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  • Posts Tagged ‘North Korea’

    “Decoding Kim Jong-un: What North Korea’s Leader Wants” (Forbes op-ed, Jasper Kim)

    February 14th, 2017  by  Asia-Pacific Global Research Group - Jasper Kim

    Below is a truncated version of the original Forbes op-ed piece.
    For the full Forbes op-ed, click HERE
    This weekend, North Korean leader Kim Jong-un fired not just his country’s first missile test since U.S. President Donald Trump took office this year, he also fired the opening shot in a high-stakes negotiation match between two seemingly unpredictable alpha male world leaders.
    So why did North Korea conduct a launch in the very early days of Trump’s presidency?
    Kim wants to test his counterpart’s mettle: What will he do? What will he not do? Could Trump ever be trusted? These are the questions in Kim’s head.
    So why did North Korea conduct a launch in the very early days of Trump’s presidency?
    Kim wants to test his counterpart’s mettle: What will he do? What will he not do? Could Trump ever be trusted? These are the questions in Kim’s head.
    Words or action?
    Sanctions as sticks are not working as hoped to compel good behavior . Could diplomacy vis-à-vis China work? At the end of the day, it’s unlikely that Beijing would be willing to cooperate with Washington given Trump’s apparent intransigence about China, along with growing evidence that the PRC may be having less sway over the DPRK.
    Could then a pre-emptive military strike be a feasible option? In short, given that South Korea’s capital of Seoul has approximately ten million residents sitting in the backyard of the DMZ, which acts as a thin buffer between the two Koreas, the possible military and economic ramifications are too vast to justify a risky military encounter.
    This is why Kim finds himself relatively unrestrained from ordering missile test after missile test despite international outcry and sanctions. In fact, such outcries and sanctions are the very justification Kim needs to solidify his power base to his negotiation audience — his inside circle of advisers and elderly military leaders — that the outside world is truly “hostile” to their homeland.
    Direct appeal
    But perhaps there may be a better alternative to military strikes and more sanctions — why not speak directly to Kim himself to find out what he wants?
    A negotiation is defined as “getting what you want.” And most successful negotiations occur when both sides get at least a little of what they want. But too often, even the most experienced parties make sweeping one-size-fits-all assumptions about what the other’s demands are. As studies show, we see things as we are, rather than as they are. In other words, people superimpose their wants, fears, and values onto those with whom they are dealing.
    Past and perhaps even current U.S. officials have assumed that Kim is all about ruthless self-preservation. Others claim he wants a peace treaty, strong economy — even reunification. Statements from the North’s state-run KCNA news agency can also be viewed as negotiable first offers packaged in bombastic bluster.
    Which of these does North Korea’s leader want? We simply need more information to know. After all, information is power in negotiations.
    But rather than making broad-sweeping assumptions, a simpler and more effective approach exists: Just ask.
    For the amount of resources, lives, and security risks involved, the amount of direct communication between Kim and the most senior U.S. leaders commensurate to North Korean leader’s level of seniority have been negligent to nil. From the perspective of the Confucian and Stalinist-driven mindset of this young leader, it’s critical that a presidential level leader be present in the room. After all, the messenger is the message.

    If interested in how Asia-Pacific Global Research Group’s consultancy and training expertise can help your organization, CONTACT US HERE.

    How did Trump Win the Presidency?: By Thinking Like a Negotiator (Lessons

    November 18th, 2016  by  Asia-Pacific Global Research Group - Jasper Kim

    In ancient Greece—the genesis of Western civilization and thinking—the Greek goddess Athena was known to be the securer of “victory.” She also awarded the dealmakers that brought forth victory. In Oresteia, the Greek goddess Athena proclaims, “I admire…the eyes of persuasion.”
    Viewed from an apolitical lens, the Greek goddess would have certainly admired the persuasion, tactics and strategy underlying Donald Trump’s US presidential bid that brought forth an unlikely victory.
    To Trump’s supporters, comprised of a diverse voting group including both rich and poor, his victory was an affirmation of Trump’s call to arms against political elites and the perception that America could be great again. To Trump’s critics, his victory was a complete and utter shock that seemed to defy all odds.
    To some political pundits and so-called political experts—many who belittled, criticized and grossly underestimated Trump at every turn–it became clear that they needed an update. Their expert predictions and assumptions were outdated and antiquated, advising that future elections should be similar to past elections in terms of tone and rhetoric.
    But meanwhile, while these so-called experts were sleeping, the world became flat and hyper-connected due to unforeseen technological tectonic shifts. In the advent of today’s “super-social” era–in which communication is dominated by 140 crafted characters through platforms such as Twitter and Facebook—such weathered expert experience ultimately translated into a net liability, rather than an asset.
    So how did Trump win the US presidency? By thinking like a negotiator.
    This then begs the question: What exactly is a “negotiation”? According to the Harvard Negotiation Project, a negotiation is defined as “Getting what you want.”
    Trump is a self-proclaimed negotiator and dealmaker. He has authored books such as The Art of the Deal, while proclaiming in a recent interview that, “Everything’s negotiable.”
    As such, during Trump’s campaign, he was in constant negotiations—with the Republican Party, Democratic Party, the media, and the voting public—to get what he wanted. At each level, Trump was waging a “David versus Goliath” negotiation war, from his purview, in which each and all of these “negotiation opponents” were, at one point or another, against him.
    Think for a moment what Trump’s victory, a high-stakes negotiation game, entailed. Since 1988, apart from the current president, the political landscape was dominated by just two family names: Clinton and Bush.
    Trump—a political newcomer, but not one with negotiation naiveté–slayed both family dragons in the course of a single election cycle.
    Should you be worried or concerned that Trump is now President-elect Trump, given his tone and rhetoric on the campaign trail?
    Again, some so-called experts will provide a simple binary analysis for simple minds—a flat yes, that he is the precipice to a new era of an isolated America (rather than a continued era of Pax Americana)—or a flat no, that he will be the savior that America needs in a dangerous world.
    But a third, more nuanced and honest answer exists. We simply do not yet have enough information to give a credible answer. What type of information should we be waiting for then? Actual “evidence” in the form of tangible policy action once Trump is sworn in as the forty-fifth US president. Maybe Trump will be great, maybe not. But much like a courtroom, you would not want a judgment about you made against you before the evidence has been thoughtfully and impartially adjudicated.
    And what about all of Trump’s seemingly fiery campaign statements? As savvy negotiators know, first statements are often mere first offers.
    Trump views everything through a negotiation and dealmaking lens. This will have implications in the US and other regions, including in Asia.
    How will a President Trump deal with North Korea’s regime? It looks like Trump would not be completely adverse to face-to-face negotiations with Kim Jong-Un. After all, in any negotiation, to get what you want, you have to know what the other side wants.
    How will a President Trump deal with Beijing when it comes to trade? Hopefully, a President Trump will understand the basic negotiation lesson in a tit-for-tat (TFT) negotiation, which often leads to a lose-lose scenario involving mutually-assured destruction (MAD). In such a prisoner’s dilemma scenario, it often benefits both sides to cooperate rather than compete.
    As former US President John F. Kennedy famously proclaimed, “Let us never negotiate out of fear, but let us never fear to negotiate.”

    If interested in how Asia-Pacific Global Research Group’s consultancy and training expertise can help your organization, CONTACT US HERE.

    North Korea vs. Human Rights: A Brief History of the NK Human Rights Act

    November 14th, 2014  by  Asia-Pacific Global Research Group - Jasper Kim

    Recent efforts to pressure North Korea to improve its human rights conditions through the UN Commission of Inquiry (COI), which among other things, could lead to a UN resolution or ICC referral, has seemingly hit a sensitive spot within North Korea. However, prior to this, little substantive progress was made, in part, due to North Korea’s hard-line stance to its human rights conditions.
    Nearly a decade ago, U.S. legislation was enacted on October 18, 2004 known as the North Korean Human Rights Act. The passage of this Act marked a new and notable phase within the nuclear non-proliferation talks, whereby the issue of human rights was
    directly linked to the issue of North Korean nuclear non-proliferation in a Helsinki-style approach.
    The full text of the North Korean Human Rights Act can be viewed HERE.
    In form, the Act seeks to provide increased aid, monitoring efforts, and
    humanitarian relief to North Korea in the spirit of furthering human rights
    development within the DPRK. In substance, the North Korean Human Rights
    Act attempts to place greater diplomatic and legal pressure on the Kim Jong Un
    regime to improve its human rights record. At the same time, the Act also represents
    a possible negotiation strategy attempt to box in and make the DPRK regime more
    transparent with stipulated requirements for verifiable behavior in compliance with
    the Act.
    By placing human rights as one of the primary items on the negotiation agenda
    in talks with North Korea, two main schools of thought exist: ‘‘universalism’’ and
    ‘‘cultural relativism,’’ in terms of the currently existing literature related to
    international human rights issues. Universalists argue that certain rights are
    ‘‘universal’’ and thus should be globally uniform, such as equal protection, physical
    security, freedom of religion, and freedom of speech. Arguably, most of the language
    embedded in the North Korean Human Rights Act is based upon the ‘‘universalist’’
    rather than ‘‘cultural relativist’’ theory of human rights.
    One of the express purposes of the North Korean Human Rights Act is arguably
    to identify human rights as a major factor in future diplomacy between the United
    States and the DPRK, and for the region as a whole. For example, Section 101 of the
    Act notes, ‘‘It is the sense of Congress that the human rights of North Korea should
    remain a key element in future negotiations between the United States, North Korea,
    and other concerned parties in Northeast Asia.’’ It created the position of Special
    Envoy on Human Rights in North Korea with the responsibility of coordinating and
    promoting human rights efforts, and raising such issues with North Korean officials.
    The Act also specifically links non-humanitarian assistance to substantial
    progress in human rights in North Korea. For example, Section 202 identifies areas
    for improvement (i.e., basic human rights and freedoms, family reunification,
    information regarding abductees from Japan and South Korea, reform and
    independent monitoring of prisons and labor camps). It earmarks additional
    humanitarian and non-humanitarian assistance based upon improvements in such
    areas, but also threatens the withholding of such funds, present and future, in the
    event that evidence of improvements fails to emerge in North Korea. When such
    withholding of funds has occurred, at times, the DPRK, as a negotiation strategy,
    has become purposely more provocative in its actions, albeit verbally or through
    military exercises. In effect, this is a negotiation strategy of increasing (or as the case
    may be, creating) one’s ‘‘bargaining chips’’ to be later traded at the negotiation table
    for other items it may want or need.
    Efforts to directly incorporate universal human rights values into North Korea*
    with a government that typically sees human rights issues as varying, based on
    culture, and therefore non-universal*have often resulted in a negotiation clash of
    cultures by linking human rights with efforts related to North Korea, which have
    thus led to a further gap in related negotiations, such as the Six-Party Talks.
    If interested in how Asia-Pacific Global Research Group’s consultancy and training expertise can help your organization, CONTACT US HERE.

    Korea in 2014: Big 3 Impacts to Watch

    December 19th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    1. NORTH KOREA’S NEXT MOVE: North Korea could decide to initiate provocative acts in 2014, including the early part of the new year. The months of January and February are particularly noteworthy, since these months include dates commemorating the birth of both of the DPRK’s former leaders, Kim Il Sung and Kim Jong Il. Precedent also exists for such provocative acts. Earlier this year (in 2013), North Korea also tested its nuclear weapons technology at the start of the Chinese New Year, which both Koreas recognize and celebrate. Although the financial markets generally have not overreacted to North Korea’s often purposely provocative acts, given the high inter-linkage of the Asian markets, an unexpected known-unknown black swan event could lead to market surprise to the downside.
    2. BANK OF KOREA’S (BOK) KEY RATE HIKE: the BOK has left its key rate steady at 2.75% for seven consecutive months, as the local economy is showing signs of a moderate recovery amid tame inflation.But the BOK is likely to increase its rate in 2014. The BOK’s decision to keep its rate steady at the end of 2013 came as a set of data pointed to a moderate recovery of the Korean economy while the timing of the Federal Reserve’s monetary stimulus tapering still remains uncertain. The South Korean economy grew 1.1% on-quarter in the third quarter, the same pace as in the second quarter, on improving domestic demand and a pickup in facility investment. The country’s industrial output grew 1.8% on-month in October, the fastest gain in 11 months, indicating that the economy might be picking up. South Korea’s inflationary pressure remains subdued as consumer prices are running below the BOK’s 2.5-3.5% inflation target band for the 18th straight month in November. The on-year growth of consumer inflation picked up to 0.9% in November from 0.7% in October.
    3. REAL ESTATE AND CONSUMER DEBT MAY MOVE UPWARDS: The South Korean real estate market has been relatively static in 2013. But a pick up in the real estate market could occur based on relaxed policies in 2014. This potential positive upward movement in the nation’s residential real estate market, however, must also be managed with the nation’s burgeoning consumer debt levels. A survey of 20,000 households conducted jointly by the Bank of Korea (BOK), Statistics Korea and the Financial Services Commission showed households had an average debt of 58.1 million won ($55,000) in March, up 6.8% from the previous year. The debt of those households in the lowest-income group rose 24%, from 10 million to 12.4 million won, while the other groups, not including the richest, saw their average debt increase between 9.7 and 16.3%. Of households in debt, 8.1 percent said they may not be able to repay the money they owe, up from last year’s 7%. The survey showed that the lower a household’s income level, the higher the ratio of people who said repayment was unlikely.
    If you are interested in how Asia-Pacific Global Research Group can help your organization, CONTACT US HERE.

    Purge in Pyongyang: 5 Risks of North Korea’s Ouster of Its #2 Leader (Jang Song Thaek)

    December 13th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    WSJ interview segment with Korea specialist, Jasper Kim (December 13, 2013):
    YONGYANG, North Korea (AP) — North Korea said Friday that it executed Kim Jong Un’s uncle, Jang Song Thaek (장성택) as a traitor for trying to seize supreme power, a stunning end for the leader’s former mentor, long considered the country’s No. 2. Several days ago, North Korea accused Jang of corruption, womanizing, gambling and taking drugs, and said he’d been “eliminated” from all his posts. Jang also was accused of trying “to overthrow the state by all sorts of intrigues and despicable methods with a wild ambition to grab the supreme power of our party and state.”
    CNN interview segment with Korea specialist, Jasper Kim (December 13, 2013):

    Our view, at Asia-Pacific Global Research Group, is that Jang’s purge and subsequent execution is highly concerning for the following 5 reasons:
    1. LACK OF POLITICAL PROTECTION: One view among some analysts is that Jang’s purge reflects a strategic power consolidation effort by Kim Jong Un. However, we believe that with Jang no longer in the political picture, Kim Jong Un has very little political protection and sounding board/advisor, while also severing the cord between KJU and his father (which is more harmful than helpful since it is because of KJU’s blood line that enabled him to gain power). After all, his uncle Jang Song Thaek never, as far as we know, represented a credible threat to the leadership of his nephew, Kim Jong Un.
    2. IS IT KIM JONG UN OR THE MILITARY THAT TRULY OUSTED JANG?: Many analysts do not question whether the execution of Jang Song Thaek reflected the true intent and desires of Kim Jong Un or not. We believe the evidence as of yet is not fully persuasive that this was the case. Another scenario could exist, which may be as or less likely but still entirely possible, in which Kim Jong Un approved the execution of his uncle (Jang) due to the fact that Kim had no viable alternative due to tangible pressure from the military.
    3. LINGUISTIC HINTS AS POSSIBLE EVIDENCE: the substance and style of the language and wording used by the KCNA is one that is more reflective of diction that would be used by the military elements of the DPRK leadership than from Kim Jong Un himself. At the very least, a scenario could exist in which the military had an influential hand in terms of the announcement’s wording.
    4. WARNING SIGNAL TO PRC: Jang served as a symbolic bridge between the DPRK and PRC. Jang was also a supporter of PRC-type economic reforms. As such, Jang’s purge will place a grinding halt to any such similar suggested reforms and any such political progressive espousing such stance (i.e., it is not just one step, but many steps back). The PRC may also interpret Jang’s ouster as an anti-China political stance since Jang was a well known and generally liked figure in the PRC.
    5. IS THIS THE END OR JUST THE BEGINNING?: Jang’s purge represents a known-unknown variable in terms of what other internal struggles above and beyond the usual are occurring as we speak since Jang’s ouster would create an obvious power vacuum and/or ripple effect. Another risk exists in the form of future provocative acts by North Korea on the backdrop of such political reconstitution to either reflect away internal political strife or to show the international community that the DPRK is still acting under one rule. Either way, the international community should be prepared. The best case scenario is that the DPRK remains stable. The worst case scenario, albeit more remote, is one that involves a full-scale implosion.
    For a recent related CNN story North Korean execution raises more question than answers (featuring Korean experts, dJasper Kim and Andrei Lankov), click HERE.
    For a BBC World News interview (with Jasper Kim) regarding the Purge in Pyongyang, CLIDK HERE (interview begins at around the 7:30 min mark).
    If you are interested in how Asia-Pacific Global Research Group can help your organization, CONTACT US HERE.

    3 Reasons why North Korea repatriated 6 South Koreans

    October 29th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    South Korea’s Unification Ministry announced the return of the six men, aged between 27 and 67, at the truce village of Panmunjom Friday, along with the body of the South Korean wife of one of the defectors. The six South Korean citizens was a curious move by North Korea, in which the KCNA (Pyongyang’s official news agency) announced that it “leniently pardoned” the individuals prior to their release back to South Korea.
    In a continued series of predictably unpredictable (yet potentially rational) moves by one of the world’s most secretive and closed states, here are three things to know about North Korea’s latest move:
    1. COLD WAR CALCULUS: North Korea’s move was more than a mere “olive branch” based on good will for recent failed talks related to family reunions and other related efforts, as many have speculated. Instead, it is part of Pyongyang’s ongoing Cold War calculus, which somewhat resembles a multi-dimensional chessboard in which the country’s top minds game scenarios on how to maximize the chance of power perpetuation. In its Cold War calculus, Pyongyang has concluded that a perceived good will gesture at this point would maximize future economic and non-economic benefits in various forms, including bilateral and multilateral talks with members of the international community.
    2. EMPATHY EFFORT FROM THE INTERNATIONAL COMMUNITY: North Korea has repatriated six South Korean nationals to be perceived in a better light from the purview of the international community, both at the leadership level as well as the everyday person. The DPRK understands that such perception is one important piece among many complex moving pieces to garner possible support through efforts meant to garner empathy from those outside its traditional allies (namely, Beijing) in a form of international security hedge play.
    3. PROVOCATION PRECURSOR: One pattern from Pyongyang is that a perceived good will gesture can at times be followed by a direct or indirect act of provocation. This is somewhat akin to a finance play involving a perfect hedge that involves taking a risk position for potential gain that is completely (perfectly) hedged by another play to mitigate such related risk. If Pyongyang believes in that such international security hedge can work in reality, then it may actually incentivize North Korea to take even more risk now or in the future.
    For a related article by by Tim Hume, in which Jasper Kim is quoted, CLICK HERE.



    September 12th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    Former NBA superstar Dennis Rodman has become a cult of diplomatic personality. In the past few months, the colorful “bad boy” (a term from his days as a player on the Detroit Pistons) has turned into a new post-NBA career track – as the world’s basketball diplomat-in-chief – through two high profile trips to North Korea.
    Here are 5 ways Dennis Rodman–the former NBA superstar–holds significant sway with North Korea and its unpredictable “X-factor” leader, Kim Jong-Un:
    1. RODMAN KNOWS MORE ABOUT NORTH KOREAN LEADER KIM JONG-UN THAN JUST ABOUT ANYBODY IN THE WORLD: No single person has had such a unique “backstage pass” into the mind and thinking of Kim Jong-Un through his two visits to North Korea. Kim Jong-Un granted Rodman one of the most scarce seats in the world – a seat next to the young DPRK leader – which culminated into a seemingly win-win relationship. Rodman wants recognition and fame, which access to the highest levels of North Korea’s leadership can provide. Kim Jong-Un wants an apolitical trustworthy global iconic figure that can portray a more flattering and perhaps more nuanced image of him—especially since he represents one of the world’s most reclusive and unknown leaders in the world—despite having one of the world’s largest militaries and a potentially devastating nuclear arsenal. 
    2. RODMAN AND KIM JONG-UN HAVE SIGNIFICANT SHARED INTERESTS: At first blush, Rodman and Kim may seems universes apart. But underneath the superficialities, the two have significant shared interests. Rodman wants to be known as “the person who brought global basketball to North Korea.” Kim wants to be known as “a leader that is not as brutish as the world may portray him to be.”  
    3. SUCH SHARED INTERESTS CAN LEAD TO “BASKETBALL DIPLOMACY”: How can the two shared interests be converted into an actionable outcome? One is through basketball diplomacy—a form of cultural diplomacy leveraging soft power (defined as “getting others to want what you want” by Harvard professor, Joseph Nye).
    4. BASKETBALL DIPLOMACY CAN LEAD TO REAL DIPLOMACY: Many have discounted the potential for basketball diplomacy leading to real diplomacy. One such argument is that North Korea is in effect “using” Rodman for its purposes. We disagree. The argument can be made that the alternatives—6-party talks, bilateral diplomacy, sanctions, etc.—have led to little or zero substantive results. So why not give it a try? Basketball diplomacy, as Rodman is envisioning it, is not a “state sponsored” event—not yet anyway. Surprisingly for many, the private sector and private citizens can also play a potentially important role in gaining trust between North Korea and the international community. Diplomats don’t have a monopoly on good faith diplomatic efforts, nor should they, in our view.
    5. RODMAN’S CALL OUT TO OBAMA MAY BE A NEEDED “WAKE UP CALL”: Rodman’s statements upon his return to Beijing from Pyongyang referencing President Obama and former Secretary of State Hillary Clinton in less than flattering terms were admittedly not ideal. But given the lack of progress in U.S.-DPRK relations, such blunt analysis from a well-known figure such as Dennis Rodman may be the unlikely informal diplomatic figure that “sets the ball in motion.” Even if his efforts come to no resolution, how much different is this than with what has transpired thus far with the so-called experts?

    The Kaesong Negotiations: Why the two Koreas succeeded in getting to yes (and its implications)

    August 15th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    This blog post is based on an earlier version of a Wall Street Journal (WSJ) post and video interview that can be viewed here.
    After seven rounds of meetings and 133 days, the ongoing Kaesong Industrial Complex negotiations between the two Koreas culminated into a five-point agreement. The agreement’s key provisions included language to not disrupt operations within the complex unilaterally, provide for the guarantee of safety of Kaesong assets and workers, restore customs and telecommunications operations, maintain and promote the complex to attract international investments, and the creation of a joint Kaesong Industrial Complex committee
    What led to the bargaining breakthrough? The first six rounds of talks were mainly fruitless efforts of what negotiation analysts refer to as “positional bargaining,” in which each party states and restates its positions on a particular issue. Such positional jockeying can often lead to impasse, and even at times, a strategy of purposeful strategic non-cooperation in a form of “prisoner’s dilemma” (a simulation game in which two parties have a choice to cooperate or betray one another). This seemed to be the case with North Korea, which took the view that elongating and escalating the Kaesong negotiation process would yield a net benefit—the same modus operandi it employs with its ongoing nuclear nonproliferation negotiations.
    If North Korea viewed the Kaesong bargaining process as a prisoner’s dilemma, then what does it take to break its bad behavior? In prisoner’s dilemma, players betray rather than cooperate mostly out of fear and distrust, viewing the outcome as a zero-sum game in which player A’s gain must come at the expense of player B. But if fear can be mitigated and trust furthered, a greater likelihood towards cooperation exists.
    With such agreement leading to other talks related to inter-Korean relations, the one open question now is just how long the Kaesong agreement will last? If precedent is any indicator, it won’t take too long before discord strikes again.
    Contact us here at Asia-Pacific Global Research Group to see how we can help.

    Below is Jasper Kim’s video interview with the WSJ today:


    Why North Korea is a risk-taker

    May 23rd, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    The analysis below is an excerpt based on the original piece, North Korea’s Risk-taking Explained (by Jasper Kim, Wall Street Journal, Korea Realtime, May 22, 2013), which can be read in full HERE.

    Most commentators who track the country say it would never aim to initiate a war with South Korea and its allies because that would inevitably lead to the end of the Kim Jong Un regime. Self-preservation is something the Pyongyang leadership has been very successful at over the last six decades.

    So what explains the North’s apparent affinity for risk in routinely confronting the South, mostly verbally but occasionally with deadly force?

    Mathematical modeling helps explain the counter-intuitive marriage of risk-taking and rationality at the heart of decision making in North Korea.

    Consider you have one of the two choices:
    A: Receive $80 guaranteed; or
    B: Receive a 90% chance to receive $100

    Which option should a rational decision maker chose? Studies show that most people would decide to take option A, the sure thing. The thinking is that it is generally better to receive a guaranteed return even if it means receiving less.

    But the rational choice is actually option B. Getting to the answer requires what’s called a standard expected value calculation. The expected value of option A is $80 (100% x $80 = $80). The expected value of option B is $90 (90% x $100 = $90). So, because $90 (option B) is greater than $80 (option A), option B would be the rational choice even though it involves taking a risk. 

    In the above example, the expected higher gains in option B — equivalent to regime survival — have incentivized risk-taking by North Korea, especially if it doesn’t believe an option A exists.

    * The U.S., South Korea and Japan are defensively postured and risk-averse because the aspiration point is primarily maintaining their current position (in terms of preserving military and economic interests);
    * North Korea is offensively postured and risk-seeking because its aspiration point is gaining more than its current position (in terms of actively pursuing economic and non-economic assistance and diplomatic recognition).


    Given the current incentive structure from North Korea’s view, the Stalinist state sees only incentives to take further risks. As a result, the DPRK’s provocation cycle will only continue, unless the current incentive scheme is changed.

    Financial hedging strategies in an unlikely Korean conflict: Q&A with Jasper Kim

    April 30th, 2013  by  Asia-Pacific Global Research Group - Jasper Kim

    Below is an English-version interview excerpt with Yonhap News and Jasper Kim (Asia-Pacific Global Research Group; Director, Center for Conflict Management, Ewha University in Seoul) released on April 22, 2013 (followed by the original Korean version).
    While most believe North Korea would not intentionally enter into a war with South Korea, Jasper Kim warns us about the possibility of ‘black swan event’ occurring in the Korean peninsula.
    He suggests that a black swan event should be factored in a risk management strategy. He also stressed the importance of hedging strategies, which include call, put, and credit default swap options on Korea-linked financial products.
    Below is the Q&A interview session with Jasper Kim:
    Q. Does 김정은 (DPRK leader, Kim Jong-un) not have the upper hand within his own military?
    He has to appeal to the military since his regime is predicated on a “military first” policy. There could be internal strife and/or change within the DPRK, but we cannot figure that out exactly. He has to prove his leadership by being “hyper hawkish” and “super patriotic.”
    Q. How can a black swan event happen?
    A black swan event be triggered at any level. It will have serious damage militarily and economically. Analysts, especially in the Ivory Tower, assume that all actors behave according to “rational” behavior at all times in all scenarios. But if you walk along or near the DMZ, from my standpoint, it is clear that there are risks that even one instance of irrational behavior could lead to a possible black swan event in the Korean peninsula.
    Q. Is there a “learning effect” relating to North Korean risk?
    The prevailing school of thought among Korean analysts assume that North Korea’s future provocations are “known, known” variables. But I disagree. Given the extremely unprecedented nature of the DPRK leadership (eg, background, age, lack of military experience, third-generation of the Kim clan, etc), it is dangerous to assume that future events by North Korea will mirror those in the past. This is akin to driving a car forward using one’s rearview mirror.
    Q. What are your suggestions for markets to prepare for a possible black swan event?
    In the unlikely but possible chance of a black swan event in the Korean peninsula, financial markets in and around Korea will fall in the short run, perhaps in free fall fashion, depending on the severity of such black swan event. But assuming that such event will be resolved, there is likely to be buying opportunities when such markets go south. At the same time, to hedge against further downside risk during a possible black swan event, contingency exit plans must be executed. Upon the occurrence of a black swan event when markets enter into negative territory, the US, China, and Japan each and collectively have a vested self interest in supporting South Korea’s capital markets. Such support can come in various forms, including lines of credit (LOCs), swap agreements, and/or unified and consistent public statements from relevant institutions that the US, China, and Japan will provide adequate liquidity as needed and appropriate to South Korea. Such clear yet succinct statement will be something that financial players and traders will understand, thus instilling market confidence back to the South Korean markets.
    Q. You take the position that information, such as the internet, can transform North Korea from within?
    Yes, soft power such as information about the outside world and how the outside world views North Korea’s economic and political conditions could be pivotal to create a desire for change from within North Korea, which I have written about in a recent WSJ Korea Real Time piece.

    <인터뷰>제스퍼 김 이대교수, “北 블랙스완 리스크 경계해야”
    금융시장일반, 펀드 [2013/04/22 10:30 01]
    (서울=연합인포맥스) 태문영 기자 = “블랙 스완(Black Swan)은 (한국에) 군사적으
    로나 경제적으로 엄청난 피해를 줄 것이다. 금융시장에도 전염 효과를 낼 것이다. 아
    무도 도발에 대한 정의를 내릴 수 없다. 만약 총알 한 발 때문에 세계 1차대전이 발발
    했다면, 두 번째 한국전쟁이 일어날 가능성도 존재한다.”
    제스퍼 김 이화여자대학교 국제대학원 교수는 22일 연합인포맥스와의 인터뷰에서
    남북 간의 관계를 블랙 스완에 빗대어 설명했다.
    최근 개성공단 폐쇄와 북한의 도발 위협으로 남북관계는 위기를 맞았다.
    긴장 상태가 악화하면서 한반도의 지정학적 리스크가 재부각됐지만, 이전과 같이
    남북의 무력 충돌까지 치닫지는 않을 것이라는 전망이 아직은 많다,
    그러나 전혀 예상치 못했던 돌발변수가 발생하는 ‘블랙 스완’ 이벤트로 남북이 충
    돌할지도 모른다는 경고도 제기되고 있다.
    제스퍼 김 교수는 이와 관련해 북한 리스크로 촉발될 수 있는 블랙 스완 이벤트를
    경계해야만 하며 이 가능성을 리스크 관리 전략에서 고려할 사항에 넣어야 한다고 설
    김 교수는 (북한 관련) 상황을 모두 파악했다고 과신해서는 안 된다고 지적했다.
    그는 금융시장에서 예상치 못한 상황에 대비해 포트폴리오의 일정 부분을 헤지하는
    것이 중요하다고 강조했다. 또 심리에 좌우되는 금융시장에서 블랙 스완이 발생했을
    때 위기를 최소화하려면 한국과 주변국이 시장에 대한 신뢰를 보여줘야 한다고 진단
    다음은 제스퍼 김 교수와의 일문일답.
    – 북한이 개성공단을 포기한 이유와 그 주도 세력은.
    ▲ 남북관계는 군사와 외교, 경제 등 여러 차원(dimension)이 있는 체스판과 같다. 개성공단 문제는 새로운 차원이 추가된 것이다. 공단 폐쇄는 남북한 모두가 잃는 게 많은 루즈-루즈(lose-lose) 상황이다.
    공단 폐쇄 이유는 여러 가지다. 먼저 김정은 국방위 제1위원장의 지정학적 전략 계산에 근거한다. 개성공단에서 벌어들이는 외화와 일자리를 포기하는 대신 장기적으로 더 큰 뭔가를 얻어내기 위함이다. 미래의 편익이 개성공단 폐쇄에 따른 단기 손실을 상쇄하고도 남을 것이라는데 베팅한 것이다. 둘째로 김정은이 직접 선택한 것이 아니라 체제 내 파벌, 즉 군부의 명령에서 비롯됐을 가능성이 있다. 경제적 차원의 문제인 개성공단 폐쇄를 원한 군부의 저의는 긴장을 악화시켜 군이 영향력을 행사하도록 한다는 것이다.
    – 김정은이 군부에 우위를 점하고 있지 않다고 보나.
    ▲ 김정은은 무엇보다도 국내 청중, 즉 군부의 호감을 사야 한다. 북한의 위협 수위가 높아졌다는 점은 체제 내 갈등과 직접적인 관련이 있을 수 있다. 김정은이 정권을 잡은 지 1년이 약간 지났는데 지도부에 많은 변화가 있었다. 새로운 지도자가 들어섰기 때문에 자연스러운 현상으로 볼 수 있지만, 달리 보면 꽤 많은 일이 진행될지도 모른다는 점이 우려다. 우리는 이를 알아낼 수 없다는 점만을 인지할 뿐이다. 각 가능성이 좋지는 않다.
    김정은이 더 개방된 사회와 근대화를 원한다고 보나, 그전에 군부에 호소해야 한다. 따라서 그는 최소한 초기에 강경한 정도가 아니라 초강경한 태도를 보여야 한다. 자신이 초 애국적임을 군부에 증명해야 하기 때문이다. 또 너무 어린 나이를 벌충할 수 있어야 한다. 한국 문화나 정서상 나이가 갖는 의미는 크다.
    김정은은 근대화를 위해 쏟는 노력 그 이상을 군부에 기울여야 한다. 그렇지 않으면 그는 나약해 보이고 친미주의적으로 비칠 것이며, 그 순간 말로를 맞을 것이다. 따라서 그는 극도로 반미주의적 성향을 보여 그런 평가를 떨쳐내야 한다.
    – 블랙 스완 이벤트가 북한 군부 상층이 아니라 하층에서 발생할 수 있다는 지적이 있다.
    ▲ 블랙 스완은 군사적으로나 경제적으로나 엄청난 피해를 줄 것이며, 금융시장은 급락하면서 또 다른 전염 효과를 낼 것이다. 블랙 스완은 상하 모든 계층에서 일어날 수 있다.
    아무도 도발에 대한 정의를 내릴 수 없다. 미국과 남한 모두 도발에 대한 정의를 내리고 사례를 세우고자 했지만, 이는 이성적인 발상이다. 비무장지대(DMZ)에서 이성적인 행동만이 나오지는 않는다. DMZ에서 지치고 겁에 질린 사람들이 예기치 않은 총격을 유발할 수 있다. 만약 총알 한 발 때문에 세계 1차대전이 발발했다면, 두 번째 한국전쟁이 일어날 가능성도 존재한다.
    – 블랙 스완이 발생한다는 신호나 징조는 없나.
    ▲ 신호가 있겠지만, ‘과거에도 있었던 일이며 평소와 다름없다’고 해석된다.
    하지만, 일각에서는 과거의 패턴이 반복된다기보다는 새로운 패턴이 시작된다고 인식하며 전과 다른 계획을 세운다.
    대부분은 북한의 도발이 과거와 비슷하다고 판단할 것이다. 도발 후 수위가 높아지다 요구가 드러나고 상황이 진정되는 식이다.
    일부는 상황이 조금 달라졌다고 본다. 북한을 대표하는 지도자는 완전히 새로운 인물이다. 그는 알려지지 않은 ‘재화(commodity)’다. 어린데다 경험도 적고 외국에서 교육을 받았다. 그가 고위 군부 대신 권력을 쥔 유일한 이유는 성(姓) 때문이다. 김정은이 지도자가 되면서 북한 개방에 도움이 될 것이라는 시각이 있지만, 오히려 그 반대가 될 수 있다고 생각한다. 김정은의 자질이 고위 군부에 약점으로 인식되는 경우다. 김일성 세대에서 멀어지면서 이번 지도자를 어떻게 이해할지 모르겠다는 평가가 나올 리스크가 커진다.
    – 북한 리스크에서 학습효과가 있다고 보나.
    ▲ 김정은의 정권 장악 이후 학습효과가 약간 없어졌다고 본다. 그가 어떤 시각을 가지고 있으며 무엇을 원하고 이를 어떻게 성취할지 아무도 정확히 모른다. 그 자신도 이제 막 권력을 잡았기 때문에 잘 모를 수 있다. 그는 군부에 통솔력을 증명해야 하며, 이것이 그가 초강경 발언을 쏟아내는 이유다.
    다음 도발이 언제 어떻게 발생할지 모르기 때문에 앞으로도 북한의 행보에 그때그때 일일이 대응해야만 하며, 같은 도발이 있다 해도 상황이 달라질 수 있다. 대응 절차를 세우기가 매우 어려울 것이다. 도발의 정의는 과거 사례를 기반으로 했기 때문이다.
    – 블랙 스완에 대한 대응에 대해 설명해달라.
    ▲ 누구도 블랙 스완이 발생하길 원하지 않는다. 단지 리스크 관리를 위한 계산에 블랙 스완이 고려돼야 한다고 생각한다.
    미국 주택시장 거품이 붕괴하기 전 위기 가능성을 경고한 사람들은 비이성적이라는 평가를 받았지만, 2008년 이들은 갑자기 천재가 됐다. 통념과 반대되는 생각이 언제나 가장 대중적인 생각은 아니다.
    한반도의 평화는 유지돼야 한다. 다만, 일어날 가능성이 매우 작은 상황이 발생했을 때를 대비한 비상계획이 있어야 한다.
    비상계획은 블랙 스완 발생 전후를 모두 아우른다. 이벤트 발생 시 그 여파를 완화하고 사후에는 또 블랙 스완이 나타나기 전에 방어를 위해 쓸 수 있는 수단을 제시하는 것이다.
    예를 들어 금융시장에서 북한 관련 블랙 스완이 발생할 것으로 생각한다면, 국채에 대한 풋옵션이나 신용부도스와프(CDS) 등의 수단을 써서 포트폴리오 전체가 아니라 일부분만 헤지해놓으면 된다.
    – 금융시장이 쓸 수 있는 다른 전략이 있다면.
    ▲ 가격이 하락하면 한국 금융시장이 평가절하되므로 중장기적으로 저가매수 기회가 생길 것이다. 그러나 블랙 스완이 발생했을 때 유일한 방법은 시장에서 탈출이다. 그러나 미국이나 일본, 중국 등 주변국이 크레디트라인이나 외환 스와프를 체결하는 등 한국의 유동성을 지지한다는 짧은 발언을 하는 게 유일한 방법이다. 특히 G2 국가가 중요하다. 금융시장은 심리와 신뢰를 기반으로 한다. 중국과 미국은 신용을 지지할 수 있다. 신뢰가 있다면 시장은 리스크를 저가매수기회로 여길 것이나, 그 반대라면 시장은 바닥을 형성하지 못하고 떨어질 것이다. 다른 국가들이 유동성을 공급한다는 발언으로 한국시장에서 시장 변동을 막지 못한다면 그 여파는 전 세계로 퍼져 모두에게 영향을 줄 것이다. 이런 상황은 아무도 원하지 않는다. 따라서 한국에 도움과 지지를 보내는 일이 모두의 이익에도 맞는다.
    모든 것이 시장에 영향을 미칠 수 있기 때문에 그 어떤 것이라도 블랙 스완이 될 수 있다. 하지만, 금융 시장에서 좋은 점은 리스크를 관리할 헤지가 가능하다는 것이다. 따라서 금융시장에 대한 믿음이 있다. 다만, 모든 가능성을 파악했다고 자만하는 순간 추락해버릴 것이다.
    – 미국이 대화 의지를 보였고 북한은 먼저 사과를 요구했다.
    ▲ 신경전이 계속되나, 이견이 조금씩 좁혀지고 있다. 적어도 아예 대화를 거부하진 않았으니 긍정적이라고 본다. 양측 모두 유연성을 발휘할 여지가 있다. 시간이 지나면서 북한과 미국은 직간접적으로 대화할 것으로 생각한다.
    중국과 미국 북한의 ‘G3’ 회담이 효과적이라 본다. 기존 6자회담 참가자는 너무 많다. 북한이 양자회담을, 다른 국가와 6자회담을 원한다면 3자회담이 타협점이라 생각한다. 대화를 통해 서로 이해관계를 확인하는 것이다. 가장 중요한 것은 신뢰다. 6자회담은 이제 너무 형식적이어서 원조를 받을 수는 있어도 신뢰를 쌓을 여지가 매우 작다. G3에서라면 원조와 신뢰 모두를 얻을 수 있다. 신뢰와 신용이 없다면 금융시장에도 도움이 되지 않을 것이며 지정학적으로도 부정적이다.
    대북 정책에서 성과를 기반으로 한 관계 형성이 괜찮은 대안이라 생각한다. 북한이 특정 기준을 충족하거나 목적을 달성하고 나서 이를 증명하면 더 많은 지원을 약속하면서 한 단계씩 나아가는 것이다. 기본급에 성과급을 더해주는 것과 비슷하다.
    – 북한에 정보의 자유로운 이용이 필요하다고 언급한 바 있다. 실현 가능하다 보는지.
    ▲ 가능하다고 본다. 이미 한국 매체에 대한 암시장이 형성돼 있고 북한 내부에는 인터넷과 휴대전화가 있다. 주민들이 외국 정치권에서 하는 말은 선전이라 생각해 믿지 않지만, 보고 듣는 한국 비디오와 음악은 믿을 수 있다. 이를 원하는 주민들 때문에 티핑 포인트(tipping point)가 발생하면 모든 게 급격하게 바뀔 수 있다.
    소프트 파워(soft power)가 (북한을) 움직일 것이다. 문화와 정보, 이에 대한 갈구가 외교보다 더 큰 힘을 발휘할 수 있다.
    – 경제적 원조보다 영향력이 클지.
    ▲ 개성공단 문제만 봐도 알 수 있다. 개성공단으로 어떤 효과를 거뒀다고 확신하기 어렵다. 북한과 남한 근로자들이 함께 일한다면 이론상으로는 서로 더 가까워지고 극적인 효과가 있어야 하나 그렇다는 이야기를 듣지 못했다. 경제 개혁은 긍정적이나, 남북관계에서 기대만큼 게임체인저(game changer)는 아니다.
    – 북한 리스크 이외에 ‘코리아 디스카운트(Korea Discount)’ 요소가 있다면?
    ▲ 대부분 기업 경영구조와 관련한 것이긴 하나, 많은 진전이 있었다. 또 일본과 중국이라는 두 강대국 사이에 있기 때문에 영토 분쟁 리스크 요인이 있다. 이 역시 블랙 스완이 될 수 있다. 하지만 ‘코리아 디스카운트’는 대부분 북한과 관련한 것이다.