Posted : 2012-08-13 17:29
Updated : 2012-08-13 17:29

North Korean leader, military waging ‘money war’

North Korean leader Kim Jong-un speaks to officers during an inspection of Korean People’s Army unit 552 in this undated photo released by the Korean Central News Agency, Aug. 7. Analysts say Kim is working to control the military’s grip on foreign currency. / Yonhap

By Kim Young-jin

North Korean leader Kim Jong-un has set some lofty goals since taking power in December, calling for better living conditions for the hungry populace and issuing orders that may provide autonomy over agriculture and business.

To deliver on these promises, analysts said Monday that Kim has some dirty work ahead of him: seizing control of the country’s shady foreign currency trade dominated by the powerful military and bolstering the influence of party bureaucrats.

Some 70 percent of foreign currency business ― some of it illegal ― was reportedly carried out by the military elite under Kim’s late father Kim Jong-il, who led under a staunch “military-first” policy before his death late last year.

The recalibration appears to be underway. Reports emerged earlier this month that the regime has shut down the Taepung International Investment Group, a military-controlled conduit for international investment, due to its poor performance.

Experts said the move was likely tied to the recent ouster of former Army chief Ri Yong-ho, who was said to be hiding hundreds of thousands of dollars in his house, a hint of what observers expect is rampant military corruption. Ri was replaced in a surprise reshuffle after an apparent power struggle with party stalwarts close to Kim.

That followed a report by Japan’s Asahi Shimbun that Kim had ordered the military to stop meddling in efforts to raise capital and shut down a slush fund of his late father. Known as Room 39, the entity was a hub for legal and illegal fundraising activities.

Experts say the developments may shift responsibility for attracting outside money to the party, which has been refurbished after gathering cobwebs under Kim Jong-il.

“People are expecting something from the new leader,” said Yang Un-chul, a North Korea watcher at the Sejong Institute. “The biggest hurdle to any relaxation of the private sector has always been the military, which wants to keep its economic rent. Kim absolutely wants it too.”

Yang said the regime would seek to strike a 50-50 balance of influence between the military and the more pragmatically-minded party.

Given the weakness of the North Korean won, foreign currency is the main monetary source of power in the Stalinist state. Under sanctions for its nuclear weapons program and long unable to pay off its debts, Pyongyang has gone to extreme lengths to maintain a cash flow to its elite including those in the military.

Those activities centered around secretive organizations such as Room 39 that brought in hundreds of millions of dollars a year through measures such as drug smuggling, the counterfeiting of U.S. dollars and even manufacturing of knockoff Viagra. The funds were not only said to foot the bill for Kim Jong-il’s lavish lifestyle but send money and luxury good to keep the military happy.

Access to foreign currency, say experts Marcus Noland and Stephan Haggard, “is clearly one of the most valuable rents in the North Korean system. Thus even if entirely below the surface, we would expect fights over foreign exchange rents to be among the most ferocious,” they wrote on a blog.

While the future of the shady endeavors remains unclear, analysts say experimental changes are afoot under Kim, who recently told a visiting Chinese official that his goal was "to achieve economic development and improve people's livelihood.”

Reports last week said the regime had passed down instructions to implement new management policies to loosen the tight control of output and allow production units to distribute wealth themselves.

The new system is said to involve factory enterprises setting their own prices for their goods, rather than the state, and giving them more leeway to decide on matters such as production and distribution of profits. Farmers would take 30 percent of the total harvest and the government 70 percent. Officials here say it remains to be seen whether the measures are significant or a reprisal of past failures.

Yang said following through on his promises was Kim’s main task and that keeping the military in check will greatly help his chances. “He has to show something,” he said.
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