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By Graham Earnshaw, Reuters

PYONGYANG, Dec 4, Reuter – Communist North Korea, long known as a country which doesn’t always pay its debts, wants to come in from the cold and join the international financial community, informed sources in Pyongyang say.

The country is rich in many raw materials, but is falling far behind its capitalist rival and enemy South Korea, even though both started from nothing at the end of the 1950-53 Korean War.

Pyongyang has stuck rigidly to the inflexible Stalinist economic model which its neighbour China has largely abandoned in recent years, and its economy has performed increasingly badly as a result, foreign sources said.

North Korea’s reputation as a business partner is very bad due to the low quality of many of the its products and its reluctance to pay many bills. But some traders also detect new signs of a tentative opening to the outside world.

The informed sources said the country’s foreign hard-currency debt had been brought down to about 1.5 billion dollars, compared to estimates two years ago of more than two billion dollars.

That figure does not include the debt to Soviet bloc countries, which is believed to be even bigger.

The sources said North Korea was eager to join the International Monetary Fund, but Western companies still owed money by Pyongyang could be excused for objecting to its admission.

Japan, West Germany and Sweden are amongst the countries which have suffered most from North Korea’s reluctance to pay for purchases, and most western firms doing business with Pyongyang now insist on cash in advance, foreign sources here said.

One businessman said the North Koreans appeared to have a priority list for debt payments with foreign business partners.

“Those at the top of the list have no trouble with payments. But there are many who report problems,” he said.

Another businessman said the unusual decision-making process in the North Korean government meant that only about one in five contracts signed with foreign firms are actually put into effect.

“The North Koreans have a different concept of what a contract is,” he said. “One part of the bureaurcracy will approve a purchase and sign a contract, but then another part will refuse to release the funds needed, and the deal will lapse. It happens all the time.”

North Korea’s main export earners are commodities including non-ferrous metals, steel and cement, and depressed world prices have dealt a severe blow to the country’s balance of payments situation.

Business people complain that while North Korea tends to be competitive on price, it has a bad reputation for delivery delays and quality problems.

“They have to be price competitive before people will touch them with a barge pole,” said one trader.

Pyongyang issues almost no useful economic statistics and businessmen said it was difficult to calculate North Korea’s exports because much of it is barter or third party trade and often with Soviet bloc countries.

But the businessmen said North Korea had to import virtually all of its petroleum requirements.

“They are getting most of their crude from Iran and paying for it in weapons, ammunition and consumer goods for the troops,” said one business source.

North Korea’s foreign currency problems are just one aspect of an increasingly serious economic dilemma, foreign sources here say.

The country’s economy is one of the most rigid and highly-centralised in the communist world, and it seems to be studiously ignoring the example of China where more liberal economic policies in the past few years have led to a sharp rise in living standards.

In 1984, authorities approved a joint venture law apparently aimed at encouraging foreign investment, but no projects have resulted.

A French joint venture hotel to have been built in Pyongyang was abandoned due to North Korea’s failure to provide promised funds, foreign sources said.

Foreign businessmen say technical standards in industry are low, machinery is usually old and badly maintained and manufactured goods are generally so poorly designed and made that they stand little chance in the competitive world market.

But traders report that North Korean trade officials they deal with are slowly becoming more competent and more open in their approach.

“If they can get their act together, there is no reason why North Korea should not be a significant economic force eventually,” said one businessman.

“Their workers are amongst the hardest working in the world, and, if they can harness some of the forces the Chinese have harnessed in the past few years, North Korea could really go somewhere,” he added. REUTER

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