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North's economy still in decline
By Geoff Hiscock, CNN Asia Business Editor
(CNN) -- As historic six-way talks begin in Beijing, North Korea's shrinking economy continues to languish, with relief agencies warning of further food shortages ahead for its 23 million people. The North's decrepit economy suffers from a lack of energy, transport infrastructure and many basic foodstuffs. About a third of its people depend on outside food aid. Analysts have warned that North Korea's already low standard of living is deteriorating as economic activity dries up, and there is little scope for market-based reforms. And despite an early crop harvest that was better than last year, the U.N. agency World Food Program said earlier this month that the food situation would likely worsen in September and October. It said food aid from South Korea in August -- part of a 100,000-ton contribution of maize -- eased the immediate hunger situation, but shortages are projected for the next six months in cereals, pulses, sugar and oil. It said there would likely be a 65,000-ton shortfall between now and January 2004, even with contributions from Italy, the United States and Russia. South Korean President Roh Moo-hyun promised "massive economic aid" to North Korea in his Liberation Day speech on August 15, provided Pyongyang gives up its nuclear weapons ambitions. This is at the heart of the talks taking place in Beijing, where the North wants a guarantee of non-aggression from the United States and where Washington wants Pyongyang to abandon its nuclear program. An agreement might encourage North Korea to reduce its military budget. It has more than a million men and women under arms -- one of the largest standing armies in the world. Economic analysts such as HSBC's Mike Newton in Hong Kong have already warned that if North Korea's economy completely collapses under the weight of military spending, South Korea will face the turmoil of an unplanned reunification. Estimates of the cost of that reunification range up to $250 billion in the first 10 years, extending out to $840 billion over a 40 to 50-year period. Electricity -- along with a grid to distribute it -- is a key need for Pyongyang. Under a 1995 agreement, the Korean Peninsula Energy Development Corp (KEDO) agreed to supply the North with 500,000 tonnes of heavy fuel oil a year in exchange for the freezing of Pyongyang's nuclear program. But deliveries came to an end after North Korea said in October last year it had continued its nuclear weapons program in secret since 1994. Narcotics, weapons
One aspect of North Korea's economy that is in the spotlight is its alleged reliance on narcotics, counterfeiting and the sale of weapons to raise hard currency. Defectors from the North claim that some of the fertilizer provided by aid agencies is diverted to farms that grow opium for the drug trade. The organization said to be in control of this operation, Room 39 of the North's governing Workers Party, was implicated in the seizure of a vessel off the Australian coast by Australian forces in April. The ship, the Pong So, was found to be carrying heroin worth $50 million. While South Korea says it is hard to confirm Pyongyang's involvement in drug-running, gun-running and counterfeiting, other observers in Japan, Hong Kong and the United States say its activities are well known. They say stimulants and counterfeit notes are shipped to gangster organizations in Japan, while narcotics are exported to Hong Kong and then onto wider markets in North America, Asia and Europe. They also claim the North has links to the Russian Mafia. The United States, Australia and some other countries are planning to hold ship interdiction exercises in the Coral Sea, off the Australian northeast coast, in September in a move that is seen to be directed at North Korean smuggling activities. According to the Washington-based Center for Strategic and International Studies, U.S. and South Korean military researchers estimate that North Korea exports $500 million of narcotics annually, making it one of the world's largest exporters of opium, heroin and methamphetamines. As well, North Korea's sale of ballistic missiles to Pakistan, Iran and Middle Eastern countries raised $580 million in 2001, researchers say.
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