Budget Blanks and Blues

Last time I wrote in these pages, in late April, “Party Time in Pyongyang,” I promised a Part II. This is a bad habit of mine. To be honest, what happens is this: Enthused by the topic at hand, I write far too much and swiftly reach (or exceed) my word limit. I resolve in all sincerity to return to the topic and the parts I had to leave out. But then life intervenes, other stuff comes along, and before you know it, six weeks have passed. Apologies to one and all. I need discipline, DPRK-style.

So it’s hardly hot news any more, but April really was—as we all knew it would be—a very eventful and politically significant month in North Korea. My last article dwelt on some of the political issues. This time I want to focus on policy, especially in the economic realm, and in particular, on the budget—one area where, regrettably, there is more continuity than change.

Our starting point, and the bit I left out last time, is the Supreme People’s Assembly (SPA) meeting on April 13—or “Rocket Oops Day,” as it will forever not be known as in Pyongyang. Unlike the rare Workers’ Party of Korea (WPK) delegate meeting two days earlier, the SPA session is a regular annual event. Nominally, the SPA is the ultimate law-making authority in the DPRK; note that the chairman of its Presidium, which makes the decisions when the full SPA is not in session (i.e. 364 days of the year) is the DPRK’s titular head of state, the veteran Kim Yong Nam. It is he who (for instance) receives new foreign ambassadors’ credentials, rather than Kim Jong Il or now Kim Jong Un. In North Korea, the real leaders don’t have time or patience for boring diplomatic niceties. Kim Jong Il met only VIPs, while his son has yet to officially hold a meeting with foreigners of any kind. (Which, after nearly half a year already, is telling as to his priorities—or is he simply not yet ready for such exposure?)

Quite often, Kim Jong Il didn’t have time for the SPA either. You’d think he might have made the effort, if only for form’s sake, though he was just as often absent from the podium. Big meetings reportedly bored him. (So couldn’t he have made them more exciting? For instance, by interrupting speakers and hectoring them, like his father Kim Il Sung used to do. That livened up the SPA no end, though it must have had the victims sweating nervously.)

Last year, neither Kim Jong Il nor Kim Jong Un showed up at the SPA. It would have been the son and heir’s first parliamentary appearance: a good chance to introduce him, you might have thought. But I imagine dad said: “Not worth it, son. The SPA is a dumb-show. Lets go caving in Jagang instead.” The SPA met on April 7, but during April 6-8, the Kims, along with sister/aunt Kim Kyong Hui and her husband Jang Song Thaek—plus a bunch of others, most, if not all of whom, by rights should have been at the SPA—were touring factories in the far north.[1]

‘Caving’ is my gloss. KCNA naturally didn’t say this, but Jagang is famously home to a lot of weapons plants, many in underground tunnels to protect them against bombing. It seems highly likely that these were on the itinerary, or that some of these establishments’ anodyne names conceal a military purpose. The Kanggye General Tractor Plant was identified by a defector who worked in this sector as a large (10,000 workers) and crucial weapons enterprise, whose output includes chemical warheads.[2] That was on the itinerary, and Kim Jong Il visited it again six months later, in October 2011. Gotta take care of the tractors, hey?

But back to Pyongyang and the SPA. This year, Kim Jong Un did appear. He could hardly not do so, being now at least nominally in charge  but needing formalization of his power. Just as the WPK made him the Party’s first secretary, so it was the SPA’s remit formally to put him at the helm of the National Defense Commission (NDC): the highest executive organ of state, outranking the civilian Cabinet. Which it duly did, in the newly titled post of first Chairman. As in the Party, his dead dad remains nominally as eternal Chairman. (Is there a chair for him?)

That aside, it was pretty much business as usual for the SPA—disappointingly. Hope springs eternal, and foolishly I had dared to dream that under a new young leader, the usual budget speech and report on the economy (two separate items) might, at last, include something which every other country bar none takes for granted—i.e. actual numbers. Fat chance.

A word of background here. Notoriously, the DPRK stopped publishing regular statistics in the 1960s, when its thitherto fast-growing economy began to slow down and miss targets. Even so, the budget speech always gave real numbers—well, hard numbers at least, who knows if they were real—for aggregate income and expenditure: actual for the year just past, and as planned for the year ahead (the current year). In both Koreas, the financial year is the same as the calendar year, so for the North to announce this in April means they’re talking about something that’s already underway before the SPA has had a chance to okay it. But hey.

It wasn’t much, but besides those aggregates they would also report particular sectors as getting x percent of the budget, or going up by y percent from last year. This was by no means a comprehensive breakdown—a table? you jest—but often there was just enough data to do the math and form some idea of budgetary trends over time. This I did for many years, nay decades, in my (unnamed) role as the author of the Economist Intelligence Unit (EIU)’s quarterly Country Report (CR) on North Korea. Having started way back in 1983, I have just sent in my and the last ever North Korea CR; for henceforth EIU is shifting from a calendar-based to an event-driven approach, so no more CRs.[3] It’s a poignant moment. But I digress.

During the 1980s and 1990s we got used to steady annual reported increases on both sides of the ledger. In 1994, Yun Gi Jong (a long serving finance minister (1990-98), and a very rare woman to hold high office in the DPRK[4]) reported income and expenditure of 41.5 billion won: about US$20 billion at the official rate of exchange, albeit meaningless as the nominal rate of $2.16 was simply if bizarrely based on Kim Jong Il’s birthday, February 16 or 2.16.[5]

Then two things happened. In July 1994, Kim Il Sung died, and even such little due process as the DPRK normally vouchsafes went out the window. (Maybe Kim Jong Il’s succession wasn’t straightforward; and soon famine began to bite.) For whatever reason, the SPA failed to meet for four years (1995-98), meaning a gap of five years. When it finally reconvened in 1999, Yun Gi Jong was gone—there’s been no word of her since, as far as I know—and her successor—Rim Kyong Suk, also female—reported something extraordinary. As she put it: “Last year’s [1998] state budgetary revenue and expenditure did not reach the level of the early 1990s in scale, but budgetary revenue showed an increase of 0.4 percent over 1997.”[6]

You can say that again. In fact both income and spending had plunged to less than half what they had been five years before, at around the 20 billion won mark. After this shock, the trend of slow annual rises resumed, reaching 22.2 billion won in 2002. But then the second shoe dropped. Economic reforms, unannounced but introduced in July 2002, involved many-fold increases in most prices and wages. This created a new problem from 2003: namely, what conversion rate to use between (so to say) old and new won, pre- and post-July 2002.

Whatever they do in private, in public, the DPRK simply ducked this. In March 2003, in his third budget speech, finance minister Mun Il Bong, who had replaced Rim Kyong Suk in October 2000, did not reveal a single hard number. Even the former totals for income and expenditure were missing. A few sectoral percentages remained, but percentages of what?

This we were no longer told. And that is how it has stayed ever since, up to and including April 2012—meaning no hard numbers for a full decade. As so often, Seoul tries to plug the gap. Last year the ROK Unification Ministry (MOU) quantified the North’s budget at 567 billion DPRK won—KPW, not to be confused with KRW—or US$5.73 billion. MOU also said that in 2010, the North had a small fiscal surplus of 7.3 billion KRW.[7] These numbers are apparently calculated from a single aggregate heard on DPRK radio, several years ago.

Statistics are the lifeblood of any economy. Or perhaps thermometer is a better metaphor. Either way, you need them. They are a sine qua non, else you can’t tell what’s going on. A country without statistics is not a serious country, and a budget minus numbers is a bad joke.

But hopes that Kim Jong Un might grasp this nettle proved vain; it was percentages as usual.

Finance minister Choe Kwang Jin—who’s he? I’ll come back to that—reported that in 2011, state revenues were over-fulfilled by 1.1 percent. Local budgetary revenue came in no less than 12.8 percent higher than planned: it’s hard to know if this is success or depredation. Total spending was just under budget at 99.8 percent. Defense accounted for 15.8 percent of overall expenditure, and the same is planned for 2012. The minister offered no data at all, not even the usual percentages, on how far spending on specific sectors had grown in 2011.

Choe did give some percentages on planned increases this year, on both sides of the ledger. Overall spending is slated to rise by 10.1 percent over last year. He mentioned nine sectors. Above-average increases (not that he put it that way) will go to capital construction (12.2 percent), power coal, metal industries, and railway transport (all lumped together, 12.1) and science and technology (10.9). Light industry and agriculture—not here disaggregated—will get 9.4 percent more than in 2011. Such a below-average rise seems strange, given that food production is a declared top priority (see below). Other sectors he singled out were education (spending set to rise by 9.2 percent), public health (8.9), social insurance and social security (7), sports (6.9) and culture (6.8). All these are below-average rises. This is not a fully comprehensive list: some industrial sectors, such as chemical goods, appear to be missing. There are many other unknowns too, including how, if at all, these figures take into account inflation, which though rampant, goes unmentioned in official DPRK discourse.

Choe also gave potentially interesting detail on sources of revenue, if again, only in the form of planned percentage increases. What one would really like to know is what proportions of revenue each of the six categories that he distinguishes contributes. Overall state budgetary revenue is expected to increase by 8.7 percent this year, a bit less than overall expenditure. Most of the burden seems to fall on the traditional workhorse, profits of state enterprises, which will have to find an extra 10.7 percent compared to 2011. Other planned sources and increases are transaction tax (7.5 percent), profits of cooperative enterprises (5.3), revenue from fixed asset depreciation (2.3), real estate rent (1.9), and social insurance (1.7). Choe called transaction tax “a key source of the budgetary revenue,” while real estate rent must presumably mean money the state makes from licensing markets. That’s a better idea than trying to rein them in or shut them down, which hopefully is now a thing of the past.

Yet the fact that Choe also called for “implementing without fail monthly and quarterly plans for state budgetary revenue” shows that more detailed figures do exist—as they obviously must, for any kind of meaningful finance function to be possible. To begin to publish some such data would be the surest indicator that Kim Jong Un means business.

As usual, the premier gave a separate wider economic report, which (again as per) was even less revealing. Almost 80 when appointed in June 2010, Choe Yong Rim is a veteran loyalist seen as a safe pair of hands. All his predecessors were younger and some were edgier, above all, the DPRK’s only confirmed reformer[8] Pak Pong Ju (2003-07; since 2010 he’s back as a WPK department director, which gives hope). Choe offered a single figure: gross industrial output value grew 2 percent in 2011. Also, “electricity produced at hydraulic power stations, iron ore, electrolytic zinc, power generators, fertilizers, magnesia clinker, etc. showed a remarkable growth over the previous year.” But he was not about to quantify any of it.

Choe’s statement that “this year the Cabinet will concentrate all efforts on light industry and agriculture” hardly squares with the finance minister’s revelation that these sectors are to get a below-average spending increase. Basically the premier called on everyone to make more of everything, and for “the strain on railway transport [to] be eased.” The wider world got a brief look in: “Exports (sic) production bases should be built under a long-term plan and the development of economic and trade zones and joint venture and contracts be vigorously undertaken and the technological cooperation in economy with other countries be boosted.”

Sentiments like this are not unusual. Might they mean more now than in the past? Maybe, but overall the SPA was sadly same old same old, with no hint that Kim Jong Un plans to break the mold as regards reform. Nor do the new leader’s own initial economic guidance visits and treatises offer much encouragement—but let that be a topic for another time.

Finally, as already hinted, the finance function in Pyongyang poses mysteries not only about “what” (all those budget blanks), but also “who.” Being DPRK Minister of Finance can’t be an easy job, and in recent years, filling the job has looked like musical chairs. In the 1990s, Yun Gi Jong served eight years: a decent term, though her disappearance since suggests she might have been made a scapegoat for the budget’s drastic shrinkage between 1994 and 1998.

Her successor Rim Kyong Suk, appointed in late 1998, presented only two budgets in 1999 and 2000 before being replaced by Mun Il Bong. He lasted longer, serving till 2005 when he vanished without trace: he was last reported on a visit to Mongolia in October that year, but then nothing. Last year the conservative Seoul daily Chosun Ilbo claimed Mun was executed for 2009’s botched currency reform, along with—as far more widely reported, though never fully confirmed—WPK finance secretary Pak Nam Gi.[9] Yet ROK intelligence did not back up the story, and the fact that Mun disappeared four years earlier renders it implausible.

According to Chosun Ilbo, Mun was finance minister until 2008. But in that case, why didn’t he give a budget speech after 2005? For the three years 2006-08, rather oddly, this task fell to a vice premier, Ro Tu Chol. By 2009, North Korea had a finance minister again, Kim Wan Su, who did the honors. But just five months later, Kim was sacked in favor of Pak Su Gil, though Kim remained on the scene as an SPA vice-chairman. In October 2010, Kim changed jobs yet again, becoming director of the Secretariat of the Central Committee of the Democratic Front for the Reunification of Korea (DFRF); in which capacity he was quoted last June, denouncing the South. There’s been no mention of him since, at least not in English.

Meanwhile his successor Pak Su Gil presented the 2010 and 2011 budgets, but hasn’t been heard of since the latter over a year ago. This year it was someone else again: Choe Kwang Jin, whose background and date of appointment as finance minister are both unclear. It can’t be an easy job, nor apparently is it highly ranked—unlike in most countries, where this is the guy (or gal) who controls everyone else’s purse strings. On the rare occasions when North Korea lists its Cabinet in full,[10] finance minister comes way down near the bottom of the list, after most of the sectoral economic ministries. This ranking may in itself tell us something.

One other cabinet minister lost his job at the latest SPA. Kim Ung Gwan, in charge of capital city construction, was replaced by Kin In Sik, presumably for not sprucing up Pyongyang as well as the Kims wished it for the big April centenary. But where was the money to do that?

Executive summary: Memo to Kim Jong Un: Numbers, please! Without them, the DPRK’s so-called budget is just a joke. And we all know how North Korea hates being laughed at.

[4] Her speech at the fourth UN World Conference on Women, held in Beijing in September 1995, can be read at http://www.un.org/esa/gopher-data/conf/fwcw/conf/gov/950906124532.txt. Needless to say, feminism DPRK-style was man-made: “The Respected and Beloved Leader [Kim Il Sung] established the Democratic Women’s Union of Korea involving all strata of women in Korea, and rallied them into the struggle for the building of a new fatherland and achieving the social emancipation of women and the equality of sexes.”

[5] Daniel Schwekendiek, A Socioeconomic History of North Korea (McFarland, 2011), page 35.

[6] See http://www.kcna.co.jp/item/1999/9904/news04/07.htm#3. The People’s Korea, published in Tokyo by Chongryun—the organisation of Japan’s pro-North ethnic Koreans (who are mostly of Southern origin, but that’s another story)—was franker in highlighting the scale of the plunge: “The DPRK passed the 1999 state budget of 20.38 billion won ($9.38 billion), up 2 percent over last year but down about 50 percent from the 1994 budget of 41.52 billion won.” See http://www1.korea-np.co.jp/pk/090th_issue/99041406.htm.

[8] How do we know? As chemicals minister Pak led an economic observer mission to South Korea in 2002, and impressed everyone by his eagerness to learn, he said he wished he had an extra pair of eyes to take it all in. Chang Song Thaek, who was also on the team and clearly wielded greater clout, was much less forthcoming.

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