Is Kim Jong Il Bankrupt?

There is more evidence to suggest that North Korea really is in dire financial straits after all. Some would not call this a novel conclusion to make about a country in which 2.5 million people have starved to death, but a careful reading of what NGO workers and refugees tell us of how the food was passed out suggests that the North Korean regime was not unduly upset about that, as long as its elite ate well and never lacked for brandy, luxury cars, or nice places to go bowling. Or MiGs.

Preserving that status quo meant maintaining sources of foreign exchange, most of them illegal. Operation Smoking Dragon was the first sign those sources were imperiled; the U.S. Treasury Department’s action against Banco Delta appears to have administered a powerful shock to the North Korean system of privileges on which the regime’s power structure rests. Like-minded (to me) individuals in the Bush Administration are encouraged by the results, reports Yonhap:

Newspapers here have said the U.S. policy on the North is showing signs of changing in the direction of lumping the protracted nuclear crisis with other problems, such as counterfeiting, human rights abuse, and illicit weapons trade, for a package solution.

Which would be fine with me. . . .

Hard-line officials in Washington have been encouraged by the bigger-than-expected success of their latest financial sanctions on North Korea to put pressure on the already isolated regime, they added.

The LA Times’s Barbara Demick, almost certainly the best reporter covering North Korea today, explains that the growing lure of American capital helped the Macanese authorities put Banco Delta and the North Korea trade into perspective (big ht to Plunge here):

Businesspeople here say the North Korean presence became a liability at a sensitive time. The North Korean government in Pyongyang is more unpopular than ever internationally because of its pursuit of nuclear weapons. At the same time, China is trying to develop Macao into a gambling destination to rival Las Vegas.

After Macao reverted to Chinese control in 1999, the Chinese government busted the casino monopoly of billionaire Stanley Ho, a long-standing friend of the North Korean government and the owner of a casino in Pyongyang.

The first U.S.-owned casino in Macao, the Sands Macao, opened in 2004, and a $1.2-billion casino operated by Las Vegas mogul Steve Wynn is scheduled for a September opening. Even Ho’s family — he has passed many of his casino interests to his daughter, Pansy — has struck a deal with MGM Mirage for another new casino.

“Today people here want to do business with the Americans, not the North Koreans,” said Jose Rocha Dinis, director of the Jornal Tribunal de Macau, a Portuguese-language newspaper, as he drove along a waterfront cluttered with construction cranes. “When they are seeking investment from the outside, they can’t let the North Koreans get in the way.”

For the sheer quality of the reporting, look at how Demick finds knowledgeable sources everywhere, beginning with financial crimes guru David Asher:

“Macao had to clean up its act,” said David L. Asher, a former State Department official who specialized in North Korea and was one of the architects of the action against the Macao bank. “There are $5 billion in annual gaming revenues at stake. They have to work with the United States.”

Demick assesses the impact with the help of a British banker who actually works inside Pyongyang:

The freezing of the $25 million in the Banco Delta Asia has been a particularly big blow for a government scraping by for lack of hard currency. North Korean banks kept large sums of money in the Macao bank. Now, with those accounts suspended and other banks frightened off by the Treasury Department action, North Korea has been largely cut off from international trade.

“The impact is severe,” said Nigel Cowie, a British banker based in Pyongyang who is general manager of the Daedong Credit Bank, serving mostly the tiny foreign community in the North Korean capital.

In a telephone interview from Pyongyang, Cowie said that North Korea, because it had no credit and a weak banking system, dealt almost exclusively in cash, which might have created the appearance that it was laundering money when it was not.

“I can’t speak for what everybody was doing, but I can say that in our case, a lot of legitimate business has been hurt,” Cowie said.

Legitimacy being a matter of subjective definition, one supposes. But after reading Demick’s article, you may well come away with the impression that Bush has Kim Jong Il by the balls after all. Left unresolved is whether he’ll be swayed by falsetto appeals for mercy.