By Kim Junghyun and Jon Herskovitz SEOUL, Dec 19 (Reuters) - North Korea's broken economy faces further hardship after foreign powers called for a halt in aid to punish Pyongyang for not living up to a disarmament deal, a defector who specialises in the North's economy said on Friday. Last week, the United States said the energy-starved North would see a suspension of shipments in heavy fuel oil because it would not agree to a system to check claims it made about its nuclear programme as called for in the disarmament-for-aid deal. "This creates a vicious circle," Cho Myung-chul, with the Korea Institute for International Economic Policy, told Reuters in an interview. "The cut in aid means less money to use in other sectors and less industrial production, which inevitably means a further deterioration in the lives of people who already have little." North Korea stands to lose out on about half of the 1 million tonnes in heavy fuel oil that has yet to be shipped to it as a part of the deal it reached with five regional powers. Cho, an academic in the North who came to the South about 15 years ago, said North Korea needs about 3.5 to 4 million tonnes of fuel stocks a year to keep about half its factories running and achieve output equal to what it reached in the 1980s. North Korea's economy is weaker now than it was 20 years ago, according to estimates by the South's central bank, which said the North's gross domestic product in 2007 was about $20 billion, a figure less than 3 percent of the South's economy. North Korea has also cut ties with the South, once a major donor of aid, in anger at the policies of its president, who came to office in February vowing to take a hard line with Pyongyang. With the loss of aid, North Korea has been seeking foreign investment. It received a boost in October when the United States took it off a terrorism blacklist and removed some trade sanctions in return for previous progress it made in disarmament. "There won't be any immediate effect unless North Korea improves its image in the international arena and shows greater openness," Cho said. "However, with the removal, the North now has more items that it can trade, for instance with China." Cho said most investors see the North as too risky but there are a few companies willing to take a chance in the reclusive state, such as Egypt's Orascom Telecom <ORTE.CA><ORTEq.L>, which this week started a mobile phone service in the North. Other analysts said mobile phones present a problem for North Korea, one of the world's most closed countries, because they offer a means of communication that may escape its large internal spy network. North Korea banned mobile phones in 2004 and analysts said it would place strict limits on who can now receive a handset. Mobile phones are seen as potentially destabilising because they could help spread rumours about the health of unquestioned leader Kim Jong-il, whose suspected stroke in August raised questions about leadership in Asia's only communist dynasty. (Writing by Jon Herskovitz, Editing by Dean Yates)
A rescuer prepares to go down Guaziyan coal mine where a gas blast occurred in Lianyuan, Hunan province December 18, 2008. Eighteen miners were trapped after a coal mine blast on ...
Korea (South)
