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January 31, 2005

North Korea, Bust or What?

Glenn Reynolds links to this Times report on North Korea. The punchline is this comment:

According to exiles, North Korean agents in Beijing and Ulan Bator are frantically selling assets to raise cash — an important sign, says one activist, because “the secret police can always smell the crisis coming before anybody else”.

Now little would surprise me about the financial state of the Hermit Kingdom, as I think I’m one of the few people to have actually had financial dealings with them. A decade back I was in Moscow, setting up a little metal trading business, the one that still supports me. One of our customers was a North Korean, someone we later found out was one of their KGB types, doing a little freelance profiteering on the side. (One of the odder moments of the experience was going into the North Korean Embassy in Moscow, replete with the mural showing Kim Il Sung in Mao suit on a mountain top, to hand over the $10,000 "commission" in cash. Another was meeting with two N. Korean generals and trying to explain to them the intricacies of contracts, international banking and the like.)

The basic set up was this, that we would purchase aluminium in Russia, and sell it in Japan. At the time the North Koreans had special rates on railroad transport across Russia, and this is what made the system work. It was also the N. Korean government who provided the finance, using their ability to get letters of credit at better rates than a private business could.

(I need to point out that none of this was illegal under Russian, US or UK law at the time. Whether it was under N Korean is another matter but I don’t and didn’t worry about what they thought.)

OK, well, things are going swimmingly, occasional one and two railroad cars full of metal are moving and then the whole set up comes screeching to a halt. Standard Chartered, the bank with which the N. Korean Govt was dealing, refused to issue any more letters of credit. A simple, flat out refusal, no way of getting further credit lines.

When a sovereign state is unable to raise a letter of credit, you know that place is screwed. This was back in 1995 and the only thing that has surprised me subequently is that N. Korea has not already collapsed.

January 31, 2005 in Current Affairs | Permalink

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