kaesong Industrial Complex (KIC) firms. 
South Korean imports from the DPRK contracted by 11 percent in April 
compared to 2008.  South Korea imported a total of USD 65 million 
dollars worth of goods, consisting mainly of agricultural products 
and garments produced by KIC firms.  This decline in inter-Korean 
trade can be attributed to the ongoing political tensions between 
the two Koreas.  Due to frigid inter-Korean relations, 
non-commercial transactions such as humanitarian aid from the ROKG 
and South Korean civic groups fell to USD 1.7 million, an 85 percent 
drop over the same month in 2008. 
 
Inter-Korean Trade in April 2009 
(Source: ROK Ministry of Unification, Unit: USD 1,000) 
 
Commercial Transactions 
----------------------- 
                  South Exports South Imports      Total 
                  To North      from North 
                  ------------- -------------      ----- 
General Trading      848(-78)     14,114(-55)   14,962(-57) 
 
Processing-on 
Commission (POC)   8,403(-11)     20,472(14)    28,875(6) 
 
KIC Project       24,832(-23)     29,586(32)    58,009(-2) 
 
Mt.Kumgang 
Tourism Project      282(-97)        141(-82)      423(-96) 
 
Other Economic 
Projects           1,191(-7)         418(-27)    1,609(-13) 
 
Light Industry 
Cooperation             0              0             0 
 
Subtotal         39,156(-35)      64,722(-11)  103,878(-22) 
 
 
Non-Commercial Transactions 
--------------------------- 
                   South Exports South Imports      Total 
                   To North      from North 
                   ------------- -------------      ----- 
NGO Aid            1,686(-61)           0        1,686(-61) 
 
Government Aid          0               0            0 
 
Social,Cultural 
Projects                0               0            0 
 
Energy Aid              0               0            0 
(HFO) 
 
Subtotal           1,686(-61)           0        1,686(-61) 
 
TOTAL             40,842(-43)     64,722(-11)  105,564(-27) 
 
Note: Figures in parenthesis indicate the comparison from April 
2008 
 
ROKG Improves Insurance Benefits for KIC Firms 
--------------------------------------------- - 
 
¶14. (SBU) On May 22 the ROKG announced that it will increase the 
maximum insurance payouts given to South Korean firms operating in 
KIC.  This announcement follows the DPRK's decision to cancel all 
contracts it had signed with the ROKG and is seen as an effort to 
reassure nervous South Korean companies.  According to an MOU 
statement, the government will raise maximum compensation payment 
levels for "economic cooperation insurance" from 5 billion won (USD 
4 million) to 7 billion won (USD 5.6 million).  This insurance 
 
SEOUL 00001073  005 OF 005 
 
 
covers the facility investments of KIC companies in the event of an 
abrupt shutdown of the KIC due to political reasons.  The MOU also 
plans to amend the insurance regulations to allow South Korean firms 
to file a claim a month after the closing of KIC.  Under current 
regulations, the South Korean firms must wait three months after an 
abrupt KIC shutdown before filing a claim. 
 
5,000 DPRK Workers at KIC Granted Paid Leave 
Due to Reduced Workload 
-------------------------------------------- 
 
¶15. (SBU) The Herald Economic Daily quoted representatives of the 
KIC Firms Association and a representative of the Inter-Korean 
Economic Cooperation Solidarity, a ROK-based civic group, as saying 
that on May 21 around 5,000 North Korean KIC workers had been 
granted paid leave due to reduced workloads following the April 21 
inter-Korean working-level talks.  These talks made international 
headlines when the delegation from the DPRK unilaterally demanded, 
among other things, higher wages for DPRK workers.  These demands 
increased the riskiness of business operations of KIC and 
subsequently KIC firms saw both domestic and international orders 
decrease.  Those North Korean workers on paid leave are believed to 
be receiving USD 50 a month, 70 percent of their regular monthly 
wages.  30 of the firms that set up shop in KIC after July of 2008 
have been having difficulty securing North Korean workers and have 
been running at less than full capacity. 
 
ROK State Firms May Suffer Due to 
Inter-Korean Tensions 
--------------------------------- 
 
¶16. (SBU) Representative from the MOU and state-run firms operating 
in the DPRK warned on May 19 that the Korea Electric Corporation 
(KEPCO) and Korea Resources Corporation (KORES) may suffer huge 
losses due to the effect of inter-Korean tensions on their 
investment in the DPRK.  In 2007, KEPCO spent 35 billion won (USD 
37.7 million) to build a 100,000 kilowatt substation to provide 
power to South Korean factories operating in KIC.  KEPCO has also 
been forced to pay for two unfinished light water reactors after 
construction on the USD 830 million projects was halted in 2006. 
The company paid USD 9.12 million in fees in 2007 and expects to pay 
USD 4 million every year until 2010.  KORES, on the other hand, has 
invested USD 12 million in developing a graphite mine in the 
southwestern part of the DPRK.  Due to tense inter-Korean relations, 
KORES has not been able to ship graphite to the South since it 
shipped 500 tons in 2007. 
 
STEPHENS