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Desperate NK Relying on `Military Economy` for Funds

Posted December. 15, 2009 09:32,   


North Korea’s latest foiled attempt to export weapons has drawn attention to its “military economy,” also dubbed its “second economy.”

Experts say weapons exports are the only way the North’s dictatorship can survive under Pyongyang’s “military-first policy.” Accordingly, the communist regime is expected to keep attempting to sell weapons abroad despite heightened scrutiny from U.S. intelligence and the world.

○ Struggling to survive

The Second Economic Council of the ruling North Korean Workers’ Party is assumed to be the organization that used the Georgian airplane to transport 35 tons of weapons. The plane was detained in Thailand last week after the arms were found in an inspection.

The council is in charge of producing and exporting weapons at the order of the party. Organizations under the People’s Armed Forces Ministry of North Korea have also struggled to earn money to maintain the military.

The military economy, or efforts by North Korean military agencies to raise income, has been separate from North Korea’s regular economy since the 1970s. The military economy has its own production facilities (factories and farms), distribution channels, export bodies and financial institutions. It manufactures and produces war supplies to earn foreign currency.

According to North Korean defectors who once served as high-ranking officials in the North, such organizations have become economic interest groups. They began generating enough income to become financially self-sufficient in the wake of severe food shortages in the North in the 1990s.

When the food crisis swept the nation, the military economy took advantage of North Korean leader Kim Jong Il’s policy of placing the military and defense industry first to dominate scarce resources.

In the 2000s, North Korea continued to ignore international sanctions in exporting weapons. Seong Chai-ki, a senior research fellow at Korea Institute for Defense Analyses in Seoul, said, “This can also be understood as part of survival solutions for the North Korean military economy.”

○ Governing funds for Kim

Pyongyang’s attempt to export weapons came to light shortly after U.S. special envoy to North Korea Stephen Bosworth visited the North Korean capital for bilateral talks.

Experts said it is hard to believe that the decision to export weapons was made exclusively by the North’s military authorities. One expert said the latest attempt was reported in advance to North Korean leader Kim by leading Workers’ Party official Chon Pyong Ho, who is in charge of the defense industry, and Second Economic Council Chairman Paik Se Pong.

One North Korea expert said, “A large amount of dollars earned by the military economy becomes the governing funds of Kim Jong Il. Because of a lack of dollars resulting from international financial sanctions, Kim might have decided to risk being caught and approved the export.”

The key to the North’s military economy is a system of reciprocity and payment to military authorities. Under this system, Kim allows military authorities to use scarce resources to earn foreign currency in return for getting part of their income.