North Korea chasing US dollars to finance military

Mr Kim Jong Un seems to have reached the conclusion that delivering on his promise of military strength is his best hope for economic gains. PHOTO: REUTERS

PYONGYANG – When Mr Kim Jong Un, the leader of North Korea, ascended to power more than a decade ago, he repeated two promises that his family has made since founding the country in 1948: to strengthen the military and to improve the economy.

On the military front, Mr Kim, 38, has delivered more than his father and grandfather who ruled before him, accelerating the country’s nuclear and missile programmes.

On the economic front, he has struggled, an already isolated country made more so by years of international sanctions over his nuclear programme and border closures since the coronavirus pandemic.

Its trade with the outside world devastated, North Korea is scrambling for US dollars and other hard currency, not just to feed its people but to finance Mr Kim’s military and economic ambitions.

It is smuggling coal and stealing cryptocurrency. It is also trying to squeeze every bit of cash from the public, selling smartphones and other imported goods to the moneyed class, as well as collecting “loyalty” donations in exchange for political favours.

State-run stores are a critical piece. Customers can use US dollars to pay for international brands of instant noodles, deodorant, diapers and shampoo, while change is returned in North Korean won.

Such transactions, and other activities, have allowed Mr Kim to keep US dollars flowing into his coffers. It has given him the means to expand the country’s arsenal and capabilities, including testing a new intercontinental ballistic missile (ICBM) in December.

North Korea is now firing missiles at a rapid, sometimes daily clip. Washington, Seoul and Tokyo have all warned that Mr Kim may soon conduct a nuclear test, its first since 2017.

Ascension to power

On April 15, 2012, Mr Kim gathered a massive crowd in Pyongyang to deliver his first public speech as the leader of North Korea. He said he would guide the country through any obstacle or challenge towards prosperity, yet he made clear that his first priority would be to “strengthen the People’s Army in every way”.

As he has pursued his dual goals, he has used a blend of propaganda and terror, purging or executing anyone standing in his way, while presenting himself as a “people-loving” leader in state-run media. He has made the government relatively less opaque, delivering frequent speeches and making decisions through broad party meetings. Mr Kim even apologised for his shortcomings, tossing aside the myth of a faultless, godlike leader.

But Mr Kim also knew that a real breakthrough for his country could be achieved only through negotiations with the United States, which led the push for international sanctions. When he met Mr Donald Trump in 2018, he became the first North Korean leader to hold a summit with a US president.

An expanding arsenal

Mr Kim Jong Un seems to have reached the conclusion that delivering on his promise of military strength is his best hope for economic gains. PHOTO: AFP

Although North Korea has spent decades developing its weapons, Mr Kim can take credit for the bulk of the advances. During his rule, the country became the first US adversary since the Cold War to test both an ICBM and what he said was a hydrogen bomb. Four of the country’s six underground nuclear tests happened under his watch.

In 2017, North Korea conducted its first successful test-launch of an ICBM, the Hwasong-15, which Mr Kim said was capable of attacking the US with a large nuclear warhead. Since his diplomacy with Mr Trump collapsed, he has focused on making his arsenal more diverse and sophisticated, unveiling and then testing a host of new weapons, from a next-generation ICBM, the Hwasong-17, to nuclear-capable short-range missiles.

At a party congress in January 2021, Mr Kim ordered his government to build both “super-large nuclear warheads” and make “nuclear weapons smaller, lighter and tactical”. He has called for the development of hypersonic missiles, submarine-launched ICBMs, nuclear-powered submarines and spy satellites. In April, he vowed to expand his nuclear forces “at the fastest possible speed”.

Although some recent ICBM tests have failed, North Korea is believed to have enough plutonium and enriched uranium to produce 45 to 55 nuclear weapons and may have already assembled 20 to 30 warheads, according to an estimate from the Nuclear Information Project at the Federation of American Scientists.

Mr Kim seems to have reached the conclusion that delivering on his promise of military strength is his best hope for economic gains, by exchanging part of his arsenal for sanctions relief. The recent torrent of missile tests, analysts say, was part of his attempt to flaunt his growing threat and bring Washington back to the negotiating table.

Following the money

To keep his promises, Mr Kim needs cash urgently. He told Parliament in September that the government’s most important task was to solve the problem of the people’s living standards. Missile tests in 2022 cost North Korea hundreds of millions of dollars, according to estimates by South Korean and American researchers.

His options are dwindling. The country’s combined trade deficit – the gap between the goods and services it imports and how much it exports – amounted to an estimated US$8.3 billion (S$11.25 billion) between 2017 and 2021.

Even factoring smuggling coal, selling fishing rights, stealing cryptocurrency and other illicit activities, the trade deficit may still amount to at least US$1.9 billion, according to researchers at the Institute for National Security Strategy, a think-tank affiliated with South Korea’s National Intelligence Service.

Mr Kim’s regime is now trying aggressively to absorb as much foreign currency as possible from the public, especially from North Koreans who have accumulated such savings by smuggling goods from China.

The country has cracked down on the use of the US dollars in non-state markets, to force people to convert them into local currency. An unlicensed money-exchanger was executed for disrupting currency rates, according to South Korean intelligence officials. The government has encouraged people to deposit their dollar savings in banks, to place them under state monitoring.

To attract spenders with foreign savings, department stores are filled with imported goods, including Rolex and Tissot wristwatches, Sony and Canon digital cameras, as well as Dior and Lancome cosmetics – all luxury items banned under United Nations sanctions.

Selling cellphones and airtime has also become a lucrative business for Mr Kim’s regime. More than one in every five North Koreans are believed to have cellphones.

An array of cellphones, assembled in North Korea with components imported from China, is on sale and advertised on state TV. They carry pre-installed dictionaries and state propaganda but also offer apps for traffic navigation and games, including Super Mario and Angry Birds rip-offs, and even an app that promises to repel mosquitoes with sound. NYTIMES

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