Challenges and issues for North Korea


The isolated and nuclear armed state of North Korea has recently shown indications that they hope to begin managing their immense outstanding debts.  Although North Korea is highly secretive of its economic data, it is estimated that their outstanding debts are close to $12 billion and nearly two thirds of this estimated total is owed to former communist states.  The South Korean government has given respect to the Kim Jong-Il regime in Pyongyang by refraining from officially announcing the debts of North Korea which they chose not to disclose themselves. 

In 2008, a member of the Grand National party suggested the debt owed to South Korea, $920 million, could be paid off by offering mineral rights to South Korea.  In 2010, North Korea offered to repay loans borrowed from Czechoslovakia, a former communist nation that had been a leading supplier of heavy machinery, trucks and trams to North Korea, with ginseng.  Though non-cash trade and settlement of debt has been common among socialist countries, Czech officials did not look upon this offer of ginseng very favorably.  Therefore there have been further discussions to facilitate the receipt of a cash payment from North Korea.

Earlier in 2010, a U.S. court ruled that the Foreign Trade Bank of Korea, a North Korean state bank, owed a Taiwanese counterpart US$6.77 million over an unpaid loan.

While attempting to solve  their debt problems, like Pakistan, North Korea has been hit with flash floods.   In response, South Korea pledged $8.4 billion to help the victims of the flooding, the first aid offer since the sinking of a South Korean naval ship in March 2010.  Earlier in 2010, South Korea had frozen all government funds for North Korea just before an international investigation confirmed that the ship had been struck by a torpedo.  Chinese state-run news agency Xinhua reported that the new aid offer is "a means to defuse tension on the divided peninsula."

North Korea may have few alternatives but to accept the aid from Seoul, a recent trip of Kim Jong-il to China may have secured the acceptance of the South Korean aid package, by coming away from China with less than what was expected.  The disappointment of the reaction of China to the flooding as well as the additional financial and food woes existing in North Korea may become another setback to the succession of Kim Jong-il’s son, Kim Jong-un, to be leader of the nation.  The succession has been predicted for years, while party support for Kim Jong-un is unsure as he is seen by the party as being inexperienced.    

The six-party talks with North Korea over its nuclear program have stalled as the United States and Japan, members of the talks, have appeared unwilling to return to the bargaining table, due to North Korea’s behavior.  In August, 2010, the United States enacted new sanctions, as the administration believed that stronger sanctions were needed in response to the sinking of the South Korean warship in March.

The release of an American activist, which was won by a trip to North Korea by former president, Jimmy Carter, seemed to raise speculation that the tensions between North Korea and the US were beginning to thaw. This was seen as not to be the case as the new sanctions were enacted.   The new sanctions target people and companies involved with selling arms to North Korea, providing it with luxury goods, and assisting the country's authorities with money laundering, counterfeiting and narcotics trafficking.  The entities named included Office 39 of the Korean Workers' Party, which helps top North Korean officials through "illicit economic activities and managing the leadership's slush funds," according to a fact sheet from the Treasury Department.

The sanctions would freeze any of those targets' U.S. assets, and make it illegal for American companies to do business with such firms.  The freezing of assets goes beyond the United Nation’s penalties for trading in illegal commodities, including luxury goods and conventional arms.

North Korea has opened talks with South Korea for the possibility of another cross border reunion of families that were separated during the Korean War.  The two countries technically remain at war because their three-year conflict ended in an armistice in 1953 and no peace treaty was signed.  Millions of families were displaced during the war and the last Red Cross brokered reunion took place in 2009.  The offer may ease tensions that have increased during joint military exercises by the United States and South Korea.

With the transition of leadership approaching, the actions of North Korea have not expressed any sense of security, something the West and North Korea’s neighbors have been anxious of.  Natural disasters, the sanctioning of trade and almost constant pressure for North Korea to dismantle its nuclear arsenal have placed the country in a difficult situation.  Now, without the strong support from China, the country is hard pressed to continue its standoff with the West.  It can almost be said that North Korea has only two choices; to discontinue its isolation or collapse. 

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