Experts: NKorea training teams of 'cyber warriors'

SEOUL, South Korea (AP) — Investigators have yet to pinpoint the culprit behind a synchronized cyberattack in South Korea last week. But in Seoul, the focus remains fixed on North Korea, where South Korean security experts say Pyongyang has been training a team of computer-savvy "cyber warriors" as cyberspace becomes a fertile battleground in the standoff between the two Koreas.

Malware shut down 32,000 computers and servers at three major South Korean TV networks and three banks last Wednesday, disrupting communications and banking businesses, officials said. The investigation into who planted the malware could take weeks or even months.

South Korean investigators have produced no proof yet that North Korea was behind the cyberattack, and on Friday said the malware was traced to a Seoul computer. But South Korea has pointed the finger at Pyongyang in six cyberattacks since 2009, even creating a cyber security command center in Seoul to protect the Internet-dependent country from hackers from the North.

It may seem unlikely that impoverished North Korea, with one of the most restrictive Internet policies in the world, would have the ability to threaten affluent South Korea, a country considered a global leader in telecommunications. The average yearly income in North Korea was just $1,190 per person in 2011 — just a fraction of the average yearly income of $22,200 for South Koreans that same year, according to the Bank of Korea in Seoul.

But over the past several years, North Korea has poured money and resources into science and technology. In December, scientists succeeded in launching a satellite into space aboard a long-range rocket from its own soil. And in February, North Korea conducted an underground nuclear test, its third.

"IT" has become a buzzword in North Korea, which has developed its own operating system called Red Star. The regime also encouraged a passion for gadgets among its elite, introducing a Chinese-made tablet computer for the North Korean market. Teams of developers came up with software for everything from composing music to learning how to cook.

But South Korea and the U.S. believe North Korea also has thousands of hackers trained by the state to carry its warfare into cyberspace, and that their cyber offensive skills are as good as or better than their counterparts in China and South Korea.

"The newest addition to the North Korean asymmetric arsenal is a growing cyber warfare capability," James Thurman, commander of the U.S. forces in South Korea, told U.S. legislators in March 2012. "North Korea employs sophisticated computer hackers trained to launch cyber-infiltration and cyber-attacks" against South Korea and the U.S.

In 2010, Won Sei-hoon, then chief of South Korea's National Intelligence Service, put the number of professional hackers in North Korea's cyber warfare unit at 1,000.

North Korean students are recruited to the nation's top science schools to become "cyber warriors," said Kim Heung-kwang, who said he trained future hackers at a university in the industrial North Korean city of Hamhung for two decades before defecting in 2003. He said future hackers also are sent to study abroad in China and Russia.

In 2009, then-leader Kim Jong Il ordered Pyongyang's "cyber command" expanded to 3,000 hackers, he said, citing a North Korean government document that he said he obtained that year. The veracity of the document could not be independently confirmed.

Kim Heung-kwang, who has lived in Seoul since 2004, speculated that more have been recruited since then, and said some are based in China to infiltrate networks abroad.

What is clear is that "North Korea has a capacity to send malware to personal computers, servers or networks and to launch DDOS-type attacks," he said. "Their targets are the United States and South Korea."

Expanding its warfare into cyberspace by developing malicious computer codes is cheaper and faster for North Korean than building nuclear devices or other weapons of mass destructions. The online world allows for anonymity because it is easy to fabricate IP addresses and destroy the evidence leading back to the hackers, according to C. Matthew Curtin, founder of Interhack Corp.

Thurman said cyberattacks are "ideal" for North Korea because they can take place relatively anonymously. He said cyberattacks have been waged against military, governmental, educational and commercial institutions.

North Korean officials have not acknowledged allegations that computer experts are trained as hackers, and have refuted many of the cyberattack accusations. Pyongyang has not commented on the most recent widespread attack in South Korea.

In June 2012, a seven-month investigation into a hacking incident that disabled news production system at the South Korean newspaper JoongAng Ilbo led to North Korea's government telecommunications center, South Korean officials said.

In South Korea, the economy, commerce and every aspect of daily life is deeply dependent on the Internet, making it ripe grounds for a disruptive cyberattack.

In North Korea, in contrast, is just now getting online. Businesses are starting to use online banking services and debit cards have grown in popularity. But only a sliver of the population has access to the global Internet, meaning an Internet outage last week — which Pyongyang blamed on hackers from Seoul and Washington — had little bearing on most North Koreans.

"North Korea has nothing to lose in a cyber battle," said Kim Seeongjoo, a professor at Seoul-based Korea University's Department of Cyber Defense. "Even if North Korea turns out to be the attacker behind the broadcasters' hacking, there is no target for South Korean retaliation."

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Associated Press writer Jean H. Lee contributed to this story with reporting from Pyongyang, North Korea; Hyung-jin Kim in Seoul also contributed to this report. Follow AP tech writer Youkyung Lee at www.twittter.com/YKLeeAP and AP Korea bureau chief Jean H. Lee at www.twitter.com/newsjean.

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Analysis: Experts see risks from Canada's fixation on balanced budget

By Louise Egan

OTTAWA (Reuters) - The government's steely determination to balance Canada's budget by 2015 could brake an economy that is already showing signs of strain, as Ottawa seeks to rebuild a reputation for prudence that made it the envy of the industrialized world.

The 2013-14 federal budget, due later this month, is set to reinforce the government's message that the deficit will be eliminated by 2015, an election year, and it will include what Finance Minister Jim Flaherty called "more sacrifices" from various ministries in the form of spending cuts.

But not everyone agrees that the tough fiscal targets make economic sense, given that Canada just recorded the weakest two quarters of economic growth since the 2008-09 recession.

"I don't think there are any economists that are particularly concerned about the deficit at this point," said David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives (CCPA), an Ottawa-based think tank.

The Parliamentary budget officer, which provides independent analysis of the nation's finances, estimates spending cuts will shave about 0.6 percent from GDP this year, 0.9 percent next year and 1 percent or more in 2015 and beyond.

"This is like the minister standing up and saying: 'my plan for the economy is to cut growth by a third.' That's something no minister would ever say but that's in fact what is happening," said Macdonald.

Canada, once dismissed as a high-debt basket case, spent years between 1994 and 1997 taming its federal budget deficit, and winning a global reputation as prudent fiscal managers with a top-tier rating.

But the Conservative government allowed the surplus to turn to deficit as the recession hit, adding big spending programs to previously announced tax cuts to stimulate the economy.

Ministers now say its time to turn that pattern round again.

"If you don't set targets like that based on your original processes, you'll never reach a target," Tony Clement, the minister who oversees departmental spending, said in an interview with Reuters on Monday.

Asked if the government was perhaps trying to balance the books too soon, he replied: "We've shown fiscal probity that is all too rare with advanced, industrialized economies, so I think we are the poster child in the G7 and the G20 ... that other countries would do well to emulate."

The renewed penny-pinching push comes as consumers have hit a debt wall, businesses are too scared to invest and exports have yet to recover their pre-crisis levels due to weak global demand. The Bank of Canada has made it clear it will not cut interest rates to stimulate the economy, leaving fiscal policy as the only other tool to boost growth.

Yet one business leader who has met several times with finance officials in pre-budget consultations said he was hearing that the minister won't bend on the 2015 target.

Flaherty has blamed a price discount on Canadian oil for a "significant" hit to federal revenues and said he would have to compensate by focusing "like a laser" on spending and closing some tax loopholes.

The main opposition party, the New Democrats, accuses Prime Minister Stephen Harper of trying to please his small-government, conservative base and make fiscal room to offer new goodies the next time they go to the polls in October 2015.

"Austerity can be a job killer and a growth killer," said NDP legislator Peggy Nash.

In the May 2011 election, Harper promised a tax cut for families with children by allowing the higher earner to split some of his or her income with a spouse, and a higher ceiling on tax-free savings accounts, costly measures that will take effect only after the budget is balanced.

Ottawa expects the 2012-13 federal budget deficit to be C$26 billion, or about 1.5 percent of gross domestic product, falling to C$13.5 billion in 2013-14.

That is trivial compared to the U.S. or U.K. deficits of about 5 and 7 percent of GDP, respectively, although Canada's numbers are less flattering when provincial government debt is included.

Even if the government increased spending substantially and ran a deficit next year twice the amount forecast, as proposed by Macdonald and his colleagues, the debt-to-GDP would decline to 31 percent in 2015-16 from the current 33 percent.

Canada would still have the best debt position in the Group of Seven advanced economies.

Chief economists from Canada's largest commercial banks said last week that bond markets and rating agencies don't mind if the fiscal gap is closed in 2015 or a couple of years later.

"Given the fact that a lot of the provinces are moving into pretty serious restraint, it would probably be unwise for the federal government to step on the brake further than they already have," said Doug Porter, chief economist at Bank of Montreal.

But even as the federal government pushes ahead with plans to cut spending, cities are hoping for extra cash for infrastructure like roads, bridges and public buildings, arguing that Ottawa should take advantage of current low interest rates.

"We've been very encouraged and are hopeful with regards to the outcomes on budget day," said Karen Leibovici, president of the Federation of Canadian Municipalities (FCM), which lobbies on behalf of cities.

The FCM is seeking an additional C$2.75 billion in infrastructure spending, which would bring it in line with investment seen in the 1980s and 1990s in percentage of GDP.

Flaherty says will be revealed on budget day, the date of which is likely to be announced in the coming days.

(Additional reporting by Euan Rocha and Janet Guttsman in Toronto; Editing by Diane Craft)

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