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NightWatch 20110107


For the Night of 7 January 2011

North Korea: Update. North Korean authorities lifted the special alert for the Yellow Sea border areas, while activities near the border are believed to have eased to the level before the order, South Korea's Yonhap reported7 January, citing an anonymous South Korean government source.

In response, the United States and South Korea lowered their intelligence alert against the North to Watchcon 3. Watch Condition 5 is the highest intelligence alert. During the recent unpleasantness there was no reported change in Defense Condition (DEFCON), which refers to the combat forces alert system and is separate from the Watchcon system.

North Korea-South Korea: On 8 January, North Korea reiterated its 5 January offer of unconditional talks with South Korea and proposed they begin in late January or early February. Ion the second statement this week carried by the Korean Central News Agency, the North announced it would reopen an office for inter-Korean economic cooperation at the Kaesong joint industrial park. The North closed the office last summer went tension spiked.

The Committee for the Peaceful Reunification of Korea is the author of the second statement and is, thus, somewhat less authoritative than the first which was a joint statement by the party and government. The Committee's statement repeats that there are no conditions and no need for South Korea to doubt the North's real intentions.

Comment: A lowering of the North's alert condition means the security crisis is over for now. The North is in negotiating mode. Its persistence and the short time proposed for holding the first meeting conveys a sense of urgency and desperation.

Nevertheless, the offer contains a political trap. It lacks any mention of movement on the key issues of recent concern. The top three are a commitment to refrain from armed provocations; action indicating progress in terminating the nuclear weapons program and action to halt weapons proliferation. The North's leaders know these are the conditions of the Allied democracies because they have been told face-to-face repeatedly.

They have floated an offer that they probably believe and certainly will argue is generous because it drops the North's conditions for returning to talks. The top two were Allied recognition of North Korea as a nuclear armed state and an end to the US "hostile attitude," meaning stopping exercises for fighting North Korea and withdrawal of US forces. Thus, the leaders in Pyongyang will be looking for reciprocity from the South, i.e., talks without conditions.

They will be offended when the South sticks to the Allied conditions and will try to go over the head of the government to appeal to the South Korean electorate's sense of ethnic identity. It is a clever offer and probably should be accepted if only as a venue to restate the Allied positions and deny the North a potential propaganda edge.

China-North Korea: A South Korean news service reported today that Chinese state-run Shangdi Guanqun Investment Co. signed a 10-point memorandum of understanding (MOU) on 20 December by which it agreed to invest $2 billion in North Korea's Rason free trade zone.

The agreement with Pyongyang's Investment and Development Group supposedly will build the northeastern North Korean port city of Rason, North Hamgyong Province - which shares borders with China and Russia - into the biggest industrial zone in Northeast Asia within 10 years. According to a Shangdi Guanqun official, $300 million will be spent to construct a coal-fired power plant at the coal mine to facilitate the export of regional natural resources with longer-term plans to build a railway, roads, harbors, piers and oil refineries.

Comment: In 1993, the late Kim Il-sung had the idea of building free trade or special economic zones to jump start his failed socialist planned economy. He abandoned the Seven Year Plan that year; realigned national priorities to place food and consumer goods ahead of military spending for the first and only time in North Korean history; and authorized construction of the first special economic zone at Rajin (Rajin) Sonbong in the far northeast because of its access to road and rail transportation links to China and Russia, plus it is near one of two North Korean oil refineries.

After an initial spurt, the project languished after Kim died in 1994 for more than 15 years. Investor reports indicated there was nothing in which to invest and accommodations were inadequate. In 2000, the government condensed the name Rajin-Sonbong into Rason and has been trying to attract investors.

Under the Sunshine policy of the late South Korean President Kim Dae Jung, at least one South Korean firm entered a joint venture, but no sources indicated it was anything other than an aid conduit to North Korea. The only successful special economic zone has been at Kaesong, north of Seoul and that is exclusively a South Korean-built enterprise using North Korean labor.

In the past year, China and North Korean relations have warmed because of a new Chinese policy of investment and North Korean willingness to experiment with the Chinese, on whom they depend but whom they dislike viscerally. This is at least the fourth major Chinese investment or joint venture with North Korea announced in the past two years.

As in Afghanistan, Africa, Burma, and Indonesia, the Chinese are promising to build a set of turnkey complexes that they can use to shorten trade routes and costs to Japan. The Chinese and North Koreans intend to make Japan pay for the facilities through trade. Japan will pay because of the savings in transportation costs and time compared to existing routes.

This is all some years in the future, but the path is clear. It is also appears that China and North Korea are cutting South Korea out of this economic picture, not using South Korea's excellent rail system that can link to North Korea's. Each of these large Chinese investments ties the North more closely to China, but contributes to North Korea's plan to become wealthy in 2012, the 100th birthday of Kim Il-sung.

Pakistan: Prime Minister Gilani has won back a parliamentary majority because the Muttahida Qaumi Movement (MQM) announced on 7 January that it will rejoin the coalition government but not the federal Cabinet. MQM leader Raza Haroon said MQM's decision was the result of Gilani's reversal on the fuel prices issue. Also, following a meeting with MQM officials, Gilani said his government will defer general sales tax reform that the International Monetary Fund wanted.

In other developments, the opposition Pakistan Muslim League (Nawaz) announced it will work to have early elections called because of the weakness of Gilani's governing coalition, led by the Pakistan People's Party.

Comment: In order to avoid an early vote of confidence, Gilani appears to have sacrificed long term economic stability for short term political survival. For a short while, Gilani's political crisis has passed, but his government is accident prone. Its tenure is vulnerable to almost any unforeseen contingency. The PML (N) as well as the Islamist terrorists know the signs and will try to exploit them. There will be more political crises as well as sensational terrorist attacks.

Sudan: Update. Southern Sudan's referendum on independence is on track for Sunday, 9 January. The Christian and animist south will vote overwhelmingly to secede from the Khartoum government and the Muslim north. Sudanese President al Bashir and his government in public appear reconciled to the split, but the major unresolved issue that could lead to violence is control of the oil-producing Abyei region which tribes loyal to the north and the south both claim.

Tunisia: Protests, strikes and riots occurred on 7 January in Tunis and several other cities over high unemployment, high food prices and tight internal controls. Youths clashed with police and teachers and lawyers went on strike on 6 and 7 January. The government's censors have impeded dissemination of news reports about the gravity of the disorders and arrested bloggers.

Comment: Unrest has been simmering all summer because of high unemployment and prices. One of the triggers for demonstrations was an incident n 17 December in which a street vendor without a license set himself on fire in protest of police action to close his business by confiscating his fruits and vegetables.

Public demonstrations have been rare since strongman President Zine Ben Ali came to power in 1987. The government is not in danger yet, but two phenomena to watch are the involvement of the professional classes in protests and the cost of  essential commodities.

If merchants and vendors join the protests, the protests will not abate and the government will be shaky. If the police or military join the protestors, the security leadership will likely replace the President in a praetorian coup.

One image of a demonstration showed a man shaking a loaf of bread above his head. Other reports stated that cooking oil and sugar also are among the staple commodities nearly out of reach. If the price and availability of staples and other essentials reach the point that most people cannot feed or take care of their families regardless of how hard they work, the system will explode and the government will fall.

End of NightWatch for 7 January.

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