At the 4th Session of the North Korea Initiative in Bratislava just weeks ago, there was a consensus that growing the NKIF is a good strategy for engaging the DPRK. The NKIF will be used for entrepreneurial ventures, to provide micro loans, for knowledge transfer, healthcare and for building, energy and infrastructural projects.

The biggest task facing Pyongyang is converting one of the worlds most centrally planned and isolated economies into something remotely resembling a free market. Industrial capital stock is nearly beyond repair as a result of years of underinvestment and shortages of spare parts. Industrial and power output has declined as well. The development of former East Germany cost 1.2 trillion euros. It is calculated that the redevelopment of the DPRK will cost 5 trillion euros. Pyongyang will only allow development if it can simultaneously protect its power position.

In the 1980s companies failed to predict the collapse of the centralized Soviet system. They were wholly unprepared and certainly had few dedicated funds in place (George Soros was an exception) when the changes in Central Europe came about. The NKIF seeks to remedy this mistake by having funds in place that can be used to aid a changing North Korea at the point change takes place. The NKIF targets investors who know a return of investment is years in the future but recognize the need for such a fund.

A prerequisite for the fund's future success is confidence-building measures. General Dieter Stockmann, the former NATO deputy commander, made comparisons to China. As the head of the bilateral German-China security talks, he noted that "we need access to human resources." He was quick to point out that the DPRK military will play an indispensable role in the DPRK's economic future.

Paul Beijer, Sweden's special representative on Korean peninsula issues, noted that the Australians have experience with micro-loan projects. Others observed that Sweden, Switzerland and the European Union have separately held conferences in Pyongyang focused on economic reform. There have been both government and private -- through international foundations -- conferences in the DPRK.

Poverty is out of control in the DPRK. The World Food Program and the Carter Center have calculated some 50 percent of the population lives below the poverty line. Even the nascent micro-markets have virtually collapsed. The gap between the wealthiest and poorest is staggering -- amongst the most dramatic on earth.

Previously, there had been a period when small and middle-sized entrepreneurs had done fairly well in North Korea. Tapping into these existing entrepreneurs must be a key goal of the NKIF. The NKIF must provide educational training for this entrepreneurial class and help it grow. Training, also of those doing the training, will be a specific area to add value.

The selection process will be difficult, and nearly impossible without a physical presence in the DPRK. North Korea is a huge market for the development of a financial infrastructure and financial services. Companies interested in participating in the future can aid in these trainings and seminars, which would give them a chance to get their foot in the door.

One expert commented that the DPRK government is highly compartmentalized and that it is extremely difficult to get the different agencies to sit together. It was suggested that a conference in Pyongyang focusing on a narrow topic -- modern accounting, microfinance -- might be of value. Eduard Kukan, until recently the long-serving Slovak foreign minister, cautioned that Pyongyang remains very weary of outsiders and that even good intentions could very likely be seen as interference.

Any investment must be linked to certain performance benchmarks. It must be linked to practical steps and an action plan. A critical component must be systems in place to monitor outcomes. At the moment, this is virtually impossible with the DPRK. Many who criticize the concept of engagement believe monitoring to be the weakest link. They argue one cannot make sure investments are being used solely for intended civilian economic and industrial purposes.

It is difficult to engage a country that is essentially disinterested in being engaged or only interested in doing so under very strict conditions.

Even the government in Pyongyang cannot ignore basic facts. It recognizes the problems that exist but fears losing its power base. Any solution must convince the current elite that the future is good for it. This, on the other hand, is a very difficult sell to many who wish to punish the current DPRK government.

Regardless, before the NKIF is put to use, a monitoring process should be in place. And this allows time for the fund to grow and to find its niche.

UPI Columnist Marc S. Ellenbogen is chairman of the Global Panel Foundation and president of the Prague Society. A venture capitalist with seats in Berlin and Prague, he is a member of the National Advisory Board of the U.S. Democratic Party. E-mail: [email protected]

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