News
Crisis hits North Korean capitalism
The global economic meltdown has claimed an unexpected victim: North Korea's chain of restaurants in Southeast Asia. Over the past few months, most of them have been closed down "due to the current economic situation", as an Asian diplomat in the Thai capital Bangkok put it. This could mean that Bureau 39, the international moneymaking arm of the ruling North Korean Workers' Party – which runs the restaurants and a host of other, more clandestine front companies in the region – is acutely short of funds.
Even if those enterprises were set up to launder money, operational costs and a healthy cash-flow are still vital for their survival. And, as for the restaurants, their main customers were South Korean tourists looking for a somewhat rare, comfort food from the isolated North of the country. Thanks to the global economic crisis, not only has the tourist traffic from South Korea slowed, the fall in the value of won has also reduced their buying power.
Though staunchly socialist at home, the North Korean Government has been quite successful in running capitalist enterprises abroad, ensuring a steady flow of foreign currency to the coffers in Pyongyang.
North Korea runs trading companies in Thailand, Hong Kong, Macau and Cambodia, which export North Korean goods to the region. At the same time, they import various kinds of foodstuffs, light machinery, electronic goods and, in the past, dual-purpose chemicals, which have civilian as well as military applications. Those companies were – and still are – run by the powerful Daesong group of companies, the overt arm of the more secretive Bureau 39. North Korea embarked on its capitalist ventures when, in the late 1980s and early 1990s, the country was hit by a severe crisis caused by the disruption in trading ties with former communist allies. More devastatingly, both the former Soviet Union in 1990 and China in 1993 began to demand that North Korea pay standard international prices for goods, and that too in hard currency rather than with barter goods.
North Korea's two main front companies in Thailand, Star Bravo and Kosun Import-Export, are still in operation. In the early 2000, Thailand actually emerged as North Korea's third-largest foreign trading partner after China and South Korea.
Bangkok developed as a centre for such commercial activities and Western intelligence officers based there became aware of the import and sale of luxury cars and cigarettes, which were brought into the country duty-free by North Korean diplomats.
The restaurants were used to earn additional money for the government in Pyongyang – at the same time, they were suspected of laundering proceeds from North Korea's more unsavoury commercial activities. Restaurants and other cash-intensive enterprises are commonly used as conduits for wads of bills, which banks otherwise would not accept as deposits.
For years, there have been various North Korean-themed restaurants in Beijing, Shanghai and other Chinese cities. But the first in Southeast Asia opened only in 2002 in the Cambodian town of Siem Reap.
It became an instant success – especially with the thousands of South Korean tourists who flocked to see the ancient ruins of Angkor Wat. It was so successful that Pyongyang decided to open a second venue in the capital Phnom Penh in December 2003.
A fairly large restaurant in the capital's Boulevard Monivong, which offered indifferent Korean staple kimchi and other dishes and live entertainment by North Korean waitresses, closed earlier this year for lack of business. In 2006, yet another Pyongyang Restaurant – as the eateries were called – opened for business in Bangkok.
It was housed in an impressive, purpose-built structure down a side alley in the city's gritty Pattanakarn suburb, far away from areas usually frequented by Western visitors but close to the North Korean embassy and the offices of its front companies in the Thai capital.
This was followed by an even grander restaurant in Thailand's most popular beach resort, Pattaya, which was also housed in a separate building with a big parking lot outside for tour buses.
A much smaller Pyongyang restaurant opened in Laos' sleepy capital Vientiane, but that one became popular not with South Korean tourists, but with Chinese guest workers and technicians. The Vientiane restaurant may be the only North Korean eatery that is still in operation.
After years of watching North Korea's counterfeiting and smuggling operations, the United States began tightening the screws on Pyongyang's finances in September 2005. This occurred after Banco Delta Asia, a local bank in Macau, was designated as a "financial institution of primary money-laundering concern".
The bank almost collapsed, and North Korea's assets were frozen. The money was eventually released as part of an incentive for North Korea's concession in the Six-Party talks and returned to North Korea via a bank in the Russian Far East.
But, coupled with UN sanctions, the damage to North Korea's overseas financial network was done – including the ability of Pyongyang's many overseas front companies to operate freely.
Now, with North Korea conducting a second nuclear test and firing off missiles, Washington has raised the possibility of re-listing North Korea as a state that supports terrorism. If that were to happen, many private companies would become hesitant to deal with Pyongyang and its enterprises for fear of being blacklisted by the US Treasury.
With its various moneymaking enterprises coming unstuck, Pyongyang is increasingly under pressure. The worldwide financial crisis has already put North Korea in a tight corner. There was never anything to suggest that the money earned by North Korea's economic ventures abroad were to be used for social development at home, or to be spent on basic necessities such as putting food on the tables of the country's undernourished people. Now, there will not even be food for sale to South Korean tourists in the region.
Even if those enterprises were set up to launder money, operational costs and a healthy cash-flow are still vital for their survival. And, as for the restaurants, their main customers were South Korean tourists looking for a somewhat rare, comfort food from the isolated North of the country. Thanks to the global economic crisis, not only has the tourist traffic from South Korea slowed, the fall in the value of won has also reduced their buying power.
Though staunchly socialist at home, the North Korean Government has been quite successful in running capitalist enterprises abroad, ensuring a steady flow of foreign currency to the coffers in Pyongyang.
North Korea runs trading companies in Thailand, Hong Kong, Macau and Cambodia, which export North Korean goods to the region. At the same time, they import various kinds of foodstuffs, light machinery, electronic goods and, in the past, dual-purpose chemicals, which have civilian as well as military applications. Those companies were – and still are – run by the powerful Daesong group of companies, the overt arm of the more secretive Bureau 39. North Korea embarked on its capitalist ventures when, in the late 1980s and early 1990s, the country was hit by a severe crisis caused by the disruption in trading ties with former communist allies. More devastatingly, both the former Soviet Union in 1990 and China in 1993 began to demand that North Korea pay standard international prices for goods, and that too in hard currency rather than with barter goods.
North Korea's two main front companies in Thailand, Star Bravo and Kosun Import-Export, are still in operation. In the early 2000, Thailand actually emerged as North Korea's third-largest foreign trading partner after China and South Korea.
Bangkok developed as a centre for such commercial activities and Western intelligence officers based there became aware of the import and sale of luxury cars and cigarettes, which were brought into the country duty-free by North Korean diplomats.
The restaurants were used to earn additional money for the government in Pyongyang – at the same time, they were suspected of laundering proceeds from North Korea's more unsavoury commercial activities. Restaurants and other cash-intensive enterprises are commonly used as conduits for wads of bills, which banks otherwise would not accept as deposits.
For years, there have been various North Korean-themed restaurants in Beijing, Shanghai and other Chinese cities. But the first in Southeast Asia opened only in 2002 in the Cambodian town of Siem Reap.
It became an instant success – especially with the thousands of South Korean tourists who flocked to see the ancient ruins of Angkor Wat. It was so successful that Pyongyang decided to open a second venue in the capital Phnom Penh in December 2003.
A fairly large restaurant in the capital's Boulevard Monivong, which offered indifferent Korean staple kimchi and other dishes and live entertainment by North Korean waitresses, closed earlier this year for lack of business. In 2006, yet another Pyongyang Restaurant – as the eateries were called – opened for business in Bangkok.
It was housed in an impressive, purpose-built structure down a side alley in the city's gritty Pattanakarn suburb, far away from areas usually frequented by Western visitors but close to the North Korean embassy and the offices of its front companies in the Thai capital.
This was followed by an even grander restaurant in Thailand's most popular beach resort, Pattaya, which was also housed in a separate building with a big parking lot outside for tour buses.
A much smaller Pyongyang restaurant opened in Laos' sleepy capital Vientiane, but that one became popular not with South Korean tourists, but with Chinese guest workers and technicians. The Vientiane restaurant may be the only North Korean eatery that is still in operation.
After years of watching North Korea's counterfeiting and smuggling operations, the United States began tightening the screws on Pyongyang's finances in September 2005. This occurred after Banco Delta Asia, a local bank in Macau, was designated as a "financial institution of primary money-laundering concern".
The bank almost collapsed, and North Korea's assets were frozen. The money was eventually released as part of an incentive for North Korea's concession in the Six-Party talks and returned to North Korea via a bank in the Russian Far East.
But, coupled with UN sanctions, the damage to North Korea's overseas financial network was done – including the ability of Pyongyang's many overseas front companies to operate freely.
Now, with North Korea conducting a second nuclear test and firing off missiles, Washington has raised the possibility of re-listing North Korea as a state that supports terrorism. If that were to happen, many private companies would become hesitant to deal with Pyongyang and its enterprises for fear of being blacklisted by the US Treasury.
With its various moneymaking enterprises coming unstuck, Pyongyang is increasingly under pressure. The worldwide financial crisis has already put North Korea in a tight corner. There was never anything to suggest that the money earned by North Korea's economic ventures abroad were to be used for social development at home, or to be spent on basic necessities such as putting food on the tables of the country's undernourished people. Now, there will not even be food for sale to South Korean tourists in the region.
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