In
The Beginning * *
The
War Years *
The
South and North *
The
Japanese *
The
War *
The
Relationship *
The
Mistakes Begin *
South
Korea *
The
Pacific Rim Collapse *
Keeping
Track *
Drugs
*
1954
*
1974
*
1976
*
Fall
1984 *
1985
and 1986 *
Early
1993 *
Summer
1993 *
Winter
1994 *
Early
1994 *
Summer
1994 *
Late
1994 *
Early
1996 *
Fall
1996 *
Early
1997 *
Summer
1997 *
Late
1997 *
Early
1998 *
Spring
1998 *
Fall
1998 *
The
Winter of 1998 *
Early
1999 *
Spring
1999 *
Summer
1999 *
Fall
1999 *
Winter
1999 *
Early
2000 *
Spring
2000 *
Summer
2000 *
Late
2000 *
Early
2001 *
The
Present *
Updated June 25, 2001
KOREA
The Korean peninsula was populated
early on by the Tungusic peoples who were a branch of the Ural-Altaic family from
the northwestern regions of Asia. Religiously, Korea’s population is made
up of Buddhists and Shamanists along with Christianity, which came to the area
during the 16th century in the form of missionaries. Korean legends
have it that the god-king Tangun founded the country in 2333 BC. Several millennia
later, the Korean peninsula was divided in the Silla, Koguryo and Paekche kingdoms.
In the 7th century AD, the Sillians unified the peninsula and in the
10th century they were replaced by the Koryo dynasty from which the
Portuguese missionaries derived the name “Korea”. The Choson dynasty
replaced the Silla Kingdom in 935 and they ruled the country until Japan annexed
Korea in 1910.
The country was successfully plundered
by a series of larger nations from the Mongols during the 13th and
14th centuries, and then Japanese pirates followed by Japanese imperialists
during the next several hundred years. These intrusions were followed by what
was called the “gunboat” diplomacy by the western powers during most
of the 1800s. Because of the fact that they were being treated as the proverbial
football by just about everyone, they closed their doors to the rest of the world
and received the name, “Hermit Kingdom” for their efforts. Both Japan
and Russian looked at Korea with roving eyes in the late 19th century,
causing the Sino-Japanese War of 1894-95 and the Russo-Japanese War of 1904-5.
As a result of winning both of these wars, it was a simple matter for Japan to
annex Korea in 1910. Japan ruled Korea with an iron fist and remained in solid
control of the country until the end of World War II.
The United States, which did not
expect Japan to surrender when they did, had not developed a cohesive strategy
for Korea. In the turmoil that followed, Korea was partitioned, with Russia controlling
the area north of the 38th parallel. While this was intended as a temporary
division and Korea was expected to join the “free countries” of the
world, the control issue became a morass. In 1948 the matter was submitted to
the United Nations for resolution and the country was permanently portioned leading
eventually to the 1950 confrontation between the eastern and western forces.
The country was divided into two
parts; the north was called the Democratic People’s Republic of Korea, or
DPRK and has a population of 23 million people. They share border with both China
and to a minor degree, Russia. The country has recreated itself as a dynasty on
the order of the Choson Dynasty and traces its history and its calendar from the
year of the birth of its original leader, Kim ll Sung, who was born in 1912. Kim
ll Sung was installed originally as a puppet of the Russians. Thus, North Korea
is not even 90 years old. Kim ll Sung until he died was the longest reigning ruler of his day but
in reality, his son, Kim Jong ll, (known as “dear leader”) had been
running day-to-day affairs for over 25 years.
The south is called the Republic
of Korea or ROK. The Republic of Korea is a democracy, but with elected officials
ruling with a firm hand. Its first president was the Harvard educated Syngman
Rhee who was backed in lukewarm fashion by the United States. The land is more
level and suitable for agriculture but it has few natural resources. The south
has a population of approximately double that of the north. The two countries
are separated by what is called the DMZ, which is short for Demilitarized Zone.
This is the most heavily fortified border in the world today. The south is a modern
country with the 11th large gross domestic production in the world,
the north, has seen its economy shrink by approximately 5% per year for a least
the last decade.
“North Korea live a schizophrenic existence
in which dreams of creating a totalitarian socialist utopian community under the
stern but benevolent rule of a modern-day emperor are pursued with the calculations
of domestic and international power politics. How North Korea developed into such
a peculiar retrograde state amid the modernization of the rest of East Asia is
one of the stranger and sadder stories of the last half of the twentieth century.”
North Korea seems, at least from
a demographic point of view, to have gotten the short end of the stick. Over 80%
of the country consists of reasonably high mountain ranges divided by narrow valleys,
allowing for only basic cultivation. North Korea is literally without infrastructure
and suffers intermittently serious flooding. In 1995, the flooding reached record
proportions and in the ensuing years millions of North Koreans are said to have
died as a result of mal-nourishment.
In spite of the hardships that have
been suffered by the people, the country is extremely safe, for the most part
because the government does not particularly abide crime. People live in specific
areas and come to know everyone from their region. Visitors are closely watched
and should something untoward occur, there is usually not much doubt about who
did it. This is the same reason that there has been little crime until recently
in Japan. The less people travel out of their own territory, the less crime is
committed seems to work especially well in North Korea and it appears that the
government intends to keep it that way. Government passes are required for even
the most nominal of travel.
While the Japanese occupiers concentrated
on the Korean North because Japan was hopelessly short of natural resources, North
Korea was a virtual mother lode of natural resources. At that time the populations
of the north and south sectors of Korea were approximately equal; on the other
hand, the people who had emigrated to the North during the Japanese occupation
were quick to leave for southern climes when the country was partitioned after
World War II. While South Korea has an estimated population of 45 million, North
Korea has substantially less than half of that number.
Kim ll Sung started to purge friends,
enemies and former wartime associates as soon as he entered office. He blamed
other for any mistakes he made and had the executed. Thus, North Korean leadership
was able to consolidate their power faster than the Rhee government in the south
and thus made the mistake of invading the south on June 25, 1950. Kim ll Sung
had believe that he was going to delivering the south from a devil and thought
that the entire country would rally around his actions. He was sadly disappointed.
When the war had ended most of the infrastructure in both the north and south
had been totally destroyed.
There was an enormous loss of life
during the war, which included 294,000 North Korean soldiers, 225,000 South Korean
Soldiers, 184,000 Chinese Soldiers, and 57,000 United Nations Soldiers who were
mostly American. Hundreds of thousands of civilians died in the struggle and approximately
11 million people were separated from their families. In one of the strange anomalies
of that war, many men from the north fled to the south in the mistaken hope that
their families would soon be joining them. Many Communists from the south fell
into the same trap. They were both sadly mistaken.
Both countries have remained paranoid
about the other during the ensuing years and the North spends 25% of its gross
domestic production (GDP) on building its war machine. South Korea spends 5% of
its GDP on its military efforts but it has a substantially larger economy. Thus,
in real dollar terms, the south is spending substantial more than the north, but
the north in turn is using slave labor while paying people working for the government
between $1 and $2 a month, getting an infinitely larger bang for their buck. The
north has no questions about the fact that all Westerns are spies and for the
most part foreigners are not welcome.
“North Korea is a land of illusions. An
ideology that places the leader above the people and the nation. An economy built
on the assumption that people can lead selfless, communitarian lives. A ruler
and his top policymakers who rarely travel outside the country or meet foreigners.
A military that boasts of being the mightiest in the world. A social control system
that seeks to keep 23 million people isolated from the outside world. And a foreign
policy based on the premise that by threatening other nations North Korea can
become a respected member of the international community. Underlying these illusions
is the desire to turn back the clock to a time when the prevailing form of society
was the independent, largely self-sufficient state ruled by a king whose subjects
believed in the divine right of rule. “
North Korea attempted to keep up
with the rapid economic expansion of the Pacific Rim in the 60s and early 70s
by building their infrastructure and creating modern manufacturing industries.
They built plants and imported Western technology only to see their export market
destroyed by poor workmanship and severe shipping problems. This, coupled with
oil crises, forced North Korea to default on their loans from free market countries. They were the first Soviet Block
country to do so. While they were able to renegotiate
favorable terms again in 1979, they defaulted again the following year.
A succession of internal management
errors and crop failures ultimately led the mineral rich north to fall substantially
behind the south in terms of per capita gross domestic product. Eventually, South
Korea was able to out produce the north by a ratio of over three to one on a per
capita basis. By this time, the North had huge external debt with no conceivable
way to repay it, and they once again turned to agriculture to feed their people.
On the other, hand, the reason that this problem had occurred was most probably
the fact that the North had committed so much of the production to that of war
material. North Korea continued their abysmal record of failure and attempted
many different schemes to bail out the country. None have come even close to working
and the country today is an economic quagmire.
North Korea’s power structure
today remains a total. Probably the best estimate of what is going on was given
by the U.S. Department of State in their background notes. “An inner core
of ranking members of the Korean Workers Party, including an increasing number
of Kim Jong II’s followers, dominates the political system and the economy
through an elaborate party structure and through the civilian and military bureaucracies.
A pervasive personality cult has developed around Kim Jong II, who was groomed
for many years to succeed his father… North Korea’s 1972 constitution
was reportedly amended in late 1992, but the country has never publicized the
changes. The government is led by the president and in theory, a super-cabinet
called the Central People’s Committee (CPC).”
Wages are paid in North Korea at
a rate of 2.1 won to the dollar in spite of the fact that the black market rate
was nearer to 200. “As the primary economy collapsed in the 1990s, official
salaries paid in won declines in value, state stores were unable to offer goods
at any price, and the prices in the people’s markets put many goods out of
range of the average North Korean. People survive by barter; for example, by trading
household goods to farmers for food. Party and government officials frequently
demand bribes for performing their duties; those bureaucrats who have access to
special rations can sell them in the black market for substantial sums…Almost
all housing is owned by the state, and people are assigned living quarters according
to workplace, occupation, occupational rank, and political consideration.”
South Korea
Japan's
foremost competition within the Pacific Rim subsequent to the emergence of China
was Korea, a country whose "gross domestic product" is larger than that
of Malaysia, Indonesia and Thailand combined and the country proudly points to
the fact that it is the world's 11th largest economy. However, more
recently, it has been suffering one economic embarrassment after another and its
economy, like a driverless automobile, careening out of control down a winding
mountain road without brakes. The Korean currency has been drastically devalued;
excess capacity has caused closed factories and laid off workers, and during the
height of the Pacific Rim Crisis, the stock market dropped over 50% in less than
two years. Interest rates have risen, the per-capita gross national product is
decreasing, inflation has become a major economic concern, the cost of raw materials
has soared, the banks can't pay their debts, and real estate has become literally
unsaleable and unloanable.
North
Korea () has a love/hate relationship with the South, alternately
threatening to blow the “South” into the Stone Age, and agreeing to
“Southern” aid and continuing negotiations.
Moreover, the North, which is suffering a famine, is looking over the barbed
wire fences that separate the two antagonists like a vulture glaring at a piece
of newly dead meat. A government decision to stop supporting unprofitable institutions
in order to continue a policy of full employment, while winning acclaim from abroad,
has brought about much suffering and voter antipathy at home. International organizations
have been saying recently that Korea is fundamentally sound.
The next thing we are going to see are three wise men riding up on camels
and a star rising in the east. If Korea is to maintain the straight
and narrow and work toward fiscal responsibility, the road will be strewn with
great pain and suffering. Politics will be practiced in a new way and hopefully;
this Tiger can join the world’s elite economic powers.
The
number that will be "run up the flagpole" that will be necessary to
put the South Korean economy on a pay-as-you-go basis will make the United States
bailout of Mexico seem like bubble gum money for a kid with braces. In spite of
protestations to the contrary, we seem to have been alone in believing that during
the height of the Pacific Rim Crisis, Korea had literally no foreign reserves,
having squandered them in a failed support of their currency. An illustration
of how bad the situation really became was that normally talkative central bank
officials, who have been bragging about how much hard currency was left were no
longer talk about their reserves at all.
In
a grave error, the South Korean Central Bank had announced that it would not allow
the "Won" to decline below the 1000 - mark (). Shortly thereafter, the "Won" broke
its government guaranteed support level with embarrassed officials pronounce that
the currency would now be allowed to float. The were then faced With their foreign reserves
in the tank, the central bank had found itself in a position where it can't turn
one way or the other without stepping on itself. Although the "Won" had
dropped precipitously, it has not reached the losses attained in Thailand, Indonesia,
The Philippines and Malaysia, and only Malaysia among these countries has returned
to some degree of fiscal health.
Much of the current problem stems from the fact that
the Central Bank has not been forthright with either the South Korean People or
anyone else. There was no warning by any government agency that so many financial
and industrial complexes were in dire trouble; when the government suddenly went
public with this information, the public could not deal with it. South Koreans had been brought
up with the belief that if you can't trust your own central bank, you can’t
trust anyone. However, these days the answer is simple; you can trust just about
anybody but the central bank.
In another
childish statement, the South Korean Government avowed that it would not allow
any of its indigenous financial institutions to default on foreign debts. This
is about as sensible as the central banks "hit and run" defense of the
Won. With 20 percent of the South Korean Trading Companies already underwater,
does the government think that they can defend the entire financial system of
the country? Especially when they are going to have to same non-viable entities
along with healthy ones. It would
seem to us that this is more a point in time to make the circle a little smaller
so that there are just enough wagons to keep the settlers safe from the Indians.
At the moment the circle is so large that its entire perimeter cannot be successfully
defended; yet the government is sending scouts out to reconnoiter while the settlers
are under attack.
Bankruptcy,
a term long avoided in better South Korean circles, is now discussed openly in
polite society. And while the "war of words" between North and South
Korea is no longer at the peak that it reached several years ago, you can still
hear a pin drop in the South Korean War Room where the forces of the North are
monitored on a continuing basis. However, conditions in Korea
will get far worse before they get better, causing both a contraction of imports
and a currency devaluation. Korea is a nation that has surprised global economists
over the years with its tenacity and it is a sage statement that "no one
ever made money betting against Korea", a country where in a little over
thirty years, per capita income has gone from $90 to $10,000.
Yet,
Korea is now facing competition from neighbors who have hibernated for the last
century. Koreans are suddenly finding out that countries like China are now getting
a hefty share of the exports that Korea and Japan so long had to themselves. Moreover, this year alone, seven
out the thirty largest conglomerates (Chaebols) () in the country have gone bankrupt putting tremendous
pressure on an already overextended banking sector. Some economists have estimated
that over 30% of Korean bank loans are either substandard or non-performing.
While
South Korea was fighting for its economic life, North Korea was coming up with
unique solutions to their problems:
“…The
target for this appears to be Japan, where the nation’s 500,000 users (methamphetamine)
pay handsomely for high-quality crystal meth. Most of Japan’s speed in recent
years has come from China, but Tokyo cops got a surprise in April 1997, in a small
port in southern Japan. There a lone customs inspector wondered about the 12 large
cans of honey that crewmembers hand-carried from a North Korean freighter. It
seemed strange, the inspector thought, that North Korea was exporting food in
the midst of a famine. A check found the cans crammed with 130 pounds of meth.
Then, last August, Japanese police traced a 660-pound meth shipment, worth $335
million on the street, to a North Korean boat disguised as a Japanese vessel.
Investigators have tied both cases to the Yakuza—Japanese crime syndicates—many
of whose members are ethnic Korean. Japanese police are alarmed: In two years
the North Koreans have come to supply nearly 20 percent of Japan’s multibillion-dollar
meth market.”
In
another solution to their military problems in 1952, the North Koreans injected
plaque bacilli, a deadly culture into two criminals that were awaiting the culmination
of their death sentences. Naturally, they quickly died and their tissues were
used to convince in international press that the United States was spreading germ
warfare throughout their country. Now it was only a matter of convincing a substantial
number of captured American Pilots to confess their rolls in delivery the airborne
chemical warfare. After several grueling rounds of advanced torture, using techniques
developed in China and the Soviet Union, the Americans were more than willing
to confess their roll in delivering germ warfare to the countryside.
It
wasn’t until 46-years later that this hoax was exposed for the fraud it was
when telegrams, reports and meeting notes of what transpired among Soviet and
Chinese leaders, including Chairman Mao Zedong.
“In a report to Lavrenti Beria, head of Soviet intelligence, he outlined
the deception: “False plague regions were created, burials…were organized,
measures were taken to receive the plague and cholera bacillus.” Only after
Joseph Stalin’s death in 1953 did the Soviet Union halt the disinformation
campaign.”
1954
The Japanese along with a number
of rich Koreans literally owned all of the land in North Korea. In 146 the Government
of North Korea nationalized the land owned by outsiders and gave it to the public
in the form of collectivization. This process was begun in 1954. “The collective
farms originally constituted approximately 80 households working 130 hectares
of land, but their size later increased to an average of 300 families from neighboring
villages working 500 hectares. The party leaders who ran the new collectives in
the name of “the people” became the new landlords. Each family was permitted
to farm a small garden plot (initially up to 260 square meters, later reduced
to 100 square meters). But except for that small plot nothing tied the farmer
to the land, since he worked wherever in the collective he was needed”
Eventually, the State reclaimed the peasants land, but no one seemed to care because
they never really had it anyway.
This system worked well and for North
Korea but its limitations were not readily apparent. As the north attempted to
get more and more out of less and less, resources became stretched exceedingly
thin. There just wasn’t enough resources, human and otherwise to accomplish
all of the government’s goals and extremely poor farming techniques were
in the process of destroying what little agriculture existed. In the meantime,
people were being taken from the land to work the factories in the big cities,
causing severe labor shortages to develop in both places. It seems that the government
had only created a wish list of what they wanted to accomplish but did not put
a pencil to it to see where they would get the resources to accomplish it.
1974
The economy of North Korea was hit hard by the oil crisis brought on by
the war in the Middle East. Although the North was being highly subsidized by
the Russians and Chinese, their economy literally became fried. The products that
they had dropped dramatically in price and those that were imported went up like
a skyrocket. North Korea at this time began to default on its external debt. This
forced the country to cease the importation of technology from the west and was
literally the first step in sending North Korea back into the Stone Age.
During the Korean War, the North Koreans
fought to win, and were willing to us every resource that it had available to
defeat South Korea and the United Nations’ Forces. Even when the war was
over and a settlement had been signed, the North Koreans did not give up their
desire to take control of the south by any means necessary. Their army had constructed
a complex tunnel system, which began well into North Korea and extended well behind
the established demarcation zone that had been established. The tunnel was substantial
and obviously a great number of troops could have popped up behind South Korean
lines and caused substantial havoc. Charges flew in both directions with the North
Koreans denying that they had anything to do with the tunnel.
On March 19, 1975 the South Koreans
found a second tunnel more formidable than the first. Once again North Korea denied
its involvement with its construction, a defector to South Korea, readily admitted
that he had been one of the compressor operators on that job. Now that the veil
was down, Kim continued to help the South, and pointed them in the direction of
a third tunnel on October 17, 1978. Ominously, the exit of this tunnel was located
a hair’s breadth from Seoul, the capital of South Korea. Once again, and
in spite of this overwhelming evidence, North Korea once again took the position
that the tunnel had probably been created by folks from outer space in an attempt
to take of the world. They were only temporarily silenced when a fourth tunnel
was discovered on March 3, 1990. All of these tunnels started on the Northern
side of the demarcation line between the two countries and ended up in the South.
Sweden had sold advanced excavators
to North Korea. Information released years later showed that on “September
25, 1971, Kim ll-sung ordered Kim Jung-rim, chief of the Anti-South Korea Operations
Department in the North Korean Workers Party, and Oh Jin-u chief of the General
Staff of the North Korean People’s Army, to complete the work of digging
infiltration tunnels as soon as possible, saying, “blitz tactics are the
only means to enable North Korea to liberate South Korea, and one tunnel must
be regarded as effective as 10 nuclear weapons.” As time went on, the South was
able to develop highly sophisticated technology to help them in locating additional
tunnels; the current count has mounted to over twenty and is still rising.
In order to defuse a rapidly escalating
problem, the United States offered Pyongyang $4 billion worth of clean light-water
nuclear reactors in exchange for them shutting down the graphite-based nuclear
power plants that they that produced dirty plutonium, an extremely dangerous substance
along with having others launch North Korea’s missiles. Many years later
the program is seriously advancing; but is it really a good deal for the United
States? While it temporarily defused a
difficult situation at that time, it maybe that the American’s had their
pocket’s picket and still haven’t realized. “In the nuclear area,
the Agreed Framework is beginning to supply what Pyongyang’s military nuclear
planners need most. Under it, South Korea must train roughly 1,000 North Korean
nuclear technicians, which represents a vast increase in the number of people
versed in nuclear operations.
The framework also would, when fully
implemented, result in a massive expansion of North Korea’s nuclear materials
production base. In 1994, Pyongyang could produce one to two bombs’ worth
of plutonium a year. With the two
planned reactors, it could produce between 75 to 150 bombs’ worth of nuclear
material annually.”
Moreover, even if North Korea was going to be on good behavior and use the atomic
installation to produce only electricity, eventually it will dawn on the people
that North Korea does not have either the electric grid to supply that much electricity
or the capacity to use anywhere close to this amount.
Bradley Babson, the World Bank’s
senior adviser on North Korea said that “If the nuclear plant project supported
by Korean Energy Development Organization was subjected to a normal World Bank
project evaluation and appraisal, it would get an “F”. The reason was
that North Korea’s capacity to generate and distribute electricity was far
too meager to absorb even one of the proposed1-gigawatt nuclear power reactors.
Without the ability to exploit the electricity produced, Pyongyang would never
be able to repay the interest-free loan it took out to pay for the reactors. “ He went on to indicate that by
turning the atomic reactor on without reconstructing the North Korea electrical
grid, at best the system would probably risk disruption and at worse total destruction.
The basic deal has major flaws but
the United States also got the North Korean’s to agree to pay third parties
to launch their satellites. The Russians made this same arrangement when they
agreed to assist India’s satellite launch program. India had soon created
rockets that could easily reach Beijing in spite of every attempt to keep the
technology secure. The United States was helpful to China under the same circumstances
and they were soon able to deliver multiple nuclear warheads with alarming accuracy.
“If Pyongyang can dictate the shape, volume,
weight and fragility of the satellite being launched, it also can control the
kind of technology needed to launch it. Is there any way to prevent North Korea
from specifying a satellite that would require a reliable version of the upper
stage that failed in its frightening August 1998 launch of a multi-stage rocket
over Japan? What of preventing Pyongyang from specifying some other satellite
that would require an upper stage that it could use on its more advanced Taepo
Dong-2 launcher? Sadly, once one gets into the business of helping North Korea
launch its satellites, running these risks is simply part of the cost of doing
business.”
1976
Two American GIs are murdered by North Korean soldiers on the Bridge of
No Return marking the border between the north and the south. The American Government
is outraged but nothing develops but a war of words.
Fall 1984
For the most part, no dialogue existed
between North and South Korea for a long period. In August of 1971, there was
an agreement between the two countries to continue dialogue through their respective
Red Cross Agencies while several construction announcements came from various
dialogues, nothing substantial ever happened. It was not until 1982 when North
Korea unloaded a bombshell. They would be willing to provide substantial assistance
to South Korea relative to the substantial flood damage that country had recently
suffered. In addition, talks were also resumed on uniting families, as well as
mutual trade and economic issues. These periods of seeming détente lasted only
several years when North Korea suddenly broke off communications. The North used
the excuse that there literally could not be anything of mutual interest arranged
while the United States was holding war games with South Korea.
1985
and 1986
North Korea defaulted on its remaining foreign debt, which by this time
stood at $5.2 billion. Western Banks declared the debt to be in default and by
100 creditor banks from seventeen nations filed suits against North Korea. The
biggest creditors were France, Germany and Japan. Russia alone was owed $7.35
billion. By 1997, North Korea’s debt had risen to $11.9, an amount that it
will probably never repay.
Early 1993
On March 12, 1993, North Korea announced that it was gong to withdraw from
the Non-Proliferation Treaty that they had signed. The South Korean Government
went into shock, expecting the worse. As the South Korean Government started to
analyze the situation, they were obliged to attempt to determine what the result
of this announcement would have on others. They came up the following possibilities:
1.
The North Koreans would ultimately produce an atomic bomb.
2.
War would break out because of negative reactions and hot tempers
caused by the sudden pullout
3.
An arms race would begin with both South Korea and possibly
Japan determining to catch-up.
4.
America would launch a surgical strike on North Korea’s
nuclear facilities leading to a major confrontation.
While still debating what to do next,
the North Koreans blinked and phoned the United States suggesting a meeting. This
was a first and it showed that the North Koreans had at least to some degree had
played the wrong card.
Meetings were setup between parties
and the North Koreans made the following pronouncement:
“The DPRK had undertaken a peaceful nuclear program
in good faith, Kang Sok Ju began, using natural uranium, which mined in the country,
and gas-graphite technology, which was widely available. While it had no intention
of producing nuclear weapons, he insisted, other nations were concerned that the
facilities had a big potential for weapons production. The DPRK, he announced,
was willing to shift its entire nuclear development program to more up-to-date,
less proliferation-prone light-water reactors to fill its energy needs, if these
could be supplied by the international community.”
Summer 1993
It was a bad hair day in North Korea
and Government Officials decided to give the world’s governments something
to think about. Pyongyang let loose their newest
guided missile, the Rodong-1 that had range of 700 miles, and laid it down in
close proximity to Japan’s main island, in the Sea of Japan. Those in Japan
went ballistic, but this was a nation that had abandoned military actions and
had literally no method of defense or retaliation. This act did a lot to get the
world’s attention and North Korea started collecting substantial tribute
from neighboring countries that were interested keeping the peace. Government
Officials in North Korea had just found a new profit center for the sadly lagging
economy, global shakedowns. Interestingly enough, having succeeded so splendidly
with a missile that had not been even thoroughly flight tested, they dropped one
even a little closer to Japan in 1998, probably just to see how they would squeal.
Things began to get serious and it
really started to look like there was an excellent chance that the verbal combat
between the North and South would escalate into a massive war. The Pentagon believed
that in spite of monitoring satellites, there would be little warning should the
North attack. In analysis was logically based on two facts, the first was that
literally, the great majority of North Korean Forces were permanently stationed
near their border with the South. The second theory was absolutely irrefutable:
spy satellites are not going to be very helpful in seeing hundreds of thousands
of North Korean soldiers marching through caves under the DMZ and coming out,
god knows where.
As the war of words continued unabated,
other issues were addressed, such as what to do with the thousands of American
dependents living in South Korea and this was determined to be not even worth
discussing because the lack of warning would effectively negate anything that
could be done to move family members. Having quickly disposed of that temporary
problem, the American War Planners now were forced to analyze what their chances
of successfully deterring any North Korean initiative.
There seemed little question that
the North Koreans, given the advantage of surprise, would batter the allied forces
pretty badly in early fighting. When
our planners analyzed a worst-case scenario, things started to look very ugly.
The North could quickly bring very modern equipment to bear in combat. This was no Iraq, said the military
planners:
“The North had hundreds of 240 – mm rocket
launchers and 170-mm Koksan guns, among the longest-range artillery weapons in
the world. North Korea’s 10,000 artillery pieces plus the rocket launchers
can fir up to 20 million rounds of high explosives, fuel-air explosives and chemical
weapons in a single day. Its 120 Soviet-designed Scud and FROG missiles could
sustain an hour-long barrage.”
But America would win the war when the chips were down. We would call in
the Air Force, which had bases all over the region, and they would quickly annihilate
the enemy. U.S. Air Force Colonel
Robert Gaskin predicted:
“The all-important U.S. air campaign would
never get off the ground. Instead he forecasts that when squadrons of American
and South Korean F-16s scramble at a dozen air bases, Scud missiles armed with
nerve-gas warheads would slam into the tarmac, effectively shutting down operations.
At bases like Osan, the huge U.S. air base’s preflight briefing room, killing
pilots and disrupting the counterattack. Gaskin’s report sees the entire
South Korean front crumbling in as few as three days.
Never trained to retreat and regroup, the Southern
troops would flee in disorganized panic. North Korean armored columns would then
envelop Seoul’s lightly armed reserve
units would fall to North Korea’s tanks and armored personnel carriers. Millions
of panicked civilians clog the highways, blocking South Korean reinforcements
trying to move north. In four weeks, Kim ll Sung’s troops would capture Pusan,
erasing the mistake their predecessors made 44 years earlier, when Northern forces
failed to reach the port before U.s. reinforcements arrived to drive them back
across the 38th Parallel.”
There are others who paint an
even bleaker picture saying that the North Koreans are totally ready to send Kamikaze
Pilots on suicide missions to attack our big carriers. In addition, North Korea
has been turning out disposable submarines a rapid pace along with training over
100,000 highly trained commandos fully ready to achieve their objectives or die
trying. Moreover, North Korea certainly isn’t going to be dependent on other
nations for much of their military equipment, as they also are manufacturing a
plane called the AN-2, designed solely with the thought of using it to drop these
commandos behind allied lines.
Gaskin’s
semi-doomsday scenario only really offers one chance at a quick victory and that
would be to use the atomic bomb to nuke the North Korean’s back into the
Stone Age. The other two options are for us to claim victory and leave Korea hastily
or in the alternative begin a World War II style, full-scale war using potentially
reluctant Japan as a jumping off spot. No quick victory here in any of his scenarios.
Even the top Pentagon planners when rethinking their options indicate, “Until
the shooting starts, nobody really knows what’s going to happen.”
Universally they seem to be of the opinion that the alternatives can’t take
into consideration the determination of the North Koreans and unless that element
could be plugged into the model, what will happen in a war is at best a calculated
guess.
Winter 1994
Then American President Clinton announced
that the North Korean Government had refused to allow inspection of its potential
nuclear sites by the International Atomic Energy Agency. The Agency promptly went
to the United Nations with its findings and asked for help. The United States
showed how concerned they were about this event by sending 30-Patriot Batteries
to the South allowing them to have some protective cover, should the North attempt
something more than a war of words. The United Nations censured the
North Korean government and discussed placing international trade sanctions this,
the very last of the Stalinist regimes. For the most part, this was an idle threat
as China would vote against any such move and kill the amendment.
The United States was more alarmed
than they let on. Knowing that it would take a substantial time to set up the
batteries, they made it clear to the North that these anti missiles would be sent
by ship. This would not keep the pot boiling and would give the various adversaries
the needed time to cool-off.
Early 1994
It was recently announced that while
North Korea had nearly doubled its capacity to produce plutonium for use in manufacturing
nuclear arms and has made great strides in reactor technology, they are continuing
to refuse inspection of their sites by international representatives. Based on
testimony before the United Nations and the United States Government, there didn’t
seem to be much left to the imagination that North Korea was fully intending to
develop a full blown nuclear arsenal.
In the meantime, this development
was interpreted as intelligence officers as a message to the West. The North Koreans
seemed to be saying, you can plainly see where we are coming from, but we are
open for a deal and if you put the right stakes on the table, we may be more than
willing to met you halfway. “According to accounts of last month’s two-week,
International Atomic Energy Agency inspection provided by four knowledgeable sources
who asked not to be named, the most worrisome nuclear-related construction has
taken place in a large building at Yongbyon that houses a reprocessing “line”
– a set of vats and cauldrons for the extracting plutonium from spent nuclear
fuel. The CIA has charged that this reprocessing line was used by North Korea
between 1989 and 1992 to produce enough plutonium for one or two nuclear weapons.
During the International Atomic Energy Agency’s recent visit, inspectors
were barred from seeing all the huge building, including some equipment related
to this line.”
On June 29, 1994, after being visited
by former American President, Jimmy Carter, Kim ll Sung announced that he would
shut down North Korea’s nuclear program and would meet with the south. This
never happened because on July 8, 1994, Kim ll Sung died of a heart attack. This
became a real problem for North Korea because there was no clear succession, at
least as far as the people were concerned. Kim Jong ll, a movie freak who has
a library of over 20,000 videotapes and a lush, who had virtually running the
show behind the sign was literally unknown and none of the heroic deeds attributed
to North Korean heroes could be credited to him. He had literally been nowhere
and accomplished nothing other than making a series of anti-Japanese films.
The only thing that would follow
him was the fact that he had been pulling the economic strings of the country
for 25 years and they had been the most disastrous in the history. At best he
could be categorized as a terrorist. Circumstantial evidence points to him in
the downing of a Korean Air jetliner that took 115 lives in 1987 and a disastrous
assassination attempt on the life of a South Korean president in Myanmar that
killed 17 senior South Korean officials in 1983. Many also believe that it is
Kim who is responsible for the increased production and distribution of illicit
drugs in an attempt to kick-start the North Korean economy.
“Little is actually known about Kim Jong-ll,
but all accounts from the few who have met him indicate that he lacks the charisma
of his father. Kim Junior is never seen publicly, not even for official functions
held in his honor. He showed up for his father’s funeral, but kept silent,
looked dazed and feeble and made no statement. There is much speculation that
he is in poor health or somehow handicapped; western intelligence reports indicate
that he is heavily introverted and devotes much of his time to watching foreign
videos. In the more than two years since the funeral, he has rarely been seen
in public and has never given a public speech. He has yet to meet any foreign
head of state and has not visited any other country since his father’s death.
As the North Korean economy sinks by an average 5% per year, and food and energy
shortages grow ever more severe, the nation stumbles along without visible or
consistent leadership.”
A mystique had to built and it had
to be created without delay. Suddenly the public relations mill in North Korea
created an unbeatable background for this anomaly. Kim suddenly turned out to
have been a great general, a statesman and a philosopher that was given to thinking
deep thoughts. Miraculously he had been helping fight the great war before he
was in his teens and was credited with being a great statesman. Last but not least,
this was a man, the public relations people postulated, that could see one hundred
years into the future.
“…Kim Jong ll was actually born in
Siberia in 1941, but because most North Koreans have never heard of Siberia, Jong
ll was reborn in a log cabin near North Korea’s famed Mount Packtu beneath
two rainbows and a bright, previously undiscovered star. He is reputed to have
written hundreds of books, all epic masterpieces, and six operas in the course
of two years. He can stop rain and predict the discovery of natural resources.”
But much of his attributes could
be given to his father as well:
“Myth and legend shrouded Kim ll Sung.
His legendary heroics against the Japanese during World War II, by all historical
accounts, never occurred. His greatest victory was a stalemate in the Korean War,
at the cost of half million North Korean lives. He might also claim a victory
of sorts in the arrest of more than 20 million people he hold captive. North Koreans
are taught that Kim was the inventor of everything from centuries old scientific
can physics theories to such modern conveniences as the automobile and the toaster.
Some believe that he has walked on the moon. By law, every North Korean household
must possess at least two portraits of the “Great One”.”
Late 1994
An American army helicopter was shot
down on November 12th, 1994. The helicopter was flying in North Korean
airspace when their anti-aircraft guns took it out. The pilot was killed but his
co-pilot was eventually repatriated. This incident caused the United States no
amount of embarrassment because there was little that they could say because of
where the incident occurred.
Early 1996
It was determined that two former presidents
of Korea had committed crimes while in office that were so egregious that they
could not be left for history to judge as original planned. Roh Tae-woo, resident
of South Korea from 1988 to 1993 is accused of accepting over $360 million in
bribes from 35 businesses in Korea. Chun Doo Hwan is believed to have taken $289.2
million from 40 different businesses. In Korean terms, these are absolutely massive
amounts of money. They in turn will be tried along with 14 of the associates.
In addition, both men, former generals, are being charged with taking of the country
in coup which in turn led to a massacre in which numerous people lost their live.
Thus, they are being charged with mutiny and sedition along with the crime of
bribery and extortion.
The government prosecutor Kim Sang-hee
asked that Chun be sentenced to death and Roh be given life imprisonment.
“The prosecutor told the court
that Chun and Roh, both retired four-star generals, must be severely punished
so that “this trial will serve as a historic landmark by showing that laws
and justice rule this land.” He also sought fines of $349 million for Roh
and $273 million from Chun for the bribes they took from businessmen during their
presidency…. Chun stated: “This case tries to judge legitimacy of past
governments under the slogan of straightening history, Political retaliation in
the form of trial …must end with me.”
However, the people didn’t see it that way. “The public gallery burst
in thunderous applause when the prosecution demanded death sentence for Chun.
The ex-presidents were often taunted with cries of “sons of bitches.”
“Kill the bastard” and “execute the slaughterers.”
Fall 1996
A miniature North Korean submarine beached itself on the South Korean coast
in September of 1996. Twenty-six men were launched from the sub to take up undercover
positions in the south. There was a fifty-three day manhunt in which twenty-four
of the potential spies were summarily executed.
Early
1997
South Korea has a habit of punishing
losing politicians when they are cast
out of office during an election. The theory is more like an expunging,
getting rid of all of the ills they
can so that the new party entering office can start collecting bribes with a clear
conscience, This theory is somewhat akin to the biblical story of the goat which
was brought to stand in the local town square and was chained so that it listened
politely as all of the locals told the animal their indiscretions.
After everyone had finished piling garbage upon the beast, it was untied,
beaten and sent out into the mountains, and with him, the people hoped would go
their sins. A similar event occurs in Catholic Confessionals throughout the world
when parishioners tell the priests of their recent offenses and in exchange for
the uttering of certain repetitive phrases , they are forgiven.
Being a politician in Korea is somewhat
akin to the life of a Roman gladiator. As long as you have defeated your opponent,
things are ok but the once you slip, you historically become instant “dead
meat.” So goes it in Korean Politics and although we are not going to delve
into all of its nuances here, losing can well be extremely bad for the digestion
and potentially fatal. There is always plenty of dirt that can be had on politicians
here without going to too much trouble. Bribery
and graft at a senior governmental level is a way of life, so there is
not much problem doing away with the losing political opposition should
he become expendable.
Such was the case in the spring of
1997 when the South Korean authorities began investigating 70 high-level government
officials for corruption. Included among this list was the mayor of the city of
Pusan, Korea’s second largest city, who is being charged with bribery. Also
arrested were Hwang Byung-tai and Kwon Roh-Kap, both National Assembly member
who were charged with taking bribes. Also grabbed was former home minister Kim
Woo-suk who was arrested on bribery charges. This was pretty serious even as the
rough and tumble South Korean political spectrum goes, as those that were named
were vice ministers, heads of local governments and cabinet ministers.
Korea received disastrous news, Hanbo
Business Group,
which among other things owned Hanbo Steel; the second largest steel manufacturer
in the country would be going under. It seems that Hanbo’s acquisition eyes
were bigger than n its stomach and it took over one company too many. On the other
hand, if you had placed yourself in a position to be able to receive any amount
of financing whenever you needed it, you may want to take bigger and bigger bites
of the apple yourself.
In Korea, they had believed in the
American concept of “too big to fail” so thoroughly that literally up
until this point, there literally were no failures at the upper end of the corporate
ladder. Hanbo hide numerous problems that should have appeared on their balance
sheet and through an intricate system of payoffs and bribes to well placed politicians.
They were able to not only stay afloat, but dramatically expand during a period
of time when they were literally out of business. There seemed to be no question
that the failure of Hanbo’s parent would cause a “domino effect on the
group’s other 21 subsidiaries because of cross-investments and cross-loan
guarantees.”
Hwang had become the hired gun for
a Hanbo Business Group, and was instrumental in getting them $62.5 million in preferential loans from the Korean Development
Bank. In spite of the fact that Hwang had known that Hanbo had misstated their
financials, but he was not deterred from getting this money. On the other hand,
they were charged a substantial price for Hwang’s assistance. Hanbo gave
Kwon even more for playing down all the company’s irregularities when the
Korean Parliament was investigating it.
Kim also took substantial bribes from
Hanbo in exchange for numerous favors. Sadly for Korea, when Kim got involved
in the bribes he was president of the Korea Land Development Corporation and later,
transportation minister of the government. Two more legislators, Hong In-gil
and Chung Jae-chull were arrested for similar crimes involving Hanbo, several
days later and then Chung Tae-soo, Hanbo’s chief honcho was arrested on charges
that he had secured $6 billion without putting up substantive collateral with
the help from a large Korean Bank. When
Hanbo, the second largest steel maker in Korea went under, billions were lost
and it became the biggest bankruptcy in the history of the country.
President Kim Young-sam had only been
in office for a short time, when he began a “crusade against corruption ,
warning that many new lawmakers could lose seats over voting irregularities. The
president said he already had ordered prosecutors to carry out an investigation
into election fraud…His tough anti-corruption drive has led to the sacking
of hundreds of civil servants and put two former presidents on trial for amassing
slush funds totaling hundreds of millions of dollars.” But perhaps he was acting to hastily.
However, no one was at all surprised
with the charges; as we have said, this type of thing is a way of life here, but
the number of people being brought to the bar of justice and their standing within
the political community was something else entirely. Two former Korean Presidents,
Chun Doo Dwn and Roh Tae-woo received severe jail time for their crimes, an unbeatable
combination of graft, treason and mutiny. On the other hand, in the, what
“goes around, comes around department”, President Kim Young-sam’s
second son, Kim Hyun-chul was charged with taking kickbacks in the millions of
dollars and the adding insult to injury by not paying any taxes on his ill-gotten
gains.
Sam had received the nickname of “Crown Prince” when
he had run his dad’s campaign for office.
Interestingly enough, it was the anti corruption campaign that was designed
by the “Crown Prince” that got Kim Young-sam elected in the first place.
Thus, for a president that had run on such a strong anti-corruption campaign and
had felt little compunction about sending political opponents to jail for long
terms without even letting them pass go, this was an extremely embarrassing turn
of events. However, the president should have known better than to throw stones
in his glass house. “Newspapers tagged him the “Young Vice-President
(Kim Young-sam in 1992 when he was vice president) and “Crown Prince,”
and editorials published only days after the elder Kim was sworn into office raised
concerns about his son’s influence-peddling.”
But the blood bath wasn’t quite
over, Chang Hak-ro, the senior aid of President Kim Young-sam confessed to taking
almost a $1 million in bribes for doing “business favors” for a raft
of companies. The graft was uncovered during the Hanbo investigation. This was
a particular blow to the president because it had now really hit home. The opposition
party was able to derive a massive public relations benefit from the entire mess.
Here was a president that held himself out as “holier then thou”, and
yet, both has son and his most senior aid who had been with him since he had started
in politics had both been found guilty of massive bribery. On the other hand,
this is Korea. In addition, one of the members-of-parliament implicated two economic
secretaries in the president’s office, Han Yi-horn and Lee Suk-chae.
In the early part of 1997 a number
of factors had come together in North Korea that caused many in the West real
problems. North Korean submarines were landing secret agents in the South. The
starvation problem in North Korea had become critical
and their military effort had been expanded several notches. It was clear that
the country was extremely unstable and that almost anything could happen. It was
under this background that the pressure being expended by North Korea relative
to arming itself for war soon became an obsession with Congress and their mode
was best exemplified by a speech that was given by Congressman Doug Bereuter,
the Chairman of the Subcommittee on Asia and the Pacific, when he kicked off a
conference on the subject on February 26, 1997”
“Much is happening with regard to what some call,
and we are calling toady, maybe with a little bit of overkill, the “Hermit
Kingdom.” And yet we still know almost nothing about this secretive and almost
completely isolated nation. Most of what we do know is alarming. North Korea remains
perhaps the most volatile, belligerent, and dangerously unstable nation in the
world. Pyongyang continues to allocate significant and disproportionate levels
of scarce resources to its million-man-plus Army. Pyongyang’s nuclear activities
have been so alarming that it has spurred an international effort to provide North
Korea reactors in return for the capping of their petroleum production facilities
through the Korean Energy Development Organization (KEDO). Even if one answers
American and International concerns about the North Korean nuclear program, there
is still North Korea’s ongoing missile, chemical and biological weapons programs
and its continued export of terrorism. Almost as disturbing as the external threat
is the security threat posed by North Korea’s unstable domestic situation:
Threat of either starvation, implosion, or external belligerence.”
During the session several interesting
things came to light. One of the early comments was that the international relief
help being given to North Korea was in reality being used by the army for stockpiles
and other purposes. Thus, there was really little progress in helping the starving
Korean population. Additionally, there was substantial concern that North Korea’s
atomic installations were cranking out fuel that could easily be converted into
Atomic Weapons should they have the technology to do it. It was also pointed out
that much of North Korea’s hard currency comes from the export of their ordinance,
primarily their guided rocket systems. It was pointed out that the customers for
these products are usually sold to rogue nations that are either busily engaged
in either making war on their neighbors or using the weapons as an implied threat.
Another ominous sign was the fact
that small North Korean Submarines had stepped up their program of dropping off
incursion teams on deserted South Korean beaches. Few have been found and it well
may be that there is a cadre of moles interspersed with the population, the length
and breadth of the country. “…But at the same time, North Korea possessed
the capability with, for instance, their artillery, the largest collection of
artillery of its kind any in the world; on a short notice they could roll out
and fire that artillery into South Korea and inflict great damage, tens of thousands,
perhaps hundreds of thousands of casualties.”
Kim ll-Sung died during this period
and had already created a personality cult around himself and photographs of his
likeness appeared everywhere. He was both a father figure and a god-like character.
When he died and his son Kim Jong ll succeeded him, Kim figured that all
this publicity was a pretty good thing and ramped up the public relations. This
time though, things would be a little bit different. He determined to become obsequious
and this caused the following to have been written:
“Kim has followed his father’s blueprint for myth-making, using
the state’s radio and print propaganda tools to take credit for amazing feats.
Construction engineers stymied about where and how to build a dam are said to
be enlightened by Kim; fighter pilots improve their prowess with instruction on
takeoffs and landing from Generalissimo Kim in the control towers. Kim clings
to his father’s practice of providing “on-the-spot guidance to his people,
a phenomenon in which the national leader visits soldiers, farmers, scientists,
journalists, film makes and anyone else to impart instant wisdom that solves their
most complex problems.”
In
another development that contained massive implications, Hwang Jang-yop, a senior
Communist Official while visiting in Beijing, determined that he had enough of
North Korea and headed for the South Korean Embassy. Once he was inside, all hell
broke loose. The North Koreans at first assumed he had been kidnapped because
no one of his stature had ever jumped ship before. They made an enormous fuss
and literally surrounded the South Korean Embassy and demanded his return. On
the other hand, there was really no where that they could go with the situation,
the Chinese are massive trading partners of the South Koreans and were not about
to enter their embassy and return the man.
On
the other hand, the Chinese didn’t want to make things too easy for anyone
that would indicate that they had capitulated. “Hwang was not permitted to
the South Korean consulate for five weeks, and then only for a third country rather
than directly to South Korea. Under an arrangement worked out with Seoul, the
Philippines provided a temporary refuge for Hwang before he was permitted to travel
to Seoul on April 20. As Hwang and his associate, Kim
Duk Hong stepped out of a chartered Air Philippines jet at a military airport,
the two defectors raised their arms in the air three times and shouted “Mansei!”
a Korean expression of triumph and good wishes. The South Korean public, watching
raptly on live television suspended its mixed feelings about Hwang, at least for
the moment and warmly welcomed his arrival.”
Eventually, the North Koreans, having no where to go, agreed that if the Chinese
agreed that he had asked for sanctuary of his own violation, they would no pursue
the issue and it was gratefully dropped by all concerned.
On
the other hand, it soon became evident why the North was so concerned about what
Hwang, the highest ranking North Korean ever to defect, and onetime private tutor
of North Korean leader Kim Jong-il, had to say. He indicated that an amazing “50,000
North Korean spied had infiltrated the South, penetrating the top levels of government
– a number 50 times higher than estimates usually made in the South .
This announcement was met with astonishment and although there does not seem to
be a question that Hwang wrote the memo and believed the what he wrote, the number
seemed inconceivable.
In
April of 1997 a North Korean freighter docked in the port of Hiroshima was found
to be carrying over 150 pounds of amphetamines with a street value of close to
$100 million. It was only found by the slimmest of accidents and no one has any
idea of how much of the stuff had preceded this shipment.
Summer
1997
Estimates now place North Korea’s
arsenal of SCUD missiles at 1,700. The country has also been engaging in shipments
of these missiles to both Iran and Syria while helping them to set up their own
production facilities. The worse part of this intelligence was the following:
“According to U.S. intelligence sources, Iran keeps its Scud missiles
in several deep tunnels along its coast line, including on some of its islands
in the Straits of Hormuz. This gives Iran the capacity to block the strait, which
is a conduit for more than one-third of the world’s oil. It is said that
North Korea also has developed in is deploying a long-range missile, named Rodong-1,
with a range of 1000km. This makes it capable of reaching all of South Korea and
much of Japan. According to the London-based Jane’s defense report, North
Korea is also trying to develop missiles with a range of 3,500 km that could reach
the U.S. territory of Guam.”
Not
willing to let well enough alone, the CIA announced that North Korea will cease
to exist in three years. They indicated that they will either merge with the South,
or have and explosion or an implosion. As if this wasn’t enough, North Korea
was showing that they had become extremely adept at designing American $100 bills.
The problem became so pervasive that the U.S. Treasury redesigned the bills in
a less copyable format while a massive shipment of illicit drugs from North Korea
arrived in Japan and was seized.
The
economy has almost slowed to a halt with state-run factories only operating at
a small percentage of their capacity, mines have been closed,
electrical production has literally ceased and aerial photographs by the CIA along
with a congressional mission were hard pressed to find a living pig, chicken or
duck in the countryside. Japan stopped sending rice to North Korea in spite of
the fact that they had a massive surplus. Worse yet, the famine that has taken
over the North is causing many people to flee either to China or the South Korea.
Sadly for those who chose to go north instead of south, the Chinese always return
the claim jumpers who for the most part are only looking for something to eat.
However, when the Koreans are returned, the North Korean Government summarily
executes them.
Those
that were lucky enough to head south came out much better. The South Koreans not
only treated them like long lost brothers but in debriefing the refugees they
received substantial intelligence. “All
North Korean defectors who have left for the south recently, including 74-year-old
Huang Jang Yop, ranked 26th in the ruling party hierarchy and a close
aide to the late “Great Leader”, have made statements that North Korea’s
dictator and his generals are preparing for war through a massive blitzkrieg.
Their plan is to capture Seoul, which is less than 30 miles from the border, within
24 hours and take the whole of South Korea within a week. Members of a U.S. Senate
delegation during a visit early this year saw a massive defense exercise in which
all vehicles were covered with camouflage netting and people took refuge in shelters.
North Koreans had been told that the U.S. and South Korea were going to invade
the north in the near future.
“According to Mr. Yop, North Korea would not hesitate to use nuclear,
biological and chemical weapons against South Korea and convert if into a sea
of fire. North Korean leaders believe that they would win the war, and if Japan
and the U.S. intervene they could be reduced to ashes. U.S. analysts say that
a blitzkrieg would wipe out almost all 37,000 U.S. troops within a few hours if
North Korea uses biological and chemical missiles. Apart from large-scale destruction
of South Korea’s infrastructure, if the North uses nuclear weapons the human
losses would run into millions.”
On one clear fall day in South Korea, a strange event began unfolding,
highly armed men started rising out of a hole in the ground near what is called
the second tunnel, substantial beyond the dividing line between the two countries.
As soon as they were in position, the opened fire with everything they had, and
they had a lot, on the South Korean
guards. This awesome firefight last only 20 minutes but left a number of dead
and certainly made everyone go back to their drawing boards. If anything, this
was an act of desperation. The people of North Korea were forced to eat weed or
indulge in cannibalism is they wanted to fill their stomachs.
LATE 1997
Recent
collapses, including the bankruptcy of Halla Group, Mando Machinery, Hanbo Steel New Core, Kia, Sammi,
Dainong, Jinro, Dongsuh and Coryo Securities, all major companies in Korea, have
sent shock waves through the region. With the unusual government takeover of rudderless
and penniless Kia Motors, () the “Won” at an all time low against
the dollar, and the unheard of firing of employees; an event even two years ago
which would have been though impossible, Korea could well go into a free-fall
as well. The country has returned
to the absurd system of nationalization while the rest of civilization is dancing
to the drum of privatization.
When
it was announced that Kia Motors, Korea’s eighth largest conglomerate had
collapsed, the Korean stock market suffered its largest one-day drop in the country’s
history. Almost simultaneously, it was announced by Standard and Poors that they
would be downgrading South Korea’s foreign-currency debt. This in turn precipitated
a substantial drop in South Korea’s currency, the won, to the lowest level
in its history against the dollar.
However,
this was indeed bad news for the South Korean economy, Kia had over $10 billion
in debts when it took the dive. To make matters worse, instead of dumping the
problem, the South Korean Government announced that they would bailout the company
and nationalize it. It is an economic given that if a company can’t be made
profitable by public sector management, bloated bureaucracies and politically
oriented management and oversight are not going to get the job done. South Korea
was permanently saddling itself with a cripple and the markets were well aware
of it. And in the strangest cut of all:
“Kia
management and workers and a major labor union were outraged by the bailout, but
for far different reasons than Standard & Poors gave. Afraid it was the prelude
to a hostile takeover, Kia managers refused to resign. Some 30,000 Kia employees
went on strike, and a militant trade union representing 550,000 workers threatened
nationwide strikes next month. Why the hostility to takeovers of weak, badly run
companies on the brink of closure? Because workers here refuse to accept that
strong companies prosper and survive, while weak ones shrink, merge, or disappear.
In short, individual workers expect the government to keep companies afloat, no
matter how many jobs are put at risk resisting market forces.”
Korea is firmly caught
between a rock and hard place. “The financial sector is so weak that it cannot
lend to the corporate sector, but South Korea’s corporate sector is extremely
highly leveraged, and cannot continue operating without borrowing more money from
the financial sector. That creates a great dilemma, and the ultimate, and only,
solution is for the government to use public money to either prop up the financial
sector or to take over its bad loans.” At best, this solution
will drive taxes up so high that spending will be dramatically reduced, in the
end creating a viscous circle.
The
grossly under-regulated banking industry in Korea is an outstanding example of
the country’s escalating fiscal crisis.
In June of 2000, a landmark meeting took place between Kim Dae Jung, South Korea’s President and Kim Jong ll, the
head of the so-called, hermit kingdom. This action was a coup for Kim Dae Jung
as was roundly applauded by the United States, China, Russia and Japan. Incidentally,
Japan was so happy with the news of the meeting that they indicated that North
Korea would be getting a gift from them of 100,000 tons of rice.
Many
in South Korea, a country where everyone believes that everything is done with
an ulterior motive, believe that North Korea gave a boast to Kim Dae Jung, but
announcing the deal only a matter of days before a critical national election
in April got opposing politicians noses’ way out of joint. They agreed to
do a number of things but until something more concrete happens, anything that
occurred at the summit must be perceived at being purely cosmetic. In the past,
the North and South have reached agreement numerous times only to have the North
break the agreement within a short period of time. Why should this be any different?
“The
first gap to be bridged between the Koreas is a huge psychological one. The two
sides do not see each other’s media; after 50 years, they do not even understand
some of the words in each other’s language. Each side is indoctrinated to
regard the other as a basket case. Koreans were astonished recently to see on
television that Pyongyang has a metro station. A story going round in South Korea
claims that North Korean officials, being driven to Seoul a while ago, thought
the freeway had been guilt for their benefit and the traffic shipped in from America.”
Korea
is approximately the 11th largest economy in the world and as such
is a large trading partner and ally of the United States. “Before this crisis
began, South Korea was the United States’ fifth-largest export market –
a buyer of U.S. movies; an array of consumer goods; many agricultural products,
especially bed, grain and soybeans; and heavy equipment, including auto parts
and machine tools. U.S. firms are also heavily involved in franchising and licensing
goods in South Korea.” Korea was hit by a quadruple whammy.
The unions had caused wages to rise so substantially
in a short period of time that Korea’s products were becoming uncompetitive
in world markets; because of the economic problems of other nations in the Pacific
Rim, currency devaluations had made competing economies more fearsome competitors;
foreign debt had tripled in the short span of only six years, probably an all
time-global record, causing interest costs to substantial increase, worse yet,
these were short term loans primarily denominated in Japanese and American currencies
which had remained strong, thus, South Korean banks were borrowing short for projects
that were long-term and infrastructure related.
When
Thailand, Indonesia and Malaysia collapsed, economists from around the world took
a closer look at the Korean economy and didn’t like what they saw. Every
sin that the above countries were guilty of, South Korea was guilty of in spades.
Feeling that it was only a matter of time before the same fate was suffered by
Korea, foreigners started pulling money out of the country, selling stocks and
international banks stopped making loans. This caused the inevitable to happen
only a tad earlier than it would if Korea was left to its own destructive devices.
“South
Korea’s government, banking system and big conglomerates, known as Chaebols,
were thoroughly intertwined. Since the 1960s, the government had been a major
player in banking. Bank leaders were picked for political reasons, and the government
made sure the banks channeled loans to desired projects and companies. No real
system of credit analysis existed, and neither banks nor companies were held accountable
to shareholders. “Banks have taken no serious look – let alone a formal
feasibility study or risk analysis—into a large-scale investment project
for which bank credit was requested by a chaebol. “ former Prime Minister
Duck-Woo nam told the 11th conference of the Korea-U. S. Business Council
in January.
“The
banks did not bother to check into possible misuse of loans by the borrower in
the form of financial contributions to politicians and check into possible misuse
of loans by the borrower in the form of financial contributions to politicians
and political parties. Something like risk analysis is confined to powerless small
and medium – sized companies. The Chaebols took this easy money and built
empires --- sometimes to satisfy their chairman’s egos --- rather than concentrating
on generating profits.”
This along
with International Monetary Fund requirements caused a dramatic increase in interest
rates creating a credit crunch and it has been estimated that as many as 130 companies
listed on the Korea Stock Exchange won’t be in business in the next 12-months.
Although government sources estimated that unemployment had more than doubled
to 4.5 percent, the true figure couldn’t be released because official sources
indicated that it would cause a panic. Informed sources put that number at almost
11 percent. Korea’s option of exporting its way out of this problem is likely
to bring retaliation by competing nations making matters even worse, but that
is not a viable alternative at this time anyway. Korea is obligated to import
the majority of their natural resources and for the most part they are denominated
in U.S. Dollars made more precious by the devaluation.
Thus,
the advantage of the won’s competitive price may be offset by retaliation,
imports and sticky labor situation. Add this to the fact that many of Korea’s
former customers in the region have problems even more severe than they have,
and the substantial exports that were going in that direction will be slowed to
a dribble. Korea which had been supporting the won, allowed it to float and it
immediately collapsed. Simple put, everyone knew that this was inevitable and
there was a stampede at the exchange window. When the government realized that
by supporting the won they were fighting a losing battle, they stepped away, licked
their wounds and went about their business of trying to pick up the pieces.
However,
there are some miniscule signs of progress in another arena. The two Koreas did agree on the
reconstruction of a Cross-Border Railway, which has been cut off for almost fifty-years.
One of the major problems facing the builders is the fact that there are so many
land mines strewn around in the area where work has to be done, that extensive
clearance is required. In spite of the fact that the two countries had supposedly
reached total agreement on the issues relative to the Cross-Border Railway, in
order to avoid “accidental clashes inside the demilitarized zone, the militaries
of the two Koreas had reached agreement in mid-February, 2001 on a code of conduct
for their soldiers.” The road, if ever completed, will
connect Seoul and Pyongyang, the two Korean capitals, but the North Koreans have
not finished signing all of the necessary documents and while the South Korean
construction workers are already at work, their Northern counterparts are once
again playing the waiting game.
Another
sign of real progress is the joint venture between the countries to produce a
new brand of cigarettes, Hanmaum (One Mind)
that will be produced in North Korea, will be financed and the tobacco
leaves provided by the South’s state-owned Tobacco and Ginseng Corporation
but will be sold in both nations. In the most recent year, trade between the two
countries was over $300 million, but there is an even bigger payday on the horizon,
tours of North Korea by the South Koreans is estimated to provide the North with
up to $1 billion of the next six or seven years. In addition, there is an international
golf tournament planned to be played
in North Korea in which even South Korean golfers will be invited.
“Floods
and drought have at times taken an almost biblical toll, but most of the blame
for North Korea’s plight lies with its leaders: Kim ll Sung (dead, but president
for eternity) and his son (alive, but almost invisible). These men have let the
economy rot while maintaining the world’s fifth largest army and building
ever-bigger missiles. It South Korea had hoped the proceeds from the tourism project
might alleviate the suffering of ordinary North Koreans, it was mistaken: last
year, despite its desperate straits, North Korea managed to find the cash to import
a few dozen MiG fighters from Kazakhstan. The only notable North Korean exports
are missiles (sent to other unsavory regimes) and counterfeit American dollars.
When
their domestic loans started decomposing, the Korean Banks needed another source
of revenue and earnings. These hapless souls, finding nothing better to do with
their funds, invested in Latin American Debt, and on substantial margin to boot.
With the recent collapse of the markets in Latin America, the bonds are now underwater
and the loans are being called. The Banks, not having the funds to ride out the
storm, have resorted to meeting margin calls by liquidating their bond portfolios
at awesome losses. Unheard of, you say? Not for the Koreans according
to the New York Times, they have also been purchasing Russian and Turkish securities
on margin.
Seeing
the writing on the wall, the Korean Government has upped the ante in their proposed
bad-debt liquidation fund. This fund was stitched together by the government with
the mandate to bail out creditors, when the crippled companies that were being
kept alive by a friendly Korean Government were cast adrift. The proposed $3.6
billion fund has been re-pegged at $5.1 even before the horses have left the starting
gate. As if that weren't enough, the merchant banks are bleeding red ink to the
tune of $3.34 billion in loans that have for the most part become non-performing
in recent months due to bankruptcies of major Korean companies. Things have become
so appalling in this sector that the government has introduced an "early
warning system" in which the banks will be individually addressed for capital
adequacy and obligated to increase capital, merge or suspend operation. Furthermore,
the Korean Government will obligate the already overloaded commercial sector to
inject funds into the thirty merchant banking companies.
So
a problem that had already reached catastrophic proportions now has been compounded
by a disaster in what was originally considered the safe banking arena. In South
Korea, there no longer appears to be any safe place to hide. It also doesn't take
a neurosurgeon to figure out where the margin money came from for these disastrous
bond purchases; you guessed it, the Japanese Banks.
To
nobody’s surprise, the IMF has advised Korea that their foreign exchange
reserve levels were perilously low at $30 billion and should be increased 20 percent
or more. () This will have to be accomplished with international
borrowings; however, the Korean Currency ("Won") is in the tank, and
the cost of foreign exchange will be prohibitive. And yet, Korea finds itself in the same awkward position that
both Thailand and Malaysia were in before their crash. Korea has committed a substantial
amount of the $30 billion in foreign reserves to defending its currency. Thus,
it has purchased Won and sold dollars in very substantial amounts, leaving its
net foreign reserves substantially lower than published figures show. The reality
of the situation is far more precarious than it appears on paper in almost every
respect. We would not be surprised to find out that when future commitments are
present valued, that there are no foreign reserves at all.
How
bad were things really, in South Korea? Well, let me tell you how bad they were. On November 7, 1997, the day that
the market fell 6.9%, the biggest loss in the country’s stock market history,
it was hardly reflective of the damage that had been done. You see, Korea, like
the New York Stock Exchange, has a circuit breaker for its stock market. Theirs
is directed more at individual issues and when a stock goes down 8% in one day
it is retired to the locker-room. On that day, of the 841 issues that traded,
196 or almost 25% of the total issues trading went down the allocated 8% and for
that reason, most of the stocks were put out to pasture. There
has been analysis of the circuit breaker system both pro and con but it was painfully
clear that a lot of people were making for the exit doors in a hurry. But that
wasn't the worst news that day, literally since that time the "Won"
has dropped 50% and there seems to be no bottom in sight.
Natural the South Korean markets made 10 years lows.
South
Korea was soon approaching the international lending markets, with a tin-cup,
as a nation that has recently seen its downgraded foreign debt increase to over
$110 billion. Two-thirds of this total is debt owed by Korean Banks, which are
seeing this amount increase almost daily because of the continued slippage in
the "Won". Only a short time ago, Korean debt was rated A+ and interest
rates were only 90 basis points () above that of U. S. Treasuries.
Today, Korea's debt rating has dropped to the level of
India's and trades at 380 basis points above the equivalent U. S. rate.
Seeing
that the IMF deal, even if it clinched, was not going to solve all of the country’s
problems, nor would it lead to a turn around in the near future, the government
initiated a nationwide campaign in which the loyal citizenry would generously
turn in their gold in exchange for now almost worthless Korean Currency to enable
the country to purchase foreign exchange. Where else on this planet could a country
announce that the people had been right to horde the precious metal as an insurance
policy against a rainy day, and then announce that an antediluvian downpour was
occurring. Now the people should give up their security blanket and help the country
in its time of need by accepting the dreaded "Won" in exchange for gold. Incredibly, Koreans quietly started cuing up in uniform
lines. Long before daybreak, thousands
were already in the queue and when the day had ended, January 5, 1997, two tons
of gold had been exchanged for worthless paper.
This
was not the only line in town this day. In
Seoul the crowds also lined up to withdraw
their deposits from the fourteen merchant banks that had been shuttered for over
a month, in spite of government protestations to the contrary. The people are
more than aware that most of these institutions were not going to make the cut,
and that this could be their last chance to remove their savings. There was no
pushing and shoving in either line because that just isn't the way things work
here. This is certainly a strange land, where on one hand people are willing to
be shorn like sheep if that will help the country in its hour of need, yet politically,
at times their blood runs hot, the students riot, the workers riot and the people
riot for what they believe to be right; their passivity is extremely focused.
This country is indeed an interesting study of human reactions under particular
circumstances.
When
the Koreans go hat in hand to the lenders, we are going to be talking about a
substantial increase in the current rates they have been paying. If anything could
get worse, Korea's debt is badly unbalanced with over 80% of it short term, thus
making their outlook appear as bleak as that of the star of the old movie serial,
Peril's of Pauline" every Saturday afternoon at the movie theater. We never
knew whether or not the train that would run over her, the bomb would blow her
up, her capsized boat would cause her to drown or whether or not she would survive
being thrown out an airplane at 5000 feet. ()
Early 1998
Even
after the signed deal between the IMF and the Central Bank of Korea became effective,
the latter consistently intervened in currency markets by selling dollars and
buying "Won". This is not a much different approach than that used by
a far less sophisticated government of Thailand before their bubble abruptly burst.
At this point in the Pacific Rim crisis, Korea was mucking up the waters so badly
that economists were beginning to speculate that if the "Won" were to
be devalued,
there would not be much question that the Taiwan currency would follow
suit and eventually the yen as well. One
interesting potential view of the near future could be gleaned by taking a hard
look at the non-deliverable forward market encompassing Korean securities settling
in U. S. currency. This market trades at a 16% discount from the pegged "Won"
and reflects foreign sentiment relative to the viability of the Korean dollar
at these levels. Thus, predictions of another violent devaluation were already
written on the wall.
The
order of the day seemed to center on one inane action after another. Korean merchants, inexplicably,
turned out to be enormous holders of Russian and Ukrainian debt. With their economy
going south, these merchants were panic stricken that funding would dry up, and
they dumped these hapless instruments with an almost religious fervor. The Koreans
you see, had become accumulators of odd types of foreign debt, many of which could
have pronounced “dead on arrival”. They had purchased these instruments
from “door to door” types that left no prisoners. To find out that the
nation’s banks were hopelessly stuck with these problematic pieces of paper
when the country was facing a $100 billion in short term debt coming due and with
no foreign exchange reserves to speak of available at all.
Moreover,
as could have been predicted, the market for Ukrainian and Russian debt, which
was not very good to begin with, soon went to hell in hand basket. Thus, the problem
became magnified as renewed sales brought lower and lower prices further impaling
hopelessly undercapitalized businesses in Korea. Additionally, the same merchants
who owned the Ukrainian and Russian debt were also found to have accumulated the
securities of Thailand and Indonesia. On the other hand, owning these instruments
was less of a problem for the Korean owners, there being unquestionably no market
at all for these securities, it kept the owners from selling at lower and lower
prices.
Latin
American debt was also a funny money playground for these determined speculators
and the selling pressure caused by desperate Koreans had sent these markets spiraling
downward as well. However, canny traders had adopted a wait and see attitude and
were leaving the Koreans to their own devices until the bloodbath was near an
end. In the meantime, massive selling of both Russian and Ukrainian securities
were adversely impacting the Eastern European markets. This "dance macabre"
was starting to cause unprecedented problems. Eastern European markets were starting
to tank, not because of adverse economic problems or even the historic political
ineptness that was omnipresent in the region, things were going downhill because
of selling by overseas owners of their securities. Thus, an extraordinary outside
event had stimulated the potential exportation of the Pacific Rim's problem into
a new territory.
The
globalization of securities markets created a sophisticated economic laboratory,
which for the first time demonstrated how the interdependent the nations of the
world had become. However, the shockwaves created by the Pacific Rim fiasco were
amplified by many extraneous elements that prevented accurate quantification of
the impact of its impact on other parts of the world.
Along
with the obvious banking excesses that started the collapse, there was massive
allied fraud like that which accompanied the collapse of Yamaichi and most other
recent Japanese business failures. In Korea, where business failures are punished
by long term prison sentences, we would hardly believe that the cover-ups are
less extensive than in Japan, except for one thing:
in Korea they will surface at a much earlier date because of transparency
demands by the IMF. It certainly appeared that at this point in time, Pandora
had opened a box that nobody was going to close until the misery has run its course.
Both
the Korean and Taiwanese currencies are non-convertible, which means for the most
part, any collapse that takes place will have been caused by internal inertia,
not outside influences. Obviously this is an extremely narrow view of the cause
and effect of the dramatic outside influences that were taking place. On the other
hand, this fact did little to silence the Southeast Asian Governments, which continued
to believe that their overheated economies were brought down by "Western"
currency speculators as opposed to bad governmental economic practices.
Many
believed that to some small degree, any devaluation of the "yen" and
the "Won" would relieve
some of the pressure on South East Asia, as loans due Japanese banks by debtor
nations would become less costly; that is unless
they are denominated in U. S. dollars. Nevertheless,
as bad as things were in Korea, we are not as sanguine when it comes to Japan.
The Asian Contagion is winding its way north like a Kansas twister. The Japanese Banks were in every bit as much trouble as those
in Korea, it was only the total lack of transparency relative their bad loan portfolio
that was keeping the highly patched up Japanese economic machine in operation.
Omnipresent North Korea announced
that the South was plotting against it and had begun a “wartime mobilization”
to defend itself. The statement issued by the North Korean government didn’t
leave much to the imagination, “The whole nation goes into a wartime mobilization
state. The wartime system and order apply not only to the regular armed forces
but also to the national economy and overall social life.” This order given
out to the international press as of March 12, 1998, added that “The decision to “maintain
a high defense posture” was a response to threats posed by South Korean military maneuvers, and increased U.S.
armed presence in the South, and other foreign attempts to take advantage of North
Korea’s economic woes, the statement said.
SPRING
1998
After
considerable wrangling and misguided attempts at face-saving, the Korean Government
ultimately caved into the IMF's restructuring demands and accepted both $55 billion
and the painful restructuring that was part and parcel of the package.(7) The
banking system was to be put through the wringer with a goodly number of shabbily
run institutions not making the "cut" and thus disappearing into bank
heaven. Moreover, as a sign of good faith, the government officials had moved
promptly to close unimportant financial institutions and while
suspending operations at almost half of the nation's thirty merchant banks.
In
spite of this massive bloodletting, amidst the rubble and ruin of a substantial
number of failed financial institutions that owed significant amounts to foreign
lending sources, the lenders would come out whole. It is an unnatural quirk of
International Monetary Fund Loans that a substantial amount of money lent to the
debtor country winds up repaying both local and foreign banks who if they had
practiced vigilant lending practices, would never have been caught in the downdraft
to begin with. The IMF’s
practice of repaying greedy lenders exacerbated the excesses that characterized
the borrowing in the first place.
No
sooner had agreements been reached with the IMF than the Koreans pulled another
Thailand and attempted to revisit their agreements with the
IMF. This was a major miscalculation and when other countries saw that Korea was
already attempting to weasel out of its commitment, all potential financing collapsed.
To give you some idea of the dire straits in which Korea found itself, we don't
have to look much further than a near hysterical request for funds by Minister
of Finance and Economy, Lim Chang Yuel, who indicated to both Japan and the United
States that they must provide immediate financial assistance in spite
of the fact that everyone was well aware of the fact that this money is only available
through the IMF.
At
the time, if you didn’t think that this wasn't a sign of impending disaster,
you just didn’t know how to read the tealeaves. Korea’s overt public
begging stunned even usually noncommittal American officials, one of whom stated,
"It was one of a series of dubious decisions, that have been surrounded with
a lot of ill-thought-out pronouncements." (8) People who were familiar with
operations at the Finance Ministry have said that leaking information is a criminal
act, and the Minister’s statement set off alarms throughout the world.
The
guy that knew more about what was really going on there
than anybody else was probably IMF's chief, Michel Camdessus, who hurriedly
called meeting with members and associates to raise more money for his organization,
obviously believing that the Koreans had only showed the world the tip of their
financial iceberg. In addition, Camdessus admitted
publicly that the IMF's situation had deteriorated substantially since September
of 1997, primarily because of the massive injection of funds that had been required
by Korea.
The
United States Congress has turned deaf ears to an IMF request to raise their portion
of the overall kitty by 70% to 80%, or
$160 billion. Congress was not of
the mind to allow the IMF or anyone else to pledge American money without receiving
something tangible in return for it, such as Korea’s fiscal responsibility.
The fact remains that without the cooperation of the United States the International
Monetary Fund would, at least for the immediate future, remain at its then current
size. While the fund might have had adequate money to cover the Korean problem,
it would certainly have had no money in reserve.
Russia, was already queuing up with its well-used tin cup for another $10
billion, and someone was bound to get left out in the cold. Korean intransigence
aside, when a cold hard evaluation was made of what remained in the
IMF till, it was obvious that everyone isn't going to get bailed out.
The
end result was a stock market and currency bloodbath in which interest rates skyrocketed
(9) and foreign exchange reserves vanished like Do-Do birds. As clearer heads reflected on
the Korean catastrophe, they estimated its cost at closer to $100 billion that
$50 billion. However, there were some hard
decisions at hand. If the IMF elected to give Korea
latitude and an additional $50 billion injection, Korea will be saved for the
time being. Unfortunately, it would only a
be a matter of time before Korean checks would bounce off global walls.
In this event, and we would
get a first hand look at how insulated those of us in Europe and the Americas
really are. Many of the more fiscal responsible people with major international
financial organizations preferred not to find out.
For
their part, the Koreans believed that the deal was too tough, but not having anywhere
else to go for $100 billion, they are playing along. Who is the IMF to be telling
the honorable people of Korea that they ought to stop funding incompetent conglomerates,
that they ought to close insolvent banks, or should cut the ties between the banking
system and industry, where there is almost a Japanese style commitment to bail
out fiscal incompetence. The IMF didn't stop there; they demanded that Korea control
inflation and act like a responsible global citizen. This apparently was the straw
that broke the camel's back.
The
Koreans seemed ready to accept all of the IMF’s medicine no matter how strong,
but could not agree to it’s fiscal responsibility demands. Once again the
deal caved in, and both sides sweated out a potential financial Armageddon. Both sides were convinced that
at the last minute someone would come
to their senses and prevent a global collapse, but neither of the economic combatants
showed any inclination to blink as Russia had during the Cuban Missile Crisis.
Korea
was proving to the world how they had gotten into this fix to begin with. They
had picked an erratic economic course and were not willing to admit that their
own excesses were the cause of the problem and even if that was a fact, they wanted
the other guy to bail them out under terms that would be dictated by the debtor;
hardly the way the system works. Moody's upon hearing of Korea’s intransigence
downgraded the country and everything in to the junk stage, literally placing
all the Korean Banks into technical default. While
Moody's was in the mood so to speak, they also downgraded the long-term debt ratings
on a score of Korean Banks which represented most of the major institutions in the country.
What
we were seeing here was a microcosm of the Japanese model which we could say “God
help us all” if it was ever exposed all at once. But the Japanese because
of their continued opaqueness did not find it necessary to vociferously trumpet
their cooperation with the IMF in salvaging the region. We must remember that
a lot of the Korean posturing is centered around their own desire not have their
banks implode.
It
is extremely clear that this system literally rewards those that advanced money
to poor credit risks, by the simple fact that the interest they earned was far
higher than if they had lent money to more
secure borrowers. It hardly seems fair to us that, effectively the IMF
is transferring funds from those countries that make up its nucleus, to lenders
that received substantial returns on their money without taking substantive risk.
If we diagramed a hypothetical transaction we could see the IMF money flow to
the Korean Central bank, then to the Korean Bank borrowing bank, and then ultimately
back to the Japanese Bank that made the loan. This diagram may
well modify somewhat, especially if the Korean Bank is no longer in business,
but that would not effect the end result.
The
Korean head of the Central Bank, Lee Kyung Shik resigned in the middle of the
negotiations and a heretofore-unreleased codicil to the IMF agreement came to
light. Imagine the outcry when the people discovered that under covenant two of
the largest commercial banks in the country must find money, a partner or close
within a short period of time after the IMF funding. Not wanting to cause a panic,
the government not only has played down the deal to the public but in contravention
of the IMF accord, has actually announced that they will throw substantial money
at the unproductive duos, which are rumored to be, Korea First Bank and Seoulbank.
It
is becoming critically obvious that Korea will have to tighten its belt and go
through substantial economic stress during the coming years, yet those institutions
that literally inflamed the region by throwing money around like it was "going
out of style" were obviously going to be made whole under whatever agreement
which was reached. The IMF by not creating logical
changes in their criteria such as insisting that beggar nations inform their central
banks that if they allow the banking system to continue making unsafe loans, the
IMF will no longer consider the country eligible for IMF largesse.
The IMF has effectively given these people a put and the logical behind
it is terribly convoluted.
“From
this year banks must follow international accounting standards, such as setting
aside full provisions for losses. But it is unclear whether this can be enforced,
because of the sheer magnitude of bad loans. Officially, at the end of last year
6% of the loans on commercial banks’ books were in default. The record number
of corporate bankruptcies expected this year-in the first quarter alone, 10,000
firms went bust, compared with 14,000 for the whole of 1997 is certain to lead
to far greater problems. SBC Warburg Dillon Read, an investment bank, predicts
that a non-performing loans at 31 commercial banks will reach 92.7 trillion won
($66.7 billion), equal to 30% of all bank credit, by the end of this year. Against
this, the government’s plan to buy 38 trillion won of bad loans is woefully
inadequate.”
Renewed
negotiations convened when it became obvious to Korea that either they were going
to deal with the IMF on the IMF’s terms or they were going to be left to
rot. A restructured IMF agreement was created which covered various economic nuances
and, among other things, calls for the Korean Government to eliminate trade barriers,
to stop politicizing bank loans and to create a wall between the Government and
the country's Central Bank. Additionally, the IMF required that the Korean economy
permit foreign ownership of indigenous banks.
If there was ever a story that is yet to be told, Korea is it. A mind-boggling
economic calamity must exist under the rocks and in the crevices of this country's
infrastructure. At one point we were convinced that, were all the facts to be
known, the IMF would have enough money to bail out Korea.
This is no longer the case.
More
insight is provided by former Under Secretary of the Treasury for International
Affairs and one of the architects of the Mexican bailout, Jeffrey R. Shafer:
In Mexico we were dealing with an economic team that
was outstanding, with a longstanding relationship with the country's President
and economic decision-makers who were competent, well knit and long established.
They played a major role in reassuring the markets by taking some very stiff steps".
One
wonders, of course, what happened to this classic assemblage once Mexico cashed
the check? They seem to have been
out to lunch ever since.
While
the statement seems to fit the problem and what Shafer is referring to is the
fact that in Mexico, at least someone was watching the store; Korea during much
of this time has been saddled with a "lame duck" government with an
election approaching". Moreover, compounding the problem was the fact
that all of the opposition candidates were telling the public in Korea that they
would renegotiate the terms of the IMF settlement once they were elected. Korea
is decaying, the currency is down 34% in little over a week, and it is a real
question whether there will be a country left by the time these clowns get down
off their "high horses" and start getting serious about saving the country.
SUMMER 1998
The
election found Kim Dae-jung beating a trio of adversaries.
In an attempt to reunite Korea, he reopened dialogue with the North. In
the hopes of reuniting his own country, he released Chun Doo Hwan and Roh Tae-woo
from prison, two former leaders of the nation that had been convicted of mutiny
and treason after a bloody 1979 coup. Naturally the two were overjoyed at being
released and Chun told the Korean People that he "felt very happy that such
an experienced person as Kim Dae-jung could become president at a very critical
time." Naturally, this was the very same Kim Dae-jung that Chun had sentenced
to death on treason charges. Had it not been for the intercession
of the Carter Administration in 1980, which claimed that his execution would cause
them anxiety, Kim would have been summarily executed on the spot.
Such is the distorted nature of politics in Korea.
But
even earlier, in 1973, the Korea Central Intelligence Agency abducted Kim from
his Tokyo hotel room through the assistance of its operatives located throughout
the Pacific Rim in a coordinated clandestine
operation that would have put the Mossad to shame.
He was spirited onto a boat, the 536-ton Yongkum, and then wired to a concrete-weighted
board. While the vessel sought deeper water to dispose of its victim, A U. S. helicopter appeared over
the boat and the kidnappers, believing that the United States was aware of the
plan to feed Kim to the sharks, returned
him frightened but alive to a cell in Korea.
Kim
Johg-pil, the leader of the United Liberal Democrats and the man with whom Kim
Dae-jung had worked out an alliance in order to assure his election as president,
is also the man who founded the Korean Central Intelligence Agency and was prime
minister when Kim was abducted. Strange bedfellows these folks in Korea make,
eh?
When
Ronald Reagan won the American Presidential electron, Chun's associates again
readied the gallows. This time the
execution was stopped by the new American President offering to make his first
state visit to Korea in exchange for Kim's salvation. Kim later was welcomed with
open arms by the United States and given a fellowship at Harvard University where
he stayed until he was prodded by the U.S. to return to his native country.
Kim
may have felt that he was still in jail as the "Won" sank below 2000 to the dollar, down over
50% since the previous month. Korean debt issues were seeing no takers at 30%
interest rates and the majority of the Country's debt had been reduced to "junk
status", causing additional liquidations by financial institutions, who by
law could no longer hold instruments in that reduced category.
Under the circumstances, Kim tried to marshal his forces by telling things,
"they way they are".
His
statement though, "We don't know whether we could go bankrupt tomorrow or
the day after tomorrow. I can't sleep since I was briefed. I am totally flabbergasted",
certainly didn't give anyone including the IMF anything to cheer about. What could Kim have heard that
caused a hardened politician who had spent a good part of four decades in prison,
house arrest or exile, and had been sentenced to death,
that had shaken him up so much. Only time and history will unlock the secrets
that are hidden in the Korean Central Bank, but they are not the goodies that
one finds under the Christmas tree after Santa has left.
A
senior official of the Bank of Korea, Lee Kang-nam, announced that Japanese Banks
had rolled over loans to several Korean Banks, but he left out the most important
aspect of the roll-over; it was only going to be for a week or so. Panic once
again reigned supreme. Korea, done in by its own incompetence and in fighting,
signed on with the IMF. Foreign investment was allowed
for the first time in government owned enterprises, a demand that foreigners had
made over the years, and what happened? It was as though someone had thrown a
party but none of the invited guests had come. However, in spite of Korea’s
being pried open like a clam in this area, there was absolutely no interest on
the part of foreign buyers. Korea had taken too long to open
their markets and now neither balance sheets or potential were items that foreign
financial institutions were in any mood to give credibility too.
This
was not very good news and to make matters worse, a strike against Hyundai Motor
Company by dissident union workers backfired when 295 suppliers of Hyundai went
under because of the shutdown. “Yonhap (state run news agency) reported that
company statistics showed over 2,800 Hyundai affiliates lost approximately $331.5
million during the past two months due to multiple union strikes and work stoppages.
Hyundai Motors announced a four-day shutdown at its Ulsan factory today, saying,
“The temporary closure is inevitable as normal operations cannot be carried
out due to the union’s violent actions and illegal strike.” When the total damage was assessed
by the Korea Automobile Manufactures Association they indicated that auto-parts
suppliers may suffer losses as high as $3.2 billion this year, leaving 100,000
workers out of work.
A
pervasive and confusing theme runs through Korean society Bankruptcy is viewed
as a criminal act and more often then not; senior management is forced to serve
jail time when that happens. On the other hand, the unions that throw companies
into bankruptcy are never criticized. Korea
followed the Japanese model in almost every respect: Korea organized its large
companies in an incestuous relationship centered around a bank, and adopted a
paternalistic philosophy in the workplace, along with mass production. Only one
part of the equation was missing. The Japanese don’t countenance strikes,
and are not regularly blackmailed by unions that have no interest whatsoever in
the country’s economic health:
“Bankruptcies
are rare in South Korea, where the government supports ailing companies indirectly
by forcing banks to extend loans that make no commercial sense… Lee Hahn-ku,
a senior economist said, “Bankruptcies in the industrial sector will hit
the financial community, which has been hostage to the government’s industrial
policy of picking winners and providing unlimited amounts of loans”
Korean bankruptcy
laws remain archaic and more often than not, the same management that caused the
problem in the first place, never leave their desks. The company is refinanced
by the government, management is slapped on the wrist, and things go on as usual.
There is no self-corrective action in this society. The most common form of Bankruptcy
in Korea is called Hwaeui, which allows firms to stop paying all of their debts
and interest. Without these burdensome costs, the company can make money and therefore
banks are once again willing to lend them money because this new loan comes ahead
of what pre-existed. It is similar to the American Chapter 11, in that those in
possession can remain in control. However, when an American company
goes into Chapter 11, creditors, if they can show good reason that the plan will
not work, would be allowed to liquidate the company and divide the assets. This
literally never happens in Korea.
“One
firm that followed this path in Jinro, which makes soju, Korean-made hard liquor
After Jinro filed for bankruptcy in late 1997, the courts froze its debts of more
than 1.3 trillion won ($788 million), until 2003, and interest payments for a
year, and left its managers in control. In return, Jinro agreed to sell land and
affiliates, including Jinro Coors. But Jinro has failed to do that, even turning
down a recent offer from its competitor, Oriental Brewery, for Jinro Coors. Nor
has it done much other than restructuring. Such as disposing of the whisky-making
division that helped start its troubles.”
There
are 1,000 firms going through Hwaeui and almost every single one of them is still
being managed by the same idiots that got them into the insolvency pickle. One
of the most telling aspects of this philosophy is the recent instance when The
Korea Economic Research Institute called for all the resignation of senior management
whose business plans had lead their companies into bankruptcy. This caused a public
firestorm and senior management in Korea went ballistic and literally threatened
the Economic Research Institute. Naturally, they withdrew their report along with
the proper apologies.
The
creditors are just as guilty; they do not want to take large write-offs, and when
they go to court, the consensus of creditor banks is usually respected, and in
almost every case, they recommend that the company be left in business, and lend
it more money. In addition, no matter how bad things get for their creditors,
whether they are in bankruptcy or not, the financial institution never hesitates
to extend the time that a loan be repaid and that is true even in the case of
companies that are shuttered. In Korea, even if the company is dormant and owes
a fortune, unless two-thirds of the creditors agree to pull the plug, the courts
are obligated to wait 10-years before putting the cripple out of its misery. Some
system!
“A
good example is Samsung’s expensive new car company, a white elephant that
opened for business last year just as South Korea’s car market lurched to
a halt. Samsung loses $5,000 for every car it makes, and late last month the car
subsidiary, which had been expected to be swapped for Daewoo’s consumer-electronics
business, was put into receivership. On the face of it, this seems desirable.
Combining Samsung with Daewoo would have done nothing to cut South Korea’s
overcapacity. But the court is likely to yield to pressure from the government
and creditor banks that want to keep Samsung Motor afloat, so as to avoid cutting
jobs and writing off most of $3.6 billion in debt. “
As
bad as this situation has become, Korea has come up with an even worse alternative
called a state sponsored “workout program”. In theory, if the company
can show that they have half a shot at returning to fiscal health, they can qualify
for debt-for-equity swaps, lower interest rates and access to a pool of some 2
trillion won in new loans and trade financing. How do you go about proving that
you are going to be able to turn things around? Just the submission of a business
plan showing that it will happen will be quite enough thank you.
These
goings on did not stop the North Koreans from stirring up as much trouble as they
could. On June 3, 1998 a major Japanese newspaper announced that government officials
in that country believed that North Korea had a least one atomic device. The Japanese
were already in a state of shock over Pakistan’s rumored readiness to help
North Korea develop an atomic capability. Pakistan had just detonated its first
atomic bomb, and while many thought that its effects would only be felt by India,
this turned out to be far from the case.
An
interesting conundrum is the fact that while Pakistan has the bomb, it doesn’t
have an effective way of delivering it. “Japanese officials voiced concern
North Korea could get assistance from Pakistan that would help the Stalinist nation
to develop nuclear weapons following Islamabad’s atomic bomb tests this week.
The nuclear issue in southwest Asia could spread to northeast Asia, notably North
Korea.
That’s
our major concern,” said a Japanese government official.” On the other hand, North Korea is rated the world’s
biggest exporter of ballistic missiles by the Central Intelligence Agency. Logically
speaking, there is no similar trade available to North Korea, nor would any other
nation provide such aid to a country that is known to be totally out of control.
It certainly has bitten the hand that has fed it in the past and there is little
reason to believe that this couldn’t happen again. Giving the Japanese story
more credibility is the fact that many North Korean defectors have indicated that
they have at least one “big” bomb. One hell of a scary thought.
Meanwhile,
back at the ranch, the North Koreans were trying to stir up as much trouble as
possible while their Southern brothers were engaged in trying to clean up their
disastrous economic problems.
“On
June 22, 1998, a North Korean midget spy submarine was captured off the South
Korea’s east coast. Nine North Korean commandos were found shot to death
inside the Yugo class submarine, the victim of an apparent murder-suicide. Three
weeks later, on July 12, the body of an apparent North Korean commando diver and
a semi-submersible tow vessel were found washed up on a beach on South Korea’s
eastern coast. The incidents occurred in the same area where a North Korean Shark
class submarine ran aground in September 1996, leading to a 53-day manhunt in
which 24 North Korean commandos were killed, one was captured, and one is believed
to have escaped.”
“The
South Korean newspaper “Seoul Sinmun” reported on Friday, July 24, that
North Korea was training over 20,000 commandos at six locations for infiltration
into the South. The report cited South Korean military authorities as saying the
North was operating maritime infiltration bases at Wonsan, Toejo and Chongjin
near the East Sea (Sea of Japan), and at Nampo, Pipa, and Haeju on the West Sea
(Yellow Sea)…The newspaper cited unnamed South Korean military authorities
as saying they expected another submarine infiltration attempt by the North in
late August, during the new moon.”
“South
Korea’s Yonhap News Agency reported on Saturday, July 25, that the South
Korean military is currently attempting to uncover at least two of seven identified
North Korean infiltration tunnels. The agency cited military investigators as
saying that North Korea was digging 21 tunnels along the Military Demarcation
Line, and that the army has roughly located seven tunnels with the assistance
of a defected North Korean soldier, aerial reconnaissance photographs, and examination
of explosions recorded along the border. The more than two-meter wide tunnels
can reportedly handle the passage of 15,000 soldiers per hour. Yonhap reported
that South Korean forces are drilling test holes in the areas of the seven suspected
tunnels and military authorities allegedly expect to confirm two of the tunnels
by the end of the year.”
Summer
1998
In
June of 1998, a midget North Korean spy sub became tangled in the fishing nets
of a South Korean fishing trawler. Rather than face capture, the entire crew of
the sub committed suicide. As if that hadn’t been enough, one month later
a tiny sub was discovered near South Korea’s Tonghac naval base along with
the corpse of a North Korean commando. The four men that occupied the sub with
him were never found but are probably now enjoying life in Seoul, spending their
time at a coffee house and getting three squares a day.
Fall 1998
So
Kim Dae-jung who had historically always been pro-union, said, "hey, you
guys are going to have to live with layoffs, the companies aren't producing product
and they can't afford to pay you. Beside, that's what we agreed to do when we
got all those billions form the IMF." Kim quickly got a response. Pouring salt on the wounds, the
always "flexible", Korea Confederation of Trade Unions, an umbrella
group with 550,000 members stated that they would not hear of any layoffs and
would stage rallies to prevent them from occurring. Moreover, the union followed
up that statement with “If the rally and proposed overnight sit-ins in front
of the national assembly are not successful, the union will launch a national
strike against, if nothing else, the proposed legislation making it simpler to
lay people off.” The union predicts
one million unemployed by summer and as the country's growth rate declines this
figure will dramatically increase. These are the kind of guys that make life in
Korea so tough, you know the kind of guys that you really want along side of you
at the front lines. I mean, you kind of know that you can count on them to do
the right thing when the chips are down.
The
Union was not far off the mark in their unemployment predictions as the Korea
Institute of Finance predicted a contraction
of the economy by a massive 3.1 percent in 1998 along with an unemployment level
of 8.9 percent. This would have actually put 2 million people out of work. While
the new president dodged the bullet immediately after election, this news was
beyond what the unions could handle and the Korean Confederation of Trade Unions
called a strike of their 125 affiliated unions across the country. Included in
this job action is a march through downtown Seoul. This wasn’t the kind of
news that the stock market was looking for and it hit another eleven year low
with investors unable to determine which of the cash starved Korean companies
would be saved and which would be allowed to “tank” by the authorities
within the Korean Government.
The
unions and the government were now locked into a head on confrontation. Government
officials had already stated that they considered the strike illegal and many
predicted that blood would flow in the Capital’s Streets before the current
crisis was over. The Supreme Prosecutor’s Office suggested that management
lock out strikers along with recommending a “no work, no pay” policy.
Eventually, cooler heads prevailed and the plans for the strike and march
were called off but not before some very large egos on both sides of the fence
suffered substantial bruising.
At
the rate things are unraveling, Kim, who took office in February is soon going
to wish that he was back in jail getting three squares a day and an hour or so
of exercise in the prison-yard. The presidency of Korea does not appear to offer
much longevity for the new 74-year-old leader. There is little question that the economy will slow down immeasurably
and with it, unemployment of endemic proportions. Labor has always been hot headed
in this country which has been ruled by aggregation. Facing the stern realities,
Kim stated that; “South Korea will work through the problems brought on by
a sinking currency and soaring international debts and become a truly advanced
country, though, many of the big corporations... might be disappearing.”
As
had been previously arranged, when Kim Dae-jung took office, he had named Kim Jong-pil as his Prime
Minister. Although everyone knew that the
deal had been made beforehand and that President could not have be victorious
in the election office without Jong-pil's help, South Korea’s parliament
was thrown up for grabs when the vote on Jung’s confirmation began. Fights
broke out all over the voting area and after midnight, Kim Dae-jung called it
a night and stated, “I declare the session closed, as parliamentary speaker,
my regret is beyond description.” Unable to bring the matter even
to a vote with many people abstaining and other voting blank ballots, a frustrated
Kim Dae-jung bit the bullet and appointed Kim Jong-pil Prime Minister through
the power of his office, an almost unheard gesture in Korea.
Things
soon got worse. The Korean parliamentarians’ childish antics looked almost
like adult behavior in the light of what now occurred. The speaker of parliament,
Kim Soo-han decided he had been working too hard and needed some time off; he
just plain didn’t show up at the next session and out of annoyance, did not
assign another person to act in his place. Thus, parliament could not open and
would not open again until either Kim Soo-han appointed someone to act in his
stead or returned.
Meanwhile
back the ranch, the Grand National Party (GNP) petitioned the Constitutional Court
to suspend Jong-pil’s appointment with the following request; “President
Kim Dae-jung has invaded our rights as lawmakers to ratify the appointment of Kim Jong-pil as acting premier.
Therefore, we are seeking the court’s judgment nullifying the appointment.”
Strange these Korean’s, the country is falling apart, a coalition of two
opposing parties would probably be the best way of getting everyone in the nation
pulling together in this time of need and yet, they are lemming-like, following
each other down suicidal paths. Having no Prime Minister made the task of moving
the nation forward impossible and as Park Ji-Won, presidential spokesman stated,
“It is not a matter of choice. It’s a matter of life and death for the
nation.
That
mattered little to President Kim, who has trumped the opposing parties’ (GNP)
ace by pushing for an investigation of the South Korean government’s espionage
agency’s smear campaign against him in the last election. He well knew that
this was a sure way of landing a bunch intransigent-opposing legislators in jail
if they wanted to continue knocking heads. People who lose hot-blooded political
battles in Korea have a habit of winding up behind a substantially fat eight ball
and President Kim seemed to be dealing from the bottom of a marked deck.
As victory became more elusive for the GNP, and jail began to beckon, the
intransigent ones eventually came around and saw the light. With the end result
so inevitable, as the available wiggle room disappears the only thing that is
now happening is that these little boys, playing at men’s games, were attempting
to demonstrate their manhood to the ultimate detriment of their country.
As
if everything wasn’t bad enough, North Korea remained intransigent and bankrupt,
both morally and economically. No reasonable dialogue seemed possible between
the two nations in spite of Herculean efforts by a multitude of Korean politicians
and business people. North Korea appeared ready to take advantage of this economic
disorientation to invade their brothers to the south.
In spite of the warlike posturing, the fact was that starvation and depravation
unheard of even in this region was taking place in the North.
In
spite of the fact that many of the world’s relief organization have rolled
out extensive plans to feed North Korea’s starving children, “they are
still dying at the rate of 10,000 a month according to the German Red Cross and
World Vision estimates that as many as 2 million North Koreans may have died earlier
this year.” In the meantime, the relief organizations
that were so anxious to supply North Korea all of the food they needed when the
food scarcity first occurred are now having second thoughts about the entire process.
North Korea seems to have little interest in letting the relief organizations
to monitor exactly where the food is going and some have already pulled out because
of this difference of opinion.
In
addition, food in itself may not be the answer due to the fact that so many of
the undernourished children being supplied food by the United Nations’ World
Food Programme’ can’t even hold down the maize that they are being fed.
In spite of all the do-gooding going on in this country, much of it is frenetic
and misdirected, somewhat akin to Marie Antoinette’s statement about the
then starving French, when she said, “let them eat cake”. She lost her
head for that, as well she should have. The maize is doing these malnourished
children little or no good and while the concept is enviable, the only thing that
these starving kids can keep down is highly fortified milk and no one is sending
it. Worse yet, the kids start out life from behind the eight ball.
Because
there are no food supplements for pregnant women, the majority of these children
are born substantially underweight and stay that way through the rest of their
lives. Worse yet, the Mothers are unable to breastfeed their babies; for this
and other reasons they are painfully unable to throw off both infections and disease.
Malnutrition breeds underachievement, and in North Korea’s case this would
be understating the facts. Many of these children are so totally lethargic that
even staying awake in school is a major problem. As the schools in this country
continue to churn out many students who at best have slept their way through school,
the future of North Korea indeed looks bleak.
“Three
years of successive crop failures due to floods caused by record rainfalls in
1995 and 1996 and the 1997 draught exacerbated an already untenable situation.
Failed agricultural policies, chronic structural problems, the 1989 withdrawal
of Soviet assistance, the collapse of the Comecon and changing trade terms with
China – are the root cause of the current crisis.” More recently the problems continued, last year,
North Korea had its coldest winter in the last 50 years, causing another horrendous
crop failure, and now the health system is breaking down.
David
Morton, the United Nations coordinator on the scene, said, “It’s not
enough to give food, if hospitals have no medicines and the water supply is contaminated.
Malnutrition in Korea is a combination of shortage of food, breakdown of the health
system and poor water supply. People who are weakened by years of hunger get sick
very easily and are very vulnerable.” And how would you like to have to have surgery in
a country where its doctors have to mold their own medical instruments, many serious
operations are performed without anesthetic because they are unavailable, the
hospitals often have no heat and become so cold that ice forms on the floors when
liquid is spilled, North Korea’s agenda is impossible to fathom and even
those in its leadership are not either officially recognized or known.
“Said a foreign medical expert: “you have a socialist
health system where everything used to come from the state, and now, the state
is bankrupt. So what do you do? It’s not like there’s a private market
where people can go buy medicines.” He said doctors had died of radiation
sickness because, lacking X-ray film, they stand next to patients undergoing tests
to check results on a fluoroscopy screen. In some rural areas, hospitals are growing
cotton to make bandages, he said”…Likewise he said, for patients who
should have operations but will not, except in emergencies –because of lack
of anesthesia, electricity, sterilization equipment and decent surgical tools.
And likewise for the tens if not hundreds of thousands
of North Koreans who suffer from active tuberculosis, but will not be treated.
“They don’t die here like they did in Ethiopia,” one medical expert
said, referring to the high toll from starvation there several years ago. “They
get some food. They share. But then they get a respiratory illness or diarrhea
or they need minor surgery – which can’t be done properly because there
are no antibiotics – and then they die.”
Its
army continued to sit on the South Korean border boring endless tunnels under
the 38th parallel leading to various places in the Korean Countryside.
However, nobody seems to know where the start and where they come out and it is
as likely as not that these folks can come streaming out of their underground
labyrinths at a most inconvenient time. The fact that the North Korean’s
big meal of the day consists of dirt and leaves and that Seoul in spite of their
own problems has offered food for peace on countless occasions has fallen on deaf
ears. The last time South Korea indicated that they would feed the North, a submarine
washed up on the South Korean coast filled with infiltrators.
Many
of the people in the South with relatives in the North are extremely unhappy that
they are not doing well. Chung Ju-yung, the founder of Hyundai was one of those
with northern roots as he had run away from his home in Tongchun, North Korea
at the age of 18 in 1933. He was at this time, 82 years old and was determined
to undo what he believed the politicians had botched up. Chung rounded up 500
head of cattle and started a Western Style cattle drive with cowboys at the helm
of a procession of 50 trucks. Chung further offered to send substantial additional
supplies over time and to build an enormous tourist attraction in the North so
that they could earn hard currency and be self-reliant.
The
end result of Chung’s visit was the fact that nothing happened. The North
Korean Leader, Kim Johg-il was not available for him; talk of building an automobile
plant in the North seemed to fall on deaf ears and any political movement would have to wait for the politicians
to determine what comes next. Chung plans to bring in another load of food in
the fall when he plans to next visit the North, but all things considered, the
only result of Chung’s visit for the moment is the capture of one submarine
that used the occasion to attempt to spy on South Korea and enough food to last
North Korea one meal.
What
has occurred in Korea is more than just an economic upheaval, it is a change of
philosophy which will have deep reaching repercussions on all facets of their
lifestyle. Early on, it appeared to the Korean’s that the Japanese had the
best grasp of how the government and industry should best be positioned. Government
bureaucrats followed the Japanese model with almost a religious fervor. Having
now realized that the lack of transparency, the continued support of under managed
companies and crony capitalism were not only inhibiting growth but were also destructive
to the economy; they have made what we believe is a decision from which there
is no return.
It
was summed up best by Lee Hong Koo, a Member of the Korean Parliament and a former
Prime Minister; “The model is now clear, It’s not Japan, It’s the
West. The current crisis has convinced almost all people that the old style doesn’t
work, we will adjust ourselves rapidly to the new requirements, which means we
will fashion ourselves more like the West, like the U. S. and European Model.” If you believe that statement, you probably would
believe anything. These politicians were just playing to the IMF and finally had
learned the right words to say and when to say them.
Meanwhile
the North Korean’s were still up to their old tricks:
“…Two
weeks ago, North Korea successfully launched a two-stage intermediate-range missile,
the Taepodong1, that flew over parts of Japan. Pyongyang claims it was a satellite
launch, which U.S. officials now say is possible. Nonetheless, the only difference
between a missile launch and a satellite launch is the payload. This follows disclosures
two months ago that North Korea Successfully developed a 700-mill-range Rodong
missile and sold the technology to Pakistan and Iran…”But most disturbing
of all “leaks” that U.S. intelligence satellites have detected 15,000
North Korean workers building what are thought to be new nuclear facilities 25
miles from the known nuclear complex at Yongbyon.”
“Some
senior U.S. officials believe this intelligence shows that, in effect, North Korea
only sold us part of its nuclear-weapons program. Recent U.S.-North Korea talks
were unable to resolve the issue of new and suspicious sites, but there was agreement
to negotiate the matter further. U.S. officials say the nature of the sites must
be clarified if the nuclear deal is to stick. If it is revealed that North Korea
has continued a secret effort to develop nuclear weapons even as it claimed to
have frozen its known facilities, all bets are off. Remember, there are 37,000
U.S. troops in South Korea facing 1 million North Korean troops, 11,000 artillery
tubes and ballistic missiles on the other side of the demilitarized zone.”
The Winter of
1998
In
winter of 1998, North Korea started sending test missiles in the direction of
Japan and would not let the United States take a peak at their atomic installation.
At the time it was believed that either North Korea had or will shortly have nuclear
capability. Their expertise with guided missiles can hardly be challenged, as
that is probably their largest hard currency export.
In addition, they were working a ballistic missile named Taepo Dong-2 that
was rumored to be able to hit the United States, and it was supposedly going to
be tested in the next several months.
In
spite of North Korea’s ill feelings toward the United States, its sentiment
relative to Japan is one of total hate. They fully believe that at some point
in time, the Japanese will attack and attempt to subjugate the North. Many felt
that North Korea’s dramatic step up in military confrontation could be ascribed
to their interest in creating a relationship with the United States to offset
their loss of Russia as an ally. On the other hand, North Korea has a strange
way of attempting to open up dialogue, missiles being tested, tunnels being dug,
submarines dropping of spies and an entire litany of similar events. There may
be some truth to this theory, but that would make North Korea, the worst nation
at communication since Hitler’s non-aggression pact with Russia during World
War II.
It
is really hard to figure out what this guy Kim Jong-il, strategy really is, but
in retrospect, it would appear that he was engaged in some sort of convoluted
nuclear shakedown. Japan became hysterical to say the least and threatened to
break their word, given after the end of World War II, not to rearm. In spite
of having become an international pariah and many in the region beside Japan starting
to openly talk of taking moves to prevent further testing of North Korea’s
trove of weaponry, the North Korean did not back down one wit. As we watched with
strange fascination relative to the unraveling events in the Korea’s, we
can only thank our lucky starts that we are not their North Korea’s door
neighbor and having to deal with an illogical monster like that in your back yard
could well lead to the kind of paranoid machinations that we were watching the
South Korean Government go through.
Not
playing favorites, the North entered the South’s waters with a patrol boat
that was on reconnaissance. Not knowing whether the boat was going to drop off
infiltrators or just on a spying mission, the South sent out sent out fighter
jets, which sank the North Korean intruder off of their Southern Coast. When a
rescue crew combed the area, they came up with one dead North Korean Frogman who
along with others was making an attempt to mine the South Korean wasters. This
was only the latest in a series of scores of subversion attempts in the previous
6-months.
“Late
in 1998, the Narcotics Suppression people at Bangkok Thailand’s Don Muang
Airport seized 2.5 million tons of ephedrine – a principal ingredient in
cheap, garage-lab amphetamines – enroute to Pyongyang, from India. The pawns
of Pyongyang insisted the chemical was intended for the development of bronchodilators.
So we now know that not only are North Koreans starving, but they are all suffering
from chronic asthma, as well.”
Early 1999
The
South Korean’s started taking their financial reorganization seriously and one of the main areas of effort was the spinning off of non-synergistic
affiliates. At a seminar sponsored by the chaebol lobby Federation of Korean Industries,
conglomerate executives forecast the top five groups will push to spin off about
200 more non-core operations next year, raising the number of their spin-offs
to 300. The forecasts followed a government report released on Tuesday that said
the Hyundai, Samsung, Daewoo, LG and SK groups spun off
81 units by the end of October. In one success story, the money-losing digital
piano division of Daewoo Electronics Co. swung back into profit six months after
it was made a separate entity.
The
government liked what it heard and attempted to find transactions that they could
announce that would show the merit of this proposal. The fact that this had never
occurred in Korea and was only now getting underway dissuaded no one in the mad
search for a success story. Eventually they came across a piano manufacturer that
would fit the bill. "The digital piano division used to suffer operating
losses of 3 billion won ($2.4 million) annually. Six months after its separation,
however, the operation turned a profit of 300 million won," said Lee Jae-kun,
a Daewoo Electronics executive. Daewoo Electronics was also able to cut its payroll
and personnel costs by 304 workers and 6.6 billion won, respectively, he said.
Hyundai Electronics Ind. also said its personal computer division, spun off early
this year, is expected to record a profit of 1.69 billion won this year after
losing 18.9 billion won last year. In addition, Multicap Co. has been able to
cut the prices of its products by 20 percent.
Explaining
the merits of spin-offs, Prof. Cho Dong-sung of Seoul National University said,
"Conglomerates will be better served by concentrating limited managerial
resources on finances, profitability and exports, among others."
There was never a question of the industriousness of the Korean people
The problem was that when they got into trouble, old alliances came to the front
and there was no pulling together. Eventually, it dawned on everyone in sight
that the only way to work their way of this problem was to pull together. They
did it and the International Monetary
Fund had come to the conclusion that South Korea is on the road to recovery, only
a little more than a year after the economy hit the skids. After a shrinkage of
5.5% in the GDP for 1998, economists seem to agree that this year should be up
two percent or more. However, in spite of a great start, Korea had the benefit
though of a debased currency along with contracted work force. Moreover,
Korea showed a $690 million trade surplus for January 1999 in an expansion
of imports and exports, foreign direct investment. The most critical element of
the recovery was the Korean work ethic, which came to the fore once the populace
accepted that this was in reality their only choice.
"The
number of bankruptcies in Seoul and its vicinity marked the lowest monthly level
in January since 1992. According to the Ministry of Finance and Economy yesterday,
the number of bankruptcies in and around the capital city last month reached 213,
down 36.4 percent from 335 a month earlier. The January figure was the lowest
since the government first compiled monthly bankruptcy data in 1992. The previous
low was 226 recorded in February, 1992. Comparable figures for last year were
428 in January, 502 in March, 477 in May, 523 in July, 490 in September and 568
in November. "
"In
December, when the nation turned to the International Monetary Fund (IMF) for
$58.35 bailout loan, the number of bankruptcies in Seoul shot up to 1,218 cases.
In 1998, bankruptcies were on a steady decline. In January, there were 1,226 bankruptcies,
followed by 973 in March, 743 in May, 629 in July, 513 in September and 338 in
November. The defaulted bill ratio of Seoul and nearby areas marked 0.13 percent
in January, the same as that of December, which was the lowest figure since 1997.
Last year, the default ratio was 0.58 percent in January, 0.49 percent both in
March and May, 0.60 percent in July, 0.35 percent in September, 0.19 percent in
October and 0.13 percent in December".
"The
recent decline of both the default number and ratio in Seoul and its surrounding
areas reflects an alleviation of management difficulties for small and medium-sized
companies due to the economic upturn and lowering of interest rates," an
official at the finance ministry said. "
()
Although, the IMF although the
had expressed satisfaction with Korea’s progress, there are still a lot of
Gremlins circling the playing field. The largest question marks are what is going
to happen with China and Hong Kong. In the case of China particularly, they are
faced with massive inventory buildups and are not moving anywhere near enough
product to support their industrial machinery. China literally took a hickey for
all of the Pacific Rim when Thailand went bust by not devaluing. This put them
at an economic disadvantage and many do not believe they will want that situation
to stay that way much longer.
China is taking a hard look
at the region’s health before
they attempt to level the playing field and would not be apt to get cute right
now. They could throw the entire Pacific Rim back into the soup and only compound
the region’s woes. They have been getting no help from the situation in Brazil
() which although for the moment is calm, could react
at any time.
The
North Koreans however had continued to keep themselves busy with a whole raft
of new ideas.
“Something
about the two North Korean diplomats passing through Egypt didn’t seem quite
right. The pair, based in Syria, had arrived only a day earlier from Ethiopia
and already were high-tailing it out of Cairo. Suspicious, an Egyptian customs
official insisted on checking their six suitcases. He found quite a stash: 506,000
tablets of Rohypnol, a sedative known as the “date-rape drug.” That
episode, last July-the largest seizure of Rohypnol on record is just one in a
long string of drug incidents, counterfeiting cases, and other alleged crimes
involving North Korean officials. Isolated, beset by famine, and desperate for
hard currency, North Korea has in effect turned into a vast criminal enterprise,
U.S. experts say.
“It’s
the mafia masquerading as a government,” contends James Przystukp of the
National Defense University in Washington, D.C. Says another international crime
analyst: “If North Korea were not a nation, you could indict it as a continuing
criminal enterprise.” Cases of North Korean officials engaged in smuggling
and drug trafficking began to surface in the 1970s, but law enforcement analysts
have noted a disturbing jump in the past five years. Using data from the Drug
Enforcement Administration, Japanese and South Korean and foreign press reports,
U.S. News has compiled a record of criminal complaints against North Korean diplomats
in 16 countries since 1994.”
“…Authorities
in at least nine countries have nabbed North Korean diplomats with a virtual pharmacy
of illegal drugs: opium, heroin, cocaine, hashish. Investigators have traced orders
for 50 tons of ephedrine—the base for methamphetamine—to North Korean
front companies; that quantity is 20 times as much as the nation’s legitimate
needs. North Korean officials have been caught distributing counterfeit $100 bills
in Cambodia, Russia, Macao, and Mongolia. The regime is believed to produce some
of the world’s best bogus currency with the same model press used by the
U.S. Bureau of Engraving and Printing. North Korean officials in countries from
Romania to Zambia are accused of using embassies and front companies to smuggle
a mind-boggling array of goods, including untaxed cigarettes, bootleg DCs, fake
antiques, and endangered species parts. North Koreans also have been tied to kidnappings
and terrorism.”
“Behind
much of this criminal activity lies North Korea’s desperate need for cash.
With the end of Soviet patronage, and with Koreans in Japan sending less money
home, North Korea has lost two key sources of hard currency. Drug dealing and
smuggling offer a lucrative alternative and are believed to bring into the nation’s
crippled economy more than $100 million each year. Just one North Korean methamphetamine
shipment, seized in August by Japanese officials, had a street value of $170 million.
By comparison, North Korea’s legitimate exports plunged last year, while
the nation spends an estimated $200 million annually on its nuclear program.”
When
Kim ll Sung was alive, North Korea’s “Great Leader” would through
a massive party for himself on his birthday, April 15. If he were still alive,
he would be 87 years. The practice of celebrating his birthday continued and the
festivities even accelerated with the eve becoming know Kim’s birthday as
“The Day of the Sun.” North Korea was particularly financially
strapped when it came time to start hiring the entertainers for this years event
which was going to include “singers, dancers and other performing troupes
from more than 30 countries, including Russia, China and Canada.”
Money
had to be arranged for and it had to be done quickly. Many of the entertainers
were only interested in hard currency and major government policy discussions
were held. Criminal activities were an important line item in the North Korean budget and when projections were
made relative expenditures, the criminal activities division of the North Korean
Government could always be counted on. On the other hand, the extent of Kim’s
birthday party had not been dreamed of when the budget was created and the country
was going to come up seriously short.
However,
North Korea always had an ace in the hole for situations such as these. You see,
they had this operation in Macau, which they used to move drugs and counterfeit
American Dollars. Interestingly enough, although North Korea’s economy had
been declining 5% a year for over a decade, its illicit drug business had exploded
300% in just 7 short years. North Korea had now entered into a league with the
majors, Columbia and Afghanistan and were producing over 50 tons of opium along
with 5 tons of morphine and heroin. Along with counterfeiting
American Dollars and guided missiles, these had become the only growth
industries in the country. “North Korea is a very serious dictatorship, and
its illegal businesses are sometimes state businesses, it’s very difficult
to deal with these activities. We have diplomatic relations with North Korea and
we have to follow diplomatic protocol.”
They
dispatched an emissary to Macau from
North Korea with a very substantial amount of newly printed American Counterfeit
Currency, his orders were to exchange the phony money for the real thing. Upon
hitting the ground, the courier headed directly to the Zokwang Trading Company,
a factory that doesn’t seem to have a business, which is staffed with numerous
employee, all of which possessed diplomatic passports and for good reason. The
messenger dropped off his Counterband and within several days the phony money
had been turned into the real thing. The courier headed back Pyongyang with a
fistful of the real stuff and a relieved government was now able to pay for the
birthday festivities.
Senior
diplomat and economic official, Kim Kyong-pil and his wife disappeared in Berlin
in early January of 1999. It turns out that they had asked for asylum in the United
States and they did it at a most unpropitious time. It seems that North and South
Korea along with the United States were engaged in serious peace talks when the
event occurred and the Americans and South Korean’s were accused of kidnapping
the couple. North Korea’s rejoinder was that they would turn both South Korea
and the United States “into a sea of fire” if there were any further
attacks on the North. Clearly, the United States had grabbed a big fish and North
Korea was severely wounded and wasn’t sure what to do about it. Authorities
indicated that the words used in their threat were the most severe in countless
years.
Spring 1999
Korea
has made a miraculous economy recovery without taking any strong remedial actions.
It is not so much that Korea has recovered; it is that the Pacific Rim has recovered
taking Korea along for the ride. All of the problems that have existed previously
have now been exacerbated. The only thing that has improved dramatically through
diligent effort is the fact that Korea’s foreign-exchange reserves have risen
600% in only the last year and a half. Many
things are even worse, but business being better, they can be glossed over. In
order to avoid layoffs, corporations were ordered to streamline yet not layoff
workers.
If
this isn’t and oxymoron, I have never heard of one. What you have in Korea
is cadre of workers that sit around doing literally nothing, killing the profitability
of companies that would otherwise be profitable. Thus most of these large companies
are still showing loses and not paying taxes. It would seem that the government
would have been wiser in taking the position of letting these workers back into
the market place. Use the tax money that would be collected for public works projects,
thus keeping everyone employed, allowing the companies to show profits and in
the end creating a much healthier economic environment. But, this is Korea and
things just aren’t done that way here.
Korean bad debts are swept under the rug and if the banks would show the
true facts, they would all go under. The government, which well understands the
problem, allows this opaqueness to continue because they feel that if the public
ever realized the true extent of problems permeating the banking industry, there
would be another panic. Foreign debt remains egregiously high little has been
done to deal with it. The government has taken the position that this can wait
because they have replaced short-term debt with the longer-term variety. Thus,
they have not made any inroads in solving the problem, they have only put a ticking
bomb in their closet, which is timed to explode at the most inopportune of times.
The country’s insurance industry is in chaos and without adequate insurance
capacity available, a long-term lid is overhanging the economy.
Korea’s worst problem has not
even been addressed. Historically, the banks lent to those borrowers that the
government designated. Thus, the government ran the banking system. The banks
went out of business during the crash and the government took them over. Now the
problem has gone from an indirect catastrophe waiting to happened from a direct
one. There has been no country in history where the government controlled and
ran the banking industry that hasn’t had massive corruption and hopeless
management. Korea willing making a temporary recovery because of the industriousness
of its people has only made it back for the short run. Everything remains as it,
except now there is literally no economic transparency while before there was
some.
In
an analogous incident, the Japanese found two North Korean spy trawlers with Japanese
markings tooling around their waters in April of 1999. When the Japanese navy
determined investigate the trawlers turned and ran, chased by an armed combination
of the Japanese Navy, Coast Guard and Air Force. Little was accomplished because
the Japanese did not have permission to sink the ships, but they chased them almost
all the way home to North Korea. During this period, there were 39 North Korean
defectors to South Korea.
Summer 1999
Kim
Dae-jung was supposed to be a breath of spring when he was elected to the office
of President. Before the election he was given almost no chance of winning but
when one bribery charge after another were released by both opposition candidates
along with ex-presidents, the people voted him into office. However, it didn’t
take very long before the ugly head of bribery once again appeared. In short order,
Governor Lim Chang-yuel of the populous Kyanggi Province, which surrounds Seoul,
and his wife, were arrested on charges that they shook down the headman at a now
defunct Korean bank. The bribes came to light when the auditors that were trying
reconcile the banks money found that substantial money had been disappeared. Eventually,
it was found to have disappeared into Lim’s pockets.
Governor
You Jong-keun, who ran North Cholla province and doubled as an economic adviser
to the President of Korea was also drummed out for when it was found out that
anything in the province had become “for sale” at a price. Then there
was the Korean case called “Furgate” where a former head of a conglomerate
had been jailed on charges of extortion and siphoning money out of the country.
In a less than brilliant move, he had his wife offer literally every cabinet minister’s
wife in exchange for their help in getting her husband released.
The
wife of Unification Minister Kang In-duk not only went along with the offer but
asked for another $20,000 and it was duly paid.
Given the opportunity to negotiate, the wife of then Justice Minister Kim
Tae-jung was implicated in an alternative scandal in which the owner of fashion
boutique who was looking for political influence apparently put a mink coat into
the trunk of her car without her knowledge. When the scandal broke, she amazingly
found the coat, still in the trunk and returned it. People found the stories so
inconceivable that both senior ministers were given the boot.
The
International Olympic Committee came to Seoul to hold one of their meetings. Workers
in Seoul thought that this would be a good time to show the world their rage at
the big Chaebols for laying them off. Samsung and Hyundai Group, Korea’s
largest firm were particularly targeted for the groups wrath. It seems that the
workers did not like the fact that until late 1997 they were guaranteed jobs for
life not matter what they did. Basically, it seems that they Korean workers continued
to believed that the companies should continue to pay them even if they couldn’t
justify the expense and were at risk of bankruptcy.
The
workers said of Samsung had for example, “unrelentingly and systematically
pursued a No-Union Policy, treating workers as slaves.” I am certainly not
against unions, but the way that they operate in Korea is a shame. The thought
of increased productivity tied to wage increases is considered to be taboo and
yet the companies should pay and pay and pay, no matter what the environment.
This philosophy has already lead to one disaster and there is another one coming
down the road.
Early
2000
The United States was concerned that
North Korea was turning the by product of their atomic reactors into weapons grade
uranium and became gravely concerned about them constructing an atomic bomb. As
part of a sweeping agreement with North Korea, the Untied States started construction
on what the call “less proliferation-prone reactors, which are going to be
paid for by both Japan and South Korea. In reality, the agreement between the
two countries was reached in 1994, as a method of stopping what the United States
called the “production of home made plutonium. While this seems to be a big
step, the North Korean Government made it clear that there will be no fraternization
between the American and South Korean engineers working on the project and the
North Koreans.
Spring 2000
Samsung’s
failed automotive group was purchased by Renault SA, which was looking for an
entrée into the Pacific Rim and determined to use Samsung Motors Inc. for that
purpose. The bottom line is that Renault paid about $550 million for the vehicle.
If Korea had a legitimate bankruptcy system, the government wouldn’t have
been obligated to through additional billions to keep the failed motor company
alive for such as short time. Samsung was continuing to lose over $5,000 per car
when the takeover was finalized.
Summer
2000
In
late June of 2000, a landmark meeting took place between Kim Dae Jung, South Korea’s
President and Kim Jong ll, the head of the so-called, hermit kingdom. This action
was a coup for Kim Dae Jung as was roundly applauded by the United States, China,
Russia and Japan. Incidentally, Japan was so happy with the news of the meeting
that they indicated that North Korea would be getting a gift from them of 100,000
tons of rice. Things went off with out a hitch and the Kims,
literally made love in public. Spurred on by their leaders warmth to each other,
both countries’ delegations joined hands and sang songs of reunification.
Superficially, things seemed to have gone swimmingly and both sides agreed that
they would be getting together again soon to resume where they had left off.
There were even mutually advantageous proposals that had been on the table
with great fanfare and agreement. They concerned economic cooperation, family
reunification and ultimately, if things went well, reunification of the countries.
Kim
Jong ll’s reputation as a hermit is probably well deserved, but socially
at least he certainly seems to know how to handle himself. During the conference
he was both warm and socially amusing. Because it was held on his turf, Kim Jong
ll was able to determine the pace of the conference and on any number of instances;
the then 58-year old North Korea leader graphically illustrated that fact. During
the conference he demonstrated humility, personality and poise and when it was
over, he readily signed a sweeping joint communiqué that if fully implemented
would end the last international vestige of the Cold War. “It was like looking
at the dark side of the moon for the first time, we thought Kim Jong ll was a
weird person. But now we know he can be open and candid and straightforward.”
But
those that were familiar with history were aware that this had all happened before,
except not so publicly. In 1972, the KCIA, the Korean Intelligence Agency made
a trip to North Korea and visited with Kim ll Sung and worked out many of the
same agreements. Kim ll Sung even signed an official document that he was going
to work towards reunification. As with all of the preceding documents signed by
the North, the documents that Kim signed weren’t worth the paper that they
were written on and there was little or no communication between the two countries
for the 28-years.
Many
in South Korea, a country where everyone believes that everything is done with
an ulterior motive, believe that North Korea gave a popularity boast to Kim Dae
Jung, but announcing the deal only a matter of days before a critical national
election in April got opposing politicians noses way out of joint. They agreed
to do a number of things but until something more concrete happens, anything that
occurred at the summit must be perceived at being purely cosmetic. In the past,
the North and South have reached agreement numerous times only to have the North
break the agreement within a short period of time. Why should this be any different?
“The
first gap to be bridged between the Koreas is a huge psychological one. The two
sides do not see each other’s media; after 50 years, they do not even understand
some of the words in each other’s language. Each side is indoctrinated to
regard the other as a basket case. Koreans were astonished recently to see on
television that Pyongyang has a metro station. A story going round in South Korea
claims that North Korean officials, being driven to Seoul a while ago, thought
the freeway had been guilt for their benefit and the traffic shipped in from America.”
However,
there are some small signs of progress, the two Koreas did agree on the reconstruction
of a Cross-Border Railway which has been cut off for almost fifty-years. Not only
would the opening of the Cross-Border Railway result in a more open boundary between
the two countries but it would also result in substantially lowered shipping costs
for the South. A container that now cost $1000 to get to Paris would now cost
only $200 if it went by train. One of the major problems facing the builders is
the fact that there are so many land mines strewn around in the area where work
has to be done, that extensive clearance is required.
In
spite of the fact that the two countries had supposedly reached total agreement
on the issues relative to the Cross-Border Railway, in order to avoid “accidental
clashes inside the demilitarized zone, the militaries of the two Koreas had reached
agreement in mid-February, 2001 on a code of conduct for their soldiers.” The road, which if ever completed
will connect Seoul and Pyongyang, the two Korean capitals, but the North Koreans
have not finished signing all of the necessary documents and while the South Korean
construction workers are already at work, their Northern counterparts are once
again playing the waiting game.
Another
sign of real progress is the joint venture between the countries to produce a
new brand of cigarettes that will be produced in North Korea but will be sold
in both nations. In the most recent year, trade between the two countries was
over $300 million, but there is an even bigger payday on the horizon, tours of
North Korea by the South Koreans is estimated to provide the North with up to
$1 billion of the next six or seven years.
“Floods
and drought have at times taken an almost biblical toll, but most of the blame
for North Korea’s plight lies with its leaders: Kim ll Sung (dead, but president
for eternity) and his son (alive, but almost invisible). These men have let the
economy rot while maintaining the world’s fifth largest army and building
ever-bigger missiles. It South Korea had hoped the proceeds from the tourism project
might alleviate the suffering of ordinary North Koreans, it was mistaken: last
year, despite its desperate straits, North Korea managed to find the cash to import
a few dozen MiG fighters from Kazakhstan. The only notable North Korean exports
are missiles (sent to other unsavory regimes) and counterfeit American dollars”
The Summit between the two nations ended with great
hopes of continuing mutual accomplishments and it was determined that the two
sides meet on August 15 to discuss what to do about reuniting separated families.
This was probably the wrong subject to be discussed to early in the semi-thawed
relationship between the two countries. At that point in time, the luxury of having
serious meeting on this subject were really not something that North Korea could
afford. If people in the North were allowed to see how their brothers in the South
lived, they would immediately realize that the propaganda that they had been feed
had been utter poppycock. The news would spread that the South, at least relative
to the North was Nirvana. This wouldn’t help the North Korean Government
very much because it would evident that one of the greatest cover-ups in history
had occurred. The people could even revolt. Thus, even without saying why, talks
were delayed and progress if any was miniscule.
However, there is more than a long way to go relative
to talks of reunification. In an example often sited by economic critics of reunification,
clearly, South Korea is nowhere near as prosperous as was West Germany when it
reunified with East German. Moreover, North Korea is in the Stone Age when compared
to East Germany, Moreover, the merger of the Germanys contained none of the bizarre
political nuances that hang oppressively over this proposed unification and from
an economic standpoint it is unfeasible unless South Korea is willing to give
a substantial part of their progress in order to fund the transaction
They have pledged hundreds of millions of dollars to the process, but that
is a mere drop in the bucket. West Germany has already put out $700 billion and
has not yet been able to either bring East Germany up to speed nor solve the substantial
environmental problems that still exist. In addition, there were three West German’s
contributing to the merger for every East German. There are only two times as
many people living in the South as in the North, making to transition even more
problematical. While the rest of the world is extremely interested in seeing
this work out, no one is queuing up to put up the kind of money we are talking
about here, almost a trillion dollars. South Korea in the meantime is going through
a painful economic readjustment with their banking industry in chaos and their
industrials going bankrupt at an alarming rate. “Said a U.S. government official
last week: “The worst thing the Koreas could have is a war. But the next
worst thing would be North Korea wanting to suddenly reunify with South Korea
in its current condition.”
Late
2000
Grave warnings have
been issued regarding Korea’s failure to address recurring economic problems.
The old-boy network remains firmly in place and the bankruptcy laws continue to
play havoc with the economy. Companies that should long ago disappeared from the
scene are still around in spite of court orders to the contrary.
“Even
the companies that the banks have agreed should go under keep living on. Fifteen
months after the Daewoo Group collapsed, creditors are still trying to sell the
most promising of 12 Daewoo firms on the block: General Motors has been sniffing
through the wreckage since Ford lost interest in September. Companies like Daewoo,
dumping cheap products and living on taxpayer money, spoil the market for healthier
competitors, analysts say. “This could look as bad as the first crisis. But
it’s not a new crisis. It’s the same one as the old one continuing on,”
says Adrian Cowell a director at State Street Global Advisors in Seoul.”
The United States became extremely
worried that the North Koreans could well destabilize the Pacific Rim with a missile
attack on Japan or an invasion of the South. This would have accomplished two
things, it would have gotten the new head of State in North Korea, the illusive,
Kim Jong ll, off to a flying start and it would have taken the North Korean peoples
thought’s away from their abject misery. The United States became nervous
indeed, because after all, the country’s leader was an enigma and no one
from anywhere seemed to be in direct contact with him. The United States had no
diplomatic relations with the country and no embassy there, and yet had to wrangle
some method of opening up a dialog before events spiraled even further out of
control. In late October 2000, Madeleine K. Albright, then America’s Secretary
of State had worked out an invitation to pay North Korea a visit. She went there
with the usually entourage included a substantial number of reporters. America
would be seeing North Korea as it really was for the first time in decades.
They found a listless
and drab country with the people having almost no rights. Transportation vehicles
dated back a half a century, shops were shuttered and commerce seemed to have
been literally not have existed. Factories were abandoned or non-operational.
In spite of the fact that over 2 million people inhabit Pyongyang, the streets
had no vibrancy and the people seemed only resigned to their daily lives and not
having a great time. The stores that
were open had almost nothing to sell and reporters in the Albright entourage were
not allowed to visit department stores. “At the Number One Department Store,
just off Kim ll Sung Square, the same display of cheap brightly colored boots
has been in the window for the past year and a half. The shelves are full, but
that’s because among impoverished North Koreans, there are few shoppers.
The escalators are closed, and all but one of the lights are out to save electricity.”
No one needed a particular message
as to why the North Koreans didn’t want them snooping around. “Incomes
are meager- the equivalent of between $1 and $2 a month and literally no one can
afford anything the store has to offer.
But housing, utilities and food rations are provided by the government
free, or for a nominal fee. In any case, there are few signs of people working
around Pyongyang; many of those who are employed work for the government.”
Even the North Korean authorities admit that people often have to sleep in the
subways during the winter because their homes have no heat. Often, the only public
showers that have warm water are at the municipal swimming pools where in cold
weather, the line forms early in the morning to use this luxury. There are no
gas stations that are open on highways and the only way one can be certain to
get to his destination and back is to load up on extra cans of gasoline.
The reporters found literally no
cars in Pyongyang but some buses. Power seemed to be either down or turned off
in many places and the only places that seemed to have unlimited electricity were
the pervasive national landmarks, with their patriotic national slogans. Moreover,
while this isn’t a particular problem when you are outside, Pyongyang has
a subway system where any outage of power will stop the trains and turn out the
systems lights. It can be particularly hair-raising sitting underground in pitch-blackness
while waiting for the system to be restored. And yet, with all of its woes, Pyongyang
is North Korea’s showcase. With a showcase like this, these people are in
real trouble.
In spite of signs of a bit of a thaw,
many weren’t at all sanguine about how serious North Korea was about a rapprochement
with the rest of society. “Kang Chul Hwan, 32, raised in a detention camp
in the North to which his family was sent for an undisclosed “crime”
committed by his grandfather, contends that people who see a shit in North Korea’s
outlook have the wrong impression, “South Koreans are mistaken that North
Koreans have changed, North Korea’s leader Kim Jong ll, he believes, “has
no intention to demolish the ways.”
Early
2001
The North Koreans were unable to
follow the economic model evolved early on by the Japanese, which started out
as labor intensive complexes churning out massive numbers of high quality mundane
products at under the market prices. They then moved “up the high-tech ladder
to refrigerators, TVs, VCRs and, eventually computer components and software.
North Korea doesn’t have that luxury: it has no cash for capital investments
and no private sector.”
On the other had, this country that historically has had only two exportable products,
Counterband and missiles, may just have come up with something else. Nobody has
ever said that these guys were dopes, their missile expertise is first class and
with literally no resources they have come up with advanced atomic technology
that is certainly sophisticated enough
to scare the daylights out of South Korea and Japan.
They probably lead the world in their
abilities to counterfeit American Currency and their distribution systems for
illicit drugs is first class. There are plenty of engineers in the country who
have substantial software programming talents, without which the missiles would
not go in the right direct. Thus, a new industry has begun, the export of software
and the Chinese have become an active client. There have also been overtures from
South Korean software developers in an attempt to utilize this resource.
“A few South Korean businesses – ranging from entrepreneurial
cowboys to staid conglomerate—are testing the waters. Several now employ
Korean Computer Center, a state-owned enterprise in Pyongyang, to write software.
Its specialty is Mission Impossible-type programs such as voice recognition and
fingertip identification. Seoul-based Deshine.com meanwhile, is importing animated
films.”
The Present
Other
wild cards present in the global economic scene is the fact that the Euro got
off to a dismal start and it has not solved Europe’s unemployment problems
which look to get much worse before
they get better. Russia is making a habit of defaulting
and Argentina could bite the bullet at any time just because they are Brazil’s
next-door neighbor. Indonesia is on the verge of insurrection, their leadership
is a disaster, the Philippines had just sent their actor-president packing and
most of Eastern Europe is still in the dumps.
Korea’s
own economy, although a tad better is still fragile, restructuring hasn't been
completed and Korea’s financial institutions are no longer able to throw
money at their clients. There are still numerous potential bankruptcy’s in
the wings that seem to drag on and on such as mammoth KIA motors. People are frightened
and thus are saving more (), which in some respects is good but that does not
aid economy. Interest rates remain high and they will have to come down substantially
before spending is going to substantially pick up.
Nevertheless,
if it happens to Korea again will not be a crises of their own making, it will
more likely than not come economic events beyond their control. If they can get
some breathing room before the next catastrophe hits, they will be in excellent
position to ride it out. They are a really quick study. A look at the problems
in the agricultural segment of the North Korean economy gives us certain insight
into the overall problem:
“The
agricultural system suffers from at least four basic problems. First, the deterioration
of the general economy deprives the agricultural sector of needed support of energy
and raw materials. A serious shortage of electricity prevents pumping stations
from irrigating the fields. Oil and parts shortages have idled farm machinery.
Fertilizer factories are shut down for lack of energy and raw materials. Second,
the collective system does not impart sufficient motivation to workers, who are
often paid according to how many days that work, not how much work they do. A
large but undermined amount of crops are stolen by workers before they reach the
warehouses. Third, agricultural technology is lacking. The party’s “scientific”
policy of “planting the right crop in the right soil at the right time”
in practice means that the party determines what to plant. Kim ll Sung was a strong
advocate of growing corn, which be definition was the “right crop,”
Kim Jong ll has decided potatoes are the right crop. Farmers have little say in
the matter.”
In
the meantime, the South Koreans while fighting their own economic problems are
still faced with a sullen North Korea that has the fourth-largest army in the
world. This military force outnumbers the South be a very substantial margin,
almost two to one. The same ratio can be applied to material, in tanks, long-range
artillery and armored personnel carriers. In addition, they have twice as many
planes as the South, but they are not top-of-the-line. North Korea’s military spending is grinding
along at an astronomical 20 –25% of the country’s gross national product
with no end in sight.
North
Korea has been put on the U.S. Department of State’s “rogue” nations
list. It must make the Koreans feel warm and fuzzy to be included with such global
stalwarts as Iraq, Iran, Syria and Libya. Only one of the countries on the list
has a substantial industry devoted to war material production and only one country
has the power to make and deliver an atomic bomb. One both instances, that country
is North Korea making them a rogue nation that can do more than talk a good game.
In the meantime many if not all of the rogue nations are clients of Korea’s
war materials production machine, particularly Iran. Maybe, North Korea should
be labeled a super-rogue state because they have the ability of not only threatening
to do someone but they have a large stick to see that it gets done.
The
North Koreans are particularly out of control because they have no information
on what is going on in rest of the world. Their television viewing is limited
to one highly censored government channel as is radio. Should someone be able
to get their hands on a radio that could pick up signals from other countries,
it would be a crime punishable by death. There is no Internet and obviously
the press, what there is of it is controlled. North Korea is painted as Nirvana
and the people are told that they have it better than anybody else in the world,
and they just don’t know any better. Furthermore, they are consistently being
harangued that other countries, especially Japan and South Korea are so envious
of their society, that they could start a war over it; thus the country must be
fully prepared to defend its destiny.
On
the other hand, the North Korean Government has, out of necessity made substantial
efforts to develop relationships within the international community. One of the
reasons that this became very important is the fact that Russia in their new agreement
with North Korea no longer agrees to come to their aid if there are attacked.
That virtually left only China as a substantial ally that could be counted on
if push came to shove. On the other hand, even the friends, the Chinese that used
to supply oil and other goods at “friendship prices” ceased doing and
in reality, this action is one of the reasons that the economy is in such terrible
shape. Flailing about for recognition,
North Korea seems to have grabbed the gold ring in the fact that Italy surprisingly
has recognized them and established diplomatic relations.
“The
economic statistics, as well as they can be estimated by outsiders (since the
North Korean government stopped publishing economic statistics in the mid-1960s
are alarming. From 1990 to 1998, the GNP is estimated to have declined by 55 percent
from an already low $23 billion. Foreign trade declined by 70 percent in the same
period as the country’s economy contracted and trade relations with the former
socialist economies dwindled.
In
1998, the country’s foreign debt, in default since the 1980s, amounted to
almost $12 billion, not a large figure for most countries but equaling 96 percent
of the country’s GNP. The nation’s factories appear to be operating
at no more than 25 percent of capacity. The health care system has virtu7ally
ceased to operate, and food distributions are sporadic, forcing the people to
fend for themselves.”
“…What
is apparent to any observer is that the country’s infrastructure is crumbling.
Workers are idle, factories are shuttered, electricity is sporadic, trains and
tracks are broken, and among the relatively few vehicles on the roads, some in
the countryside have even been converted to run on charcoal for lake of gasoline.
Surely the most tragic indicator of North Korea’s economic problems it’s
the widespread hunger and starvation of the North Korea’s people, a direct
consequence of years of economic mismanagement and the decline in economic assistance
from North Korea’s socialist (and formerly socialist) trading partners, compounded
by adverse weather conditions since 1995.
The
government’s response has been totally inadequate: denial and commands to
the people to tighten their belts. Pyongyang has also been reluctant to permit
foreign aid organizations to monitor food distributions, resulting in a lessening
of donor enthusiasm. In the early 1990s the “let’s eat only two meals
a day campaign was launched. By the end of the decade, even two daily meals had
become an impossible dream for many North Koreans.”
South
Korea without the United States acting as their bodyguard would become chopped
liver in no time at all. There is not much question that if the United States
pulled out their almost 40,000 troops along with some of the most sophisticated
weaponry the North Koreans would be in Seoul by nightfall. Understanding their
need for continuing American assistance makes the South Korean Government’s
recent statements about taking the Russian side in opposing the missile defense
program desired by the United States Government, bizarre indeed. Korea is trying
desperately to become a real country with solid relationships in the Global Community.
It is best when you want to deal with everyone to
attempt to take a middle of the road position on critical issues arising between
superpowers. For a short period of time, the South Korean Government forget that
being neutral was a luxury that they could not afford. When the United States
asked for a clarification, their Korean counterparts instantaneously realized
their dramatic blunder and immediately started genuflecting in the direction of
the North America. Sadly for South Korea, until their mess with the north is cleaned
up, the cornerstone of their foreign policy will continue to be dictated by their
American friends.
It
would appear that the Bush foreign policy is going to be dramatically different
from that of former American President, Bill Clinton. The new American President
has already indicated that all bets are off relative to any commitments that the
State Department had made under the Democrats. This change of pace has displeased
the North Korean Government mightily and they immediately went back to their
litany of threats as soon as Bush indicated that his government would make an
entire review of the situation in North Korea before coming to any long term conclusions
as to what relations between the two countries would be like. The same message
was sent to South Korea as well and they well not pleased either, but they continued
their policy of appeasement without missing a beat.
North
Korea responded to Bush's actions by threatening to resume the building of the
nuclear reactors that started the problem in the first place. They say that the
project was to be competed within the next several years but that nothing has
been accomplished in its constructions for some time. The Bush administration
talked about North Korea's dangerous missile sales program as one of the things
that had to be changed if the country wanted American assistance and their response
was, "who is going to replace the hard dollars we will lose." It seems
as though everything has gone back to square one and progress will proceed with
the speed of stalactite generation.
Another
recent semi-casualty of detente seems to be the cruise to nowhere particular in
North Korea started in November of 1998 by Hyundai Group's founder who believed
that by bringing the country's closer together he could jumpstart a meaningful
dialog between the two countries who at that time were literally on a wartime
footing. The tour leaves South Korea by boat and takes a group of mostly
elderly South Koreans (Younger Koreans don't have much interest in going) to Mount
Kumgang which is known as a cultural icon in North Korea. The trails are poor
and the climbing is rough but most of the tourists that start the trip seem to
make it up the mountain. While the scenery is not particularly great, there seems
to be some excitement in the prospect of visiting the North which has been off
limits for so many years,
But
how many of us would like to take a vacation and not be able to take pictures
or use binoculars that are of stronger than average amplification? Those are the
rules imposed by the North Korean Government as there say there are several
military installations near Mount Kumgang and they don't want people looking at
them. However, the strange North Koreans also have also banned picture taking
of just about anything and tourists are also only allowed to carry U.S. currency.
The trip is heavily monitored and custom designed for Koreans so that very few
people from outside Korea have chosen to participate.
The
bottom line on what was supposed to be an exercise in bringing the two people's
together is the fact that Hyundai is taking a bloodbath on the deal and they have
already lost $240 million on the venture. With no way to stop the bleeding in
sight, one could wonder how much longer this cultural exchange designed primarily
for older Koreans is going to be able to continue. While the trip provides much
needed hard currency to the North, their cooperation has been half-hearted and
without something more on the plate this whole concept may soon be doomed.
This
is no way to curb the North Korean Threat, Henry Sokolski, The Washington Post
10-29-200.T
Point of VIEW. 