eye.gif (5286 bytes) Point of VIEW.

A purely analytical perception...


 

ROBERT A. SPIRA & SHIRLEY J. GOLDSTEIN

COPYRIGHT APPLIED FOR

 

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.” [1] 

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. “[2]  

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.” [3] 

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 ([4]) 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 ([5]). Shortly thereafter, the "Won" broke its government guaranteed support level with embarrassed officials pronounce that the currency would now be allowed to float[6]. 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) ([7]) 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.”[8] 

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.”[9] 

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”[10] 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.”[11]  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.”[12] 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.”[13] 

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.”[14]  

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.” [15] 

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.” [16]   

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.”[17] 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.”[18] 

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.” [19] 

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.” [20]  

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”.”[21] 

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.”[22] 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.”[23] 

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[24], 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.”[25]   

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[26] 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.”[27]  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.[28]  

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.”[29] 

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[30] 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.”[31] 

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.” [32] 

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.”[33] 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 [34]. 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.”[35] 

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[36], 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.[37]  

LATE 1997  

Recent collapses, including the bankruptcy of Halla Group[38], 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, ([39]) 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.”[40] 

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.”[41] 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[42], 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[43].  

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.” [44] 

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.”[45] 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.” [46] 

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__146.css;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.”[47]  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.[48] 

“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. ([49]) 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 ([50])  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.  ([51]) 

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.[52] 

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[53] 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[54] 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.”[55] 

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". [56]  

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"[57]. 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.”[58]  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”[59] 

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.”[60] 

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. “[61] 

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.”[62] 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.”[63] 

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.”[64]  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.”[65] 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.”[66] 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.”[67] 

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.”[68] 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.”[69] 

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.”[70] 

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[71], 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." [72]
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. "[73] 

"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. "  ([74])


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 ([75]) 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.”[76] 

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.”[77]  

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.”[78] 

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[79]. 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.”[80] 

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.” [81] 

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.”[82]  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.”[83] 

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.”[84] 

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.”[85] 

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.” [86] 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.”[87]  

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.”[88] 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.”[89]    

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 ([90]), 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. [91] 

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.”[92] 

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.[93] 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[94].  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.” [95] 

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 [96]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.

 

 

 

 

 

 



[1] North Korea, Through the Looking Glass, Kongdan Oh and Ralph C. Hassig, Brooking Institution Press, Washington D.C.

[2] North Korea, Through the Looking Glass, Kongdan Oh and Ralph C. Hassig, Brooking Institution Press, Washington D.C.

[3] Ibid

[4] “North Korea has been included on the U.S. list of states supporting international terrorism since January 1988, after North Korean agents bombed a South Korean airlines –KAL flight 858 –on November 29,1987 causing the deaths of 115 people. U.S. Department of State, Background Notes: North Korea, June 1996

[5] This is the level where it would take 1000 Won to purchase USD $1.

[6] At press time the "Won" was around 1,995.

[7] Over 2/3rds of Korea’s GDP is accounted for by the largest 30 chaebol

[8] The Wise guy regime, North Korea has embarked on a global crime spree, David E. Kaplan, U.S. News World Report 2/15/99

[9] Unmasking an old lie, A Korean War charge is exposed as a hoax, Bruce B. Auster, U.S. News, 11/16/98

[10] North Korea, Through the Looking Glass, Kongdan Oh and Ralph C. Hassig, Brooking Institution Press, Washington D.C.

[11] Underground Tunnels to Infiltrate Commando Troops, Koreascope, 1/21/01

[12] This is no way to curb the North Korean Threat, Henry Sokolski, The Washington Post 10-29-200.T

[14] The Two Koreas, A contemporary History, Don Oberdorfer, Basic Books

9 North Korea, What If … …war breaks out in Korea? Some say the North would win, the Pentagon says no way, but everyone agrees the casualties would be huge. Jill Smolowe, Reported by Edward W. Desmond/Tokyo and Mark Thompson/Washington. Time Magazine, June 13, 1994

[16] Ibid

[17] Eliot Cohen, War Consultant used by Pentagon.

[18] North Korea N-Arms Capacity Doubled, R. Jeffrey Smith, Newsday, 4-2-1994

[19] Korea, Lonely Planet Robert Storey 4th Edition.

[20] The World’s Most Dangerous Places, Robert Young Pelton, Harper Resource.

[21] The World’s Most Dangerous Places, Robert Young Pelton, Harper Resource.

[22] Seoul prosecutors ask death for ex-president Chun, Shim Sung-won, Reuters, 8-5-1996

 

[23] Seoul prosecutors ask death for ex-president Chun, Shim Sung-won, Reuters, 8-5-1996

[24] Korea’s 14th largest conglomerate

[25] Steel maker failure hits South Korea After Strikes, Kim Myong-hwan, Reuters, 1-24-1997

[26] He was able to take $1.14 million while a member of parliament for arranging loans to keep Hanbo afloat.

[27] South Korea anti-graft drive targets MPs, Moon Ihlwan, Reuters, 4-18-1996

[28] A lot of these problems came from the collapse of the Hanbo Business group. Xinhu News Agency ran the following on 2-19-97, South Korea’s Hanbo Business Group General Chairman Chung Tae-soo was indicted on fraud and embezzlement charges here today, along with nine ruling and opposition legislators and bank officials who took bribes from Chun in return for business. Ruling New Korea Party legislators Hong In-kil, Chung Jae-chull and Hwang Byung-tai were indicted for influence peddling, while main opposition National Congress for New Politics lawmaker Kwon Roh-kap and former Home Minister Kim Woo-suk were charged with graft.

[29] South Korea’s “Crown Prince” shames his father, Reuters, 5-15-1997

[30] Shin Jae Hoon, a writer for the “Far Eastern Economic Review, “ who is stationed in Seoul, told the Asia 2000 Foundation seminar that even the official propaganda admitted ordinary North Korean adults had a food intake of 400 calories a day, which is 25 percent of what United Nations relief officials say is the minimum needed for human subsistence.” North Korea’s calamities make the need for peace more urgent, The Press, Canterbury New Zealand, 9/10/97

[31] Dr. Kurt Campbell, Congressional Consultant, Congressional Conference on “Engaging the Hermit Kingdom: U.S. Policy Toward North Korea, February 26, 1997.

[32] The Washington Post National Weekly Edition, January 27, 1997.

[33] The Two Koreas, A Contemporary History, Don Oberdorfer, Basic Books 1997

[34] Tension along the 38th Parallel //North Korea backs off in standoff with South // The anxiety drops a notch in the crisis over a North Korean defection, Minneapolis Star Tribune, 2-18-1997

[35] North Korea’s Fragile State, Bu Susmit Kumar, People’s News Agency, 5 August, 1997

[36] In reality, most of the coalmines in the country have flooded and filed with water because North Korea doesn’t have the money to buy the pumps to rectify the situation. In reality, here is a country with more than adequate coal reserves that is importing its entire needs from China.

[37] Korean People Suffering AS Quiet War Continues Today, Capital Ties, Madison, Wisconsin, 9-30-1997

[38] Park Sung-suk, vice-chairman of the Halla group said, “Halla’s failure came as South Korea’s debt burdened banking showed early signs of meltdown, despite a record International Monetary Fund bailout.

[39] The Korean Government, in a major step backward for privatization, took over Kia Motors on October 23, 1997. On the other hand, there may not have been many alternatives available to the legislators considering the company's substantial debt load, combined with more of the more inept management's in the Pacific Rim. Anecdotally, Mazda a holder of 8 percent of KIA's stock was not even notified of the government's decision. 

[40] PANIC sends South Korea Reeling Standard & Poor’s cuts Rating in Response to Kia Bailout, Velisarios Kattoulas, International Herald Tribune, 10-25-1997

[41] Ibid

[42] Kim Dae Jung had earlier been accused of being endorsed by Pyongyang by former South Korean President Kim Young Sam and they remained enemies from that point forward. There was no basis for the statement.

[43] Probably a small price for Japan to pay when you consider the fact that North Korea is still demanding $10 billion in compensation for the treatment its people received at their hands during Japan’s occupation of Korea.

[44] Mr. Kim, meet Mr. Kim, The Economist, 4/15/2000.

[45] South Korea: Finding the balance: South Korea’s economic debacle, Keith Graham, The Atlanta Journal and Constitution, 3-8-1998

[46] South Korea: Finding the balance: South Korea’s economic debacle, Keith Graham, The Atlanta Journal and Constitution, 3-8-1998

[47] South Korea to Resume Work On Cross-Border Railway, The Wall Street Journal, March 2, 2001

[48] North Korea: Shell games, The Economist, 4-01-2000

[49] At the time Korea was telling this story to the IMF, actual foreign exchange as $22.5 billion and on December 2, 1997 it had already dropped to $6 billion. These figures were submitted by the Bank of Korea

[50] Each basis point equals 1/100th of a percent of interest, there for 100 basis points is the equivalent of 1%.

[51] December 3, 1997 was declared National Humiliation Day when Korea        finally accepted all of the IMF’s demands. On the other hand, Korea’s leaders were still twisting and turning and no one was sure it would stick.

[52] North Korea announces “wartime mobilization”, Associated Press, John Leicester, 3-13-1998

[53] Thailand had consistently made binding agreements with the IMF only to back out each time at the last minute.

[54] "Technical" because lenders have agreed to role the debt forward, but this is what technical default means. There is no question that if it had not been rolled it would have defaulted. The Korean Government does not have enough foreign reserves to bail out their own bank's defaults.

[55] Banking in Korea: No exit, The Economist, 4-4-1998

[56] New York Times, Friday, December 12, 1997, David Sanger

[57] With all of Korea’s problems, a Mexico they are not. Mr. Shafer’s statement is either self-serving or worse.

[58] Hyundai Strike Spurs 295 Bankruptcies, United Press International 7-29-1998.

[59] Steel maker failure hits South Korea after strikes, Kim Myong-hwan, Reuters, 1-24-1997

[60] South Korean bankruptcy: Death, where is thy sting? The Economist 7-17-1999

[61] Ibid

[62] Japan worries Pakistan to give North Korea nuclear aid, Teruaki Ueno, Reuters, 5-29-1998.

[63] North Korea’s Infiltration Efforts Dim South’s “Sunshine Policy” www.jps.net/triumph/alert39.htm

[64] A View of North Korea’s Famished Children, Hilary Mackenzie, The New York Times International, February 22, 2001

[65] Ibid

[66] Collapse of Health System Adds to North Korea’s Crisis, Elisabeth Rosenthal, The New York Times, February 20, 2001

[67] Ibid

[68] New York Times January 17, 1997

[69] North Korea, The Unthinkable May Turn Into Reality, LA Times, Robert A. Manning, Sunday, September 13, 1998.

[70] The World’s Most Dangerous Places, Robert Young Pelton, HarperResource

[71] Daewoo turned out not to be the success story that public relations people had painted. It was soon to bankrupt, probably as a result of union intransigence.

[72] Korea Herald

[73] 02-05-99 Seoul area bankruptcies in January lowest since '92 By Chun Sung-woo Staff reporter

[74] New York Times, December 12, 1997

[75] Brazil got the reputation of going down the drain whenever anyone else in any other part of the world did. They did not relinquish their distinctive record during the Rim’s collapse.

[76] The Wiseguy regime, North Korea has embarked on a global crime spree, David E. Kaplan, U.S. News World Report 2/15/99

[77] North Korea’s Conduit for Crime; Cash-Poor Pyongyang uses Tiny Macau to Move Its dirty Money, John Pomfret, The Washington Post. 4-25-1999.

[78] Brig. General Mahuel Suares Monge, secretary for security in Macau.

[79] Probably a small price for Japan to pay when you consider the fact that North Korea is still demanding $10 billion in compensation for the treatment its people received at their hands during Japan’s occupation of Korea.

[80] Kim Young Soo, Professor at Sogang University in Seoul.

[81] Mr. Kim, meet Mr. Kim, The Economist, 4/15/2000.

[82] South Korea to Resume Work On Cross-Border Railway, The Wall Street Journal, March 2, 2001

[83] A New Day’ in Korea, George Wehrfritz, B. J. Lee in Seoul, Hideko Takayama in Tokyo and Michael Hirsh in Washington, Newsweek International, 6/26/00

[84] Why start-ups were South Korean economy’s false hope, Michael Baker, The Christian Science Monitor; 12-8-2000

[85] The Pyongyang Albright Didn’t See, From Store Shelves to Subway Tunnels, Capital Reflects a Destitute Nation, Steven Mufson, Washington Post Staff Writer, Wednesday, October 25, 2000.

[86] “Not Allowed” as a Way of Life, Sense of Fear Pervades A Capital Stuck in Times, Doug Struck, Washington Post Foreign Service, Tuesday, October 24, 2000

[87] Silence on Right in North Korea Talks Rankles In South, Don Kirk, International Herald Tribune, 10/27/00

[88] Hard-Line Software North Korea barely has an economy. But if you need computer talent, it’s ready to do business, Tim Larimer, Seoul and Stella Kim, Seoul, Time International 2-19-2001

[89] Ibid

[90] This same action, virtually a buyer’s strike has thrown Japan into a recession.

[91] "Top-notch" Korean Company's are not finding any takers for their debt at interest rates hovering around 30%.

[92]North Korea, Through the Looking Glass, Kongdan Oh and Ralph C. Hassig, Brooking Institution Press, Washington D.C. 

[93] Estimates have it that North Korea has 4,000 tanks and 600 aircraft and some say, not enough gas to get them moving.

[94] As opposed to the South’s almost legendary growth, North Korea’s economy has shrunk by approximately 5% a year for at least the last decade. One of the most miserable performances on the globe. 

[95] North Korea, Through the Looking Glass, Kongdan Oh and Ralph C. Hassig, Brooking Institution Press, Washington D.C.

[96] Mr. Kim, meet Mr. Kim, The Economist, 4,15,2000


 


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