Archive for the ‘South Korea’ Category

The North Korean economy is doing badly, but keep some perspective

Tuesday, June 23rd, 2020

By: Benjamin Katzeff Silberstein

Sanctions and Covid-19 have fused together to put the North Korean economy in what can only reasonably be described as an awful situation. Trade first plummeted through sanctions, and then even further because of North Korea’s and China’s anti-Covid19 measures. And the fall continues, as these figures in Hankyoreh show:

Figures from the Korea International Trade Association (KITA) and Chinese customs authorities reviewed on June 18 show a major drop in the value of North Korean goods being exported to the Chinese market: US$10.7 million in January and February (-71.7% year on year), US$600,000 in March (-96.2%), and US$2.2 million in April (-90%). The value of North Korean exports to China, which stood at US$2.63 billion in 2016, has fallen since economic sanctions were toughened, decreasing to US$1.65 billion (-37.3%) in 2017 and US$195 million in 2018 (-88.2%). Exports rebounded in 2019, to US$285 million, but that was still less than a tenth of the value of exports in 2016.

But how bad are things?

Bloomberg ran an article yesterday with the angle that the North Korean economy is the “worst” in two decades, and that this is why the country is lashing out against South Korea with renewed vigor. To support the former claim, it cites figures claiming that the country’s economy will contract by a total of 6 percent this year due to the combination of sanctions and Covid-19.

But how reasonable is this take?

There is no doubting that things are bad, but some context is badly needed. One of course cannot equate an economic contraction with the overall situation. (Never mind that any number on this will be qualified guesswork at best.) A contraction is only the economy shrinking, and it means nothing if we don’t know what the starting point is. In 1997, North Korea was perhaps at the height of a devastating famine, after the economy crumbled following the collapse of the Soviet Union, and China vastly scaling back support.

Today, North Korea may be in an economic crisis of sorts. But it entered it on the back of several years of steadily increasing exports to China. These exports, in fact, grew by more than a factor of ten between 1998 and the record year of 2013. So the situation is so different that a comparison is hardly meaningful.

This is also true for the food situation. According to numbers from the World Food Program and the Food and Agriculture Organization, whose data is questionable but highly valuable, food production stood at 3.3 million tonnes in 2008, not an unusually low figure for the time. Contrast this with the projection that this year’s harvest will be 4.6 million tonnes. Not great, lower than it should be, lower than a few years ago, yes. But still not nearly the level of the disaster years.

Also, it is crucial to remember that even in ordinary times, a not insignificant proportion of trade with China occurs off the books. Throw an increasingly lower Chinese sense of caring what the US thinks about its sanctions implementation into the mix and you’ve got, well, likely a lot more trade happening under the radar. This is what news reports from inside North Korea have been saying for quite a while.

Not that things aren’t bad, or that North Korea’s recent actions have to do with sanctions (they almost certainly do). But don’t forget about context or proportions.

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Defectors matter for the North Korean economy

Monday, June 22nd, 2020

By: Benjamin Katzeff Silberstein

Over the past few days, the North Korean government has staged protests against the defector leaflets that have caused so much rumble lately. Or, perhaps more accurately, have been used as a convenient excuse for the North Korean government to ratchet things up. In any case. It need hardly be mentioned that these so-called protests are not necessarily reflective of any broader sentiments among the general public.

But this Radio Free Asia article highlights an interesting point, namely that for many North Koreans, remittances from family members abroad constitutes a significant source of income. It’s not really just a matter of individual families, either. Sums are high enough that they likely make a not insignificant contribution to the national economy as a whole. Remittances play a significant role for the economy in several impoverished countries, and channeled the right way, they could for economic development in North Korea too.

Some in the North in fact envy families with members in the South because they send cash remittances back home, sources in the country said.

“Even though the party is organizing a series of mass rallies to denounce the defectors, the people are envious of the defectors’ families,” a resident of North Hamgyong province, who requested anonymity for security reasons, told RFA’s Korean Service recently.

“Residents are being made to shout out slogans to condemn the defectors, but after the rally is over it sure is hard to find anyone saying bad things about defectors on their own,” the source said.

“This is because the families around us [with a member who] defected are living well despite the difficulties of the national economy,” the source added.

Most of those who send balloons to the North are called “defectors” in both Koreas, who remain in a formal state of war long after the Cold War ended elsewhere.

But rights groups draw a distinction between defectors, who fled the North as government or military officials, and refugees — ordinary citizens who escaped poverty or hunger in the region’s poorest country.

North Korea’s belligerent turn this month is seen by Pyongyang watchers as calculated to extract diplomatic or economic concessions from Seoul and Washington in a well-established pattern of crisis escalation.

Smuggling cash through China

However the international reaction plays out, inside the country, the government’s break with a longstanding policy of ignoring or playing down discussion of exiles in the South is making more ordinary North Koreans think about them.

“The more the party strengthens class-consciousness education against defectors and denounces them, the more that residents show the exact opposite reaction,” another source, a resident of Ryanggang province who requested anonymity to speak freely, told RFA.

“They continue to hold rallies against defectors, so there is a growing interest in the freedom enjoyed by the defectors who have settled in South Korea,” the second source said.

The exiles send money to their relatives in the North through intermediaries in China, who take a cut for arranging the smuggling of cash, usually Chinese yuan or U.S. dollars, across the porous Sino-North Korean border.

North Korean refugees in South Korea face social discrimination and many struggle economically as they are less competitive in South Korea’s cutthroat job market. But 62 percent of them sent money to friends and relatives in the North in 2018, according to a survey by a rights group.

The Database Center for North Korean Human Rights, which interviewed 414 North Koreans in the South, found most forwarded $500-2,000 a year – significant sums where an official salary is worth about $5 a month.

According to South Korea’s Ministry of Unification, 32,000 North Koreans have settled in South Korea since 1998, including 1,047 last year.

The North Hamgyong source said that residents are complaining about having to attend rallies denouncing defectors.

“The people gripe about fatigue and they are discontent with the authorities’ ongoing rallies.

“They are critical of the authorities for focusing only on promoting the greatness of the Highest Dignity and creating a crisis against South Korea without solving the food problem that has befallen many residents at this difficult time,” the source said.  The Highest Dignity is an honorific term for Kim Jong Un.

(Source: Jieun Kim, Leejin Jun, Eugene Whong, “Official North Korean Fury at Defectors Belies Popular Envy of Remittances From Exiles,” Radio Free Asia, June 19th, 2020.)

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Seoul wires $8 million to North Korea in humanitarian aid

Tuesday, June 11th, 2019

Benjamin Katzeff Silberstein

Note: this is not a lot of money in context. It covers only a small part of what WFP and others estimate as the funding need.

Yonhap:

South Korea on Tuesday sent a pledged donation of US$8 million to U.N. agencies to support their efforts to provide assistance to North Korean women and children in need, the unification ministry said.

Last week, the Seoul government endorsed the donation plan for the World Food Programme (WFP) and the U.N. Children’s Fund (UNICEF) for their projects to support the nutrition of children and pregnant women in North Korea and address their health problems.

Of the total, $4.5 million was allocated to the WFP and the remainder to UNICEF.

The money was remitted to the agencies Tuesday afternoon, according to the unification ministry.

A ministry official said earlier in the day that it will take more time before the money will be actually spent on the agencies’ projects in North Korea, adding that they are working on reducing the time before its implementation in consideration of the urgent need of many North Korean people.

Article source:
Seoul wires promised money to U.N. agencies for N.K. projects
Yonhap News
2019-06-11

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North Korea has skipped Kaesong liaison office meetings for eight weeks

Thursday, April 18th, 2019

Benjamin Katzeff Silberstein

Reports Yonhap:

North Korea skipped a weekly meeting of the co-chiefs of an inter-Korean liaison office for the eighth straight week on Friday, deepening concerns about slumping cross-border exchanges amid stalled denuclearization negotiations between the U.S. and the North.

“North Korea informed us in advance that the North’s office head could not attend this week’s meeting,” unification ministry spokesman Lee Sang-min told a regular press briefing. “The meeting will not be held (this week), but the two Koreas continue to discuss necessary matters in a normal manner.”

When the two Koreas launched the liaison office last September in the North’s border town of Kaesong, they promised to hold a meeting of its co-heads — Vice Unification Minister Chun Hae-sung on the South side and his North Korean counterpart Jon Jong-su — every week, mostly on Fridays, to discuss cross-border issues.

The weekly meeting has not been held since before the Hanoi summit between North Korean leader Kim Jong-un and U.S. President Donald Trump, which ended without a deal due to differences over how to match Pyongyang’s denuclearization steps with Washington’s sanctions relief. It was last held on Feb. 22.

Full article:
N. Korea skips meeting of liaison office chiefs for 8 straight weeks
Yonhap News
2019-04-19

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North Korea’s economic situation, going into Hanoi: a roundup of the data

Thursday, February 21st, 2019

By Benjamin Katzeff Silberstein

The Hanoi summit is under a week away, Daily NK recently put out new market price data, and I’ve finally had time to update my dataset. There seems like no better time than the present to take a look at some of the numbers we have available for the North Korean economy, thanks to outlets such as Daily NK and Asia Press/Rimjingang.

Currency

Let’s start with the exchange rate. A few weeks ago, the (North Korean) won depreciated quite significantly against the USD, which I wrote about here. At 8,500 won/1usd, the USD-exchange rate on the markets hit its highest point since the inception of “maximum pressure”. The graph below is shows the average market exchange rate in three North Korean cities for won-to-USD.

Graph 1. Average won-USD exchange rate on markets in three North Korean cities, spring of 2017–February 2019. Data source: Daily NK.

As the graph shows, the won rebounded somewhat after the initial spike in early January. According to the latest data point, the exchange rate stands at 8190 won, still somewhat higher than the average for the period, 8136, but barely.

What could have caused this spike? One possibility is that the government has started to soak up more foreign currency from the market, because the state’s foreign currency coffers are waning. After all, given the vast trade deficit, the continued necessity of spending hard currency on things like fuel (bought at higher prices through illicit channels to a greater extent) and other factors, it would make a great deal of sense. Currencies fluctuate all over the globe, sometimes based even on loose rumors that fuel expectations. One anonymous reader who often travels to North Korea for work heard from Korean colleagues that accounting conditions for firms had gotten stricter, likely because the government wants to be able to source more foreign currency from the general public.

It is also noteworthy that while the Daily NK price index reports that the USD-exchange rate has gone back to more normal levels, the Rimjingang index remains at very high levels. Its latest report (February 8th) has the USD at 8,500, and on January  10th, it registered 8,743 won, a remarkably high figure that the Daily NK index hasn’t been near since early 2015. The difference between the two may simple come from the figures being sourced from different regions, or the like. North Korea’s markets still hold a great deal of opportunity for arbitrage, not least because of the country’s poor infrastructure.

So, it does seem like there may be some unusual pressure on the won against the dollar. What it comes from is less clear, but the state demanding more hard currency from the semi-private sector and others may be one important factor. In any case, we shouldn’t be surprised if the trend continues, unless sanctions ease soon.

At the same time, while the RMB has appreciated against the won over the past few weeks, it hasn’t really gone outside the span of what’s been normal over the past few years.

Graph 2. Average exchange rate for won to RMB, average of three North Korean cities, late 2015–early 2019. Data source: Daily NK.

The average exchange rate for RMB since the start of Daily NK’s data series in late 2015 is 1228 won. The latest available observation gives 1241 won/RMB, and the RMB has appreciated against the won over the past few weeks. The Rimjingang data, here, too, gives a higher FX-rate for RMB than Daily NK, at 1250 won. Their index, too, shows the FX-rate for RMB going up over the past few weeks, but not to levels out of the ordinary. Still, if the won continues to depreciate against both the dollar and the RMB, it may be a sign of a more persistent foreign currency shortage.

Food prices

Rice prices remain as stabile as ever, in fact, even more so than this time last year. They continue to hoover between 4,500–5,000, with the latest observation being at 4,783.

Graph 3. Average rice price for three North Korean cities, spring of 2017–early 2019. Data source: Daily NK.

This should not necessarily be taken to mean that North Korea’s current food situation is not problematic. Even with increasing harvests in the past few years, it’s always been fragile. The past year’s drought reportedly took a toll on the harvest. Though market prices aren’t suggestive of any shortages as of yet, that could change in the months ahead. The latest harvest was likely lower than those of several previous years and difficulties in importing fertilizer may have contributed, but the dry weather was the main factor.

Even with a slightly lower harvest than in previous years, it seems that structural changes in agricultural management has improved agricultural productivity to such an extent that food safety isn’t severely threatened even with a reduced harvest.

Gasoline

Gas prices appear to have stabilized around a sanctions equilibrium, of sorts, since a few months back. The past year hasn’t seen any spikes near those of the winter in 2017, when prices went above 25,000 won per kg. For the past year, the price has mostly hovered between 13,000 and 15,000 won per kg. The last observation available from Daily NK, is at 15,200 won per kg. This is slightly higher than the average of the past 12-month period, 13,500 won per kg. A more recent report from Rimjingang puts prices at 13,750 won per kg, so perhaps prices have declined over the past few weeks.

What’s likely happened is that China has settled on a comfortable level of enforcement of the oil transfers cap, for now. (For a detailed look at fuel prices in North Korea and Chinese sanctions enforcement, see this special report.)

Graph 4. Average gasoline price, three North Korean cities, early 2018–winter 2019. Data source: Daily NK.

There is lots to be said about gas prices and their impact on the economy, but for now, it looks like supply of gasoline in North Korea is restricted, but stabile.

Hard currency reserves

I unfortunately don’t have any data to present on this issue, but it’s too important not to mention. We don’t know how large North Korea’s foreign currency reserves are, but all throughout “maximum pressure”, people have been speculating that they’ll soon run out. One South Korean lawmaker said in early 2018 that by October that year, North Korea would be out of hard currency. That clearly didn’t happen.

The lack of stabile foreign currency income may still be a problem for the regime, as mentioned above. It’s hard to imagine how it couldn’t be a huge headache. Look at the following graph for example, showing North Korea’s trade (im)balance with China, throughout 2017 and the first few months of 2018.

Graph 5. North Korea’s trade balance with China, in $1,000 terms. Data source: KITA.

Let’s assume that China is simply letting North Korea run a trade deficit, with only some vague future promise of payment in the form of cheap contracts for coal and minerals. Or, let’s say that China is even just sending North Korea a bunch of stuff without requiring any form of payment whatsoever. It seems highly unlikely to me that even a government like China would support the full extent of these imports. Even if North Korea is only paying in hard currency for a relatively small proportion of what it imports from China, that’s still a lot of money that’s just leaving the vaults, with virtually nothing coming in to replenish them. How long can this go on for? Probably longer than many estimated at the onset of “maximum pressure”, but certainly not forever.

Summary

In sum, judging by the numbers, North Korea’s domestic economic conditions appear stabile but quite difficult. No sense of widespread, general crisis is visible in the data. Nonetheless, the regime is likely under a great deal of stress concerning the economy. How much is hard to tell, but definitely enough for some form of sanctions relief and/or economic cooperation to be high on their agenda for Hanoi.

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Ri Yong Ho’s visit to Vietnam (or: the futile guessing game of North Korea’s developmental model of choice)

Thursday, December 6th, 2018

By: Benjamin Katzeff Silberstein

North Korea’s foreign minister Ri Yong Ho recently visited Vietnam, prompting speculation about economic reforms in North Korea. KCNA (whose website is impossible to link to for individual texts):

Pyongyang, December 3 (KCNA) — The government delegation of the Democratic People’s Republic of Korea led by Foreign Minister Ri Yong Ho visited the Socialist Republic of Vietnam from Nov. 29 to Dec. 2.

During the visit Ri Yong Ho paid a courtesy call on Nguyen Xuan Phuc, prime minister of Vietnam, had talks with Pham Binh Minh, deputy prime minister and foreign minister, and was invited to a welcome reception given by the deputy prime minister and foreign minister.

During the courtesy call and talks both sides had an in-depth exchange of views and reached consensus on the issue of further developing the relations of friendship and cooperation between the two countries, provided and boosted by President Kim Il Sung together with President Ho Chi Minh, in various fields as required by the new era and other issues of mutual concern.

With the risk of sounding like a broken record: it seems that every time a North Korean official visits or mentions another country, especially those in the region, speculation follows about whether North Korea is soon to adopt the “model” of the country in question. It’s often unclear, however, what this would mean in practice. Would North Korea simply look at one, specific country’s institutions and laws, translate them to Korean and adopt them wholesale? Would North Korea adopt the same sort of sequencing of economic reforms, in the precise order in which the country in question adopted them?

Of course not.

Kim Jong-il, in his time, visited both Russia and China, and made comments to the effect that North Korea could learn from the countries’ economic systems. Kim Jong-un has visited not just China, but Singapore too. He may even come to Seoul before the end of 2018, and if so, he’ll likely visit construction sites and perhaps even factories operated by one or several of South Korea’s major conglomerates.

The point is that North Korean government officials and policy planners, like those of all countries, will naturally look for inspiration from around the world, from whatever country may have achieved the goals that the North Korean regime aspires to.

For now, that appears to be economic growth under continued one-Party rule. There are a number of countries that fit that description. Arguably South Korea does too, in a way, given that its economic growth miracle first began under harsh political oppression. There is simply little sense in debating what “model” North Korea will choose, because there is no reason to believe the country would adopt any one “model”, because that’s simply not how countries work.

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South Korea gets sanctions exemption for railway survey

Saturday, November 24th, 2018

Benjamin Katzeff Silberstein

Reuters:

South Korea said on Saturday it had received sanctions exemptions from the U.N. Security Council for a joint survey of inter-Korean railways, the first step towards reconnecting rail and road links cut during the 1950-53 Korean War.

In April, the leaders of the two Koreas agreed to adopt practical steps to reconnect railways and roads as part of efforts to improve bilateral relationships.

“The sanctions exemption has big implications given that the project has garnered recognition and support from the United States and the international society,” South Korea’s presidential spokesperson Kim Eui-kyeom said.

He expressed hope of quick construction of the railways, which he said will take inter-Korean cooperation to a new level.

South Korea requested an exemption for deliveries of fuel and other equipment needed to conduct the railway survey in the North, Yonhap News Agency said.

Pyongyang is under wide-ranging U.N. sanctions for its nuclear weapons and ballistic missile programs.

In October, the two Koreas agreed to carry out joint field studies on transport plans, with a ground-breaking ceremony in late November and early December.

But the plan was delayed amid stalled talks between Washington and Pyongyang following an unprecedented summit in June at which the two sides agreed to work toward nuclearization and peace on the Korean peninsula.

Full article:
South Korea secures U.N. sanctions exemption for inter-Korean railway survey
Hyunjoo Jin
Reuters
2018-11-24

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Mt Kumgang tours unlikely to be resumed this year, because of sanctions

Monday, November 19th, 2018

Benjamin Katzeff Silberstein

Reports Yonhap, with comments by ever-optimistic Hyundai Asan officials:

The head of Hyundai Group on Monday expressed reservations about any quick resumption of a stalled tour program to North Korea’s scenic mountain resort.

“At this point, the situation is difficult for the tour program to be resumed within this year, but I think it will be done in the near future,” Hyundai Chairwoman Hyun Jeong-eun told reporters after returning from Mount Kumgang on the North’s east coast.

She made a two-day visit to Mount Kumgang to celebrate the 20th anniversary of the cross-border tour program.

Earlier in August, Hyun had said she expects the project to be resumed within this year.

She said no detailed discussions on economic cooperation between the two Koreas had been made during her visit.

“We are preparing so that the inter-Korean economic projects can be resumed when the U.S. lifts sanctions,” Hyun said, adding that there is not much for a private enterprise to comment on the matter.

About 100 South Koreans and 80 North Koreans officials, as well as some 500 North Korean residents, attended the first celebratory event in four years at the east coast resort. It was jointly organized by Hyundai Group and the North’s Korean Asia-Pacific Peace Committee, a North Korean body that handles inter-Korean affairs.

Full article:
Tour program to Mount Kumgang unlikely to be resumed this year: Hyundai chief
Yonhap News
2018-11-19

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Hyundai’s aspiration to reverse N Korea fortunes

Wednesday, October 31st, 2018

Benjamin Katzeff Silberstein

Reuters:

South Korean President Moon Jae-in, who has pushed for rapprochement with the North since his election last year, calls the Kaesong industrial park a “lifeline” for South Korea.

Asia’s fourth-biggest economy is being squeezed globally between high-end, innovative manufacturers and low-cost producers in China and elsewhere.

Before the 2016 closure of Kaesong, some 120 South Korean companies employed 55,000 North Korean workers there, making everything from clothes and kitchen utensils to electronic components. The North Korean workers were well qualified, hard working and cost just a fraction of what workers in the South were paid, factory owners said.

Almost all small and medium enterprises which used to operate in Kaesong said they would like to go back, according to an April survey.

Seven out of 10 South Korean companies would prefer to use North Korean workers instead of foreign migrants due to language barriers and high costs associated with hiring foreign labor, a separate survey by the Korea Federation of SMEs found.

Hyundai Asan has the most riding on the prospect of a peaceful peninsula.

It paid $1.2 billion to buy exclusive rights for Kaesong and Mount Kumgang, and has interests in railroads and infrastructure projects including reconnecting inter-Korean railways.

Hyundai Asan’s rights to land the size of Manhattan in Kaesong last for 50 years, and it has a plan to build an even bigger factory town if the complex reopens, accommodating 2,000 companies and 350,000 North Korean workers.

Less than 5 percent of the total property in Kaesong has been developed currently, Hyundai told Reuters.

Officials say Hyundai has also agreed with the North to run tours in the coastal city of Wonsan, which North Korean leader Kim Jong Un is trying to build into a hotspot for tourism and foreign investment, as well as Mount Paektu, the famed homeland of both Koreas.

Hyundai’s Baek said the company is also in talks with Seoul and state-run corporations about projects to reconnect railroads between the North and South.

“The government respects Hyundai’s business rights it signed with the North,” said a spokeswoman at South Korea’s Unification Ministry, who did not respond to a question about its discussions with Hyundai.

NO LOVE FROM WASHINGTON

South Korean government officials and business executives say the biggest hurdle is opposition from Washington, which wants to maintain sanctions until Pyongyang completely denuclearizes.

In July, Mark Lambert, director for Korean affairs at the U.S. State Department, called about 10 South Korean businessmen for a meeting at the U.S. embassy in Seoul to deliver a stern message: No resumption of any businesses until denuclearization.

“The mood in the room was bleak,” said SJTech Chairman Yoo Chang-geun, who used to operate a factory at Kaesong and attended the meeting.

Baek, who was also present, unsuccessfully argued Kaesong and Mount Kumgang should be waived from sanctions “to show our goodwill to North Korea.”

A spokeswoman for the U.S. State Department declined to comment on details of “private diplomatic conversations.”

Article source:
After tragic losses, Hyundai aims to reverse N. Korea fortunes
Reuters
2018-10-31

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Moon’s Europe trip

Tuesday, October 16th, 2018

Benjamin Katzeff Silberstein

President Moon went to Europe. In France, he argued that sanctions against North Korea should be eased. Yonhap:

Moon agreed with the need to maintain pressure on the North until it denuclearizes, but said such pressure could be or should be eased to encourage the impoverished North.

“I believe the international community needs to provide assurances that North Korea has made the right choice to denuclearize and encourage North Korea to speed up the process,” the South Korean president told the joint press conference.

Moon’s remarks come amid an apparent tug of war between the United States and North Korea over when the North should be entitled to rewards for giving up its nuclear ambition.

Pyongyang is said to be demanding timely rewards for what it claims to be irreversible denuclearization steps it has already taken while Washington is insisting on maximum sanctions and pressure until the impoverished nation fully denuclearizes.

In his third bilateral summit with Moon, held in Pyongyang last month, North Korean leader Kim Jong-un offered to take additional denuclearization steps, including the dismantlement of the country’s only nuclear test site, in presence of international experts for verification.

“Chairman Kim Jong-un has said he is willing to not only halt the country’s nuclear and missile tests and also dismantle its production facilities, but also dismantle all nuclear weapons and nuclear materials it currently possesses if the United States takes corresponding measures,” the South Korean president told Macron in their meeting, according to Moon’s chief press secretary Yoon Young-chan.

Full article/source:
Moon says France, U.N. can speed up N. Korea’s denuclearization by easing sanctions
Yonhap News
2018-10-16

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