North Korea’s Threats Cost Bombs

It’s no news that Kim Jong-un and his rogue state have been dominating the international press since mid-March. The excessive coverage of the Democratic People’s Republic of Korea’s equally excessive threats, has done more than enough to convince the globe that the Korean peninsula is about to relapse into the war that had been put on hold since 1953. However, DPRK’s army has declared the armistice agreement invalid last month and have presented both the United States and the Republic of Korea with a series of ultimatums, which had initially started as a response to the unusually hard-lining UN Security Council sanctions over North Korea’s nuclear tests, targeting foreign currency transfers and travel for diplomats.

Image courtesy of Bryanna Poulin, © 2011, some rights reserved.
Image courtesy of Bryanna Poulin, © 2011, some rights reserved.

The rogue state began the threats in the form of its predictably colourful speech of turning Seoul into a ‘sea of fire’ (which interestingly enough was one of Kim Jong-il’s favourite phrases), and that it would launch a pre-emptive nuclear strike against the U.S. However, when the two democracies decided to ignore the North’s usually empty threats and went ahead with their joint annual military exercises, which included a rare American display of force in the form of a test run of two nuclear-capable B-2 Stealth bombers across South Korea, Pyongyang terminated its armistice agreement, cut off all emergency communication lines with U.S., UN, and South Korean forces, and repositioned its missile units to its east-coast, supposedly in order to facilitate attacks on the U.S. military bases in South Korea, the Pacific, and possibly even American cities.

The North has been known to make empty threats to frighten and agitate its neighbours into showering them with monetary or food aids, however Kim Jong-un’s new regime took the threatening measures up to a new level when it actually physically moved its missiles to the coast. Moreover, it closed access to and withdrew its workers from the Kaesong Industrial Park, a joint industrial zone built as a collaborative economic venture with South Korea in 2002, on 3 April. Two days later, North Korea requested embassies in Pyongyang and foreign nationals in South Korea to evacuate from the peninsula to avoid a seemingly imminent war. However, although it has been nearly three weeks since Pyongyang declared the armistice agreement annulled, physical escalation of violence is yet to be observed on the Korean peninsula. Yet, the North’s belligerent rhetoric and actions during the past few months have actually inflicted damage upon all parties involved. Pyongyang, Seoul, and Washington have all suffered financially.

North Korea is frequently attributed as a ‘mad-dog’ state, with its opaque and oppressive media, which is unanimously deemed as propaganda, and its elusive leader, whose actual age has yet to be confirmed. In sum, Pyongyang’s opponents are dealing with uncertainty in terms of North’s ability to honour promises and its course of action, given its previous display of aggression, including the unprecedented shelling of Yeonpyeong Island and the sinking of the South Korean warship ‘Cheonan’ in 2010. Therefore, both the U.S. and South Korea are forced to prepare for the worst. And the muscle-flex in the form of the test flights of two B-2 bombers proves just that. As reported by the Center for Public Integrity, the B-2s cost $3 billion apiece and their flights are estimated to cost over $135,000 per hour- almost double that of any other military airplane. Based on the given cost and the flight time of 20.6 hours of the bombers over the peninsula, the Foreign Policy Magazine predicts that it cost Washington over $5.5 million [1] just to intimidate Pyongyang and show that it will no longer tolerate the dictatorship’s erratic demands.

Following the American move, South Korea swiftly purchased a fleet of 36 AH-64E Apache attack helicopters, capable of destroying North’s tanks and armored vehicles. Seoul’s purchase would ultimately strengthen its defenses against possible provocations from the North, yet its new layer of defense did not come cheap. According to Seoul’s Yonhap news agency, the deal would cost a total of 1.8 trillion Korean won or $1.5 billion [2], which adds on to its already hefty defense budget of $31.7 billion [3].  Thus, with South’s defense budget aside, the U.S. and South Korea managed to spend over $1,505,500,000 in the span of three weeks.

Given the fact that North Korea has not invested in new machinery recently, it clearly did not spend as much as its opponents during the past month. However, the missiles that were used to threaten the region’s hegemon probably have cost the population dearly during their development. Moreover, its decision to close access to the Kaesong Joint Industrial Zone is likely to have a huge impact on DPRK’s far from thriving economy. The industrial park in Kaesong, which is comprised of 123 South Korean companies employing approximately 54,000 North Korean workers and 800 South Korean staff, is said to generate more than $90 million just in annual wages that are directly paid to Pyongyang, and add approximately $2 billion to North Korea’s GDP. Although it is slightly less than double the amount South Korea and the U.S. recently spent, $2 billion actually represents 5 per cent of North Korea’s meager GDP of $40 billion per year. The industrial zone also provides employment for one in six people in Kaesong, DPRK’s third-largest city.

The shutdown of the complex is a surprise, as it had operated continuously since 2004, despite the escalating tensions in previous years. North’s decision also has deeply affected the South Korean companies stationed in the complex, as many are now facing contract terminations from foreign investors and partners. Since the shut down on 5 April, the companies have lost more than $20 million and if the industrial zone is actually to be forced out, $6 billion in initial investments will have gone to waste and the 123 companies would be operating at a deficit of $150 million per month [4]. However, despite the heavy losses South Korea’s stable economy will be unscathed from the total shutdown. Yet, the loss of jobs for the 54,000 North Korean workers, given that they are the breadwinners of nuclear households, would jeopardise the livelihoods of more than 200,000 people alongside the inevitable 5 per cent shrinkage of the North Korean economy. Based on the fact that Pyongyang is still encouraging Chinese tourists to visit even during a ‘state of war’, DPRK has not suddenly become an economic giant without the need for an income boosting joint-project with the South. Thus, Pyongyang’s dangerous move, which probably was aimed to hurt Seoul, could actually do itself more harm.

Aside from the obvious military expenditures and the direct monetary losses stemming from the Kaesong shutdown, North Korea has strategically racked up costs for its neighbour in every way possible, from hacking more than 48,000 PCs and servers of South Korean banks and media sites, to contributing to the fall of KOSPI (Korea Composite Stock Price Index), which seems to have a strong negative correlation to the number of Pyongyang-issued threats. This then leads to a curious question: Is North Korea a rational actor with calculated moves, rather than the erratic ‘terrorist’ regime as dismissed by both Western media and organisations? The answer is yes. Although the degree of its threats have spiralled out of control this past month, Pyongyang is clearly aware of the effects of its rhetoric and action. Perhaps it wanted to deliver a costly bill to the U.S. and South Korea, or one can also speculate that Kaesong shutdown was purposely planned to provide the regime with a leverage point for the next negotiation period, when they can demand higher wages as they had in 2009. No one is entirely sure, but although Pyongyang is operating at a loss, its opponents are also faced with monetary consequences.





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