Archive for the ‘DPRK organizations’ Category

South Korean banks preparing for inter-Korean improvements

Wednesday, February 20th, 2019

By Benjamin Katzeff Silberstein

Korea Herald had an interesting article about South Korean banks and Kaesong the other day, not least about the blurred lines between the public and private spheres in South Korea’s financial sector:

Fired up by the thawing peninsular mood built on the latest inter-Korean summit, banks here have buckled down on establishing business in the North in the near future, their initial focus fixed on the resumption of the Kaesong industrial park and Kumgangsan tours.

Steering the move are the state-run banks that strive to win an upper hand in infrastructure financing, as well as Woori Bank and NH NongHyup Bank, which had operated businesses in the joint operations zones in the past.

On Wednesday and the second day of the three-day summit, President Moon Jae-in and North Korean leader Kim Jong-un announced that they will resume inter-Korean projects at Kaesong and Kumgangsan as soon as conditions are met.

Rejoicing at the news was Woori Bank, currently poised to kick off banking operations at any given time in the Kaesong industrial park, according to officials Thursday. The bank had operated in the zone for eight years from 2004, providing deposits, withdrawals, remittances and all other basic banking services to resident companies and workers.

It once withdrew in April 2013, upon Pyongyang’s third nuclear test, but soon resumed business in September that year, until the final termination in February 2016.

Even after Seoul’s government shut down the industrial facilities amid heightening inter-Korean conflicts in 2016, the bank maintained a temporary bank window of the Kaesong office on the basement floor of its headquarters, in the hopes of resuming business in the North Korean region.

This special corner is in charge of the follow-up financial management of the companies that evacuated from the now-deserted industrial zone.

“Woori Bank’s qualification as the bank in charge (at Kaesong) remains valid to this day. It is just the geopolitical situations that have been keeping us off over recent years,” said an official of the bank.

“The resumption of the banking business in Kaesong is for the Unification Ministry to decide, but once the government approves, we are fully ready to take the related computing system and database and start operations.”

Another hopeful is NH NongHyup Bank, which had provided currency exchange, deposit and loan services at Kumgangsan from 2006-2009, when the tourist business was active.

Full article:
Banks ready for inter-Korean economic cooperation
Bae Hyun-jung
Korea Herald
2019-02-20

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Rice for Party membership in North Korea

Monday, January 28th, 2019

Benjamin Katzeff Silberstein

Daily NK:

“A ceremony was held in December to issue the new Party membership cards. Suddenly, the managing secretary ordered all of the new Party members to contribute one ton of rice to the state,” said a Sinuiju, North Pyongan Province-based source.

“I heard about the story right after it happened. One particular man had worked hard to become a Party member and had given bribes to higher-ups to speed up the process. So he was really taken aback by what happened.

“He was granted membership in mid-December thanks to a recommendation from his workplace and attended a ceremony later to receive his membership card. But the managing secretary suddenly told them after the ceremony ended that they had to immediately contribute one ton of rice each, which caused an uproar among the attendees.”

The man ended up borrowing rice from neighbors and friends to meet the quota, but he now faces the difficulty of having to pay back the debt, which according to current market rates amounts to over 500 USD.

“I worked hard with the belief that getting a Party membership card would be the best thing for me, but now I’ve just been saddled with debt,” he said, according to a separate source in North Pyongan Province close to the matter, who noted that “other people are in dire straits because of this.”

“People tell me that becoming a Party member isn’t as much of an honor as it used to be, and that you can survive without a membership card. All you need is money.”

The growing marketization that North Korea is experiencing has led many residents to avoid Party membership. Members are required to attend all Party-related activities and are thus less free to engage in private business activities than non-members. If Party members are caught engaging in such activities, they may be expelled and placed on a surveillance list.

North Koreans with poor “songbun,” or social status, are increasingly offering bribes to join the Party, which has led many North Koreans to believe that membership is not as prestigious as it was in the past.

Full article:
North Korean authorities demand rice from new Party members in North Pyongan Province
Ha Yoon Ah
Daily NK
2019-01-28

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Miners punished for absenteeism

Monday, January 21st, 2019

Benjamin Katzeff Silberstein

Daily NK:

“Around 50 Musan Mine workers who failed to show up for work were recently sentenced to disciplinary labor. Depending on the number of days were missed, the workers received sentences ranging from a month to a maximum of six months,” said a North Hamgyong Province-based source on January 17.

“They now have to cut down trees in the mountains and participate in construction projects. The construction projects are mainly focused on government and apartment buildings in and around Musan.”

Musan Mine has faced a number of difficulties since Kim Jong Un came to power. In mid-2013, the mine was reportedly operating well with authorities promising in September of that year to raise the wages and ration levels of miners as an incentive to increase the flow of iron ore into China. This was seen as achievable if the authorities were going to receive their expected payments from China for the exported products.

Wages for miners were increased 100-fold at the time and miners welcomed the fact that 200,000 KPW of their 300,000 KPW monthly salaries were paid as non-cash items including rice, vegetables, side dishes, daily necessities and even electronic devices.

The situation, however, did not last for long. The authorities were unable to maintain their monthly wages after North Korea’s nuclear and missile tests led to international sanctions and the banning of exports.

According to a separate source in North Hamgyong Province, as they had to earn money to survive, many of the miners chose to pay their way out of working at the mine in order to conduct private business activities at the markets, an arrangement referred to as “8.3 Earnings or 8.3 Money.”

With a legal basis in the country’s “August 3 (8.3) Movement” which calls on enterprises and factories to obtain their own raw materials for production, “8.3 Earnings” permits workers to pay a specified fee each month to their place of employment in exchange for allowing them to skip work and engage in their own private business activities.

Musan Mine, however, is seen as a critical piece of infrastructure to the North Korean state. Located in Asia’s largest iron ore depository, the mine contains an estimated 4.9 billion tons of accessible iron ore underground. Kim Jong Un’s New Year’s Address emphasized the country’s “self-sufficiency” in effect implying that Musan Mine would be a major pillar to achieving that goal.

“The authorities needed to ensure that miners not showing up for work understand who’s in control,” an additional source in North Hamgyong Province reported.

Full article:
Miners handed severe punishment for absenteeism
Lee Sang Yong
Daily NK
2019-01-21

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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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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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Two Koreas start railway inspections

Sunday, October 21st, 2018

Benjamin Katzeff Silberstein

South and North Korea are likely to start their joint on-site inspection as early as this week for a project to modernize and re-link railways across their border, government officials said Sunday.

At high-level talks last week, the two Koreas agreed to begin field surveys of the western Gyeongui railway in late October and the Donghae railway along their east coast in November.

“The Koreas are known to be discussing ways to conduct the inspection (on the North section) of the Gyeongui line starting late this week,” a government official said.

“The schedule is flexible, depending on consultations between the government and the United Nations Command (UNC) over the passage of the Military Demarcation Line,” he added.

In August, the Koreas failed to carry out a joint railway field survey as the U.S.-led UNC did not approve the plan, citing “procedural” problems, a move widely seen as U.S. objection to the inter-Korean railway project on the basis that it might hamper sanctions.

“As far as I’m concerned, Seoul’s consultations with Pyongyang as well as the UNC are smoothly under way,” the official said.

If launched, the joint inspection will involve the test operation of a train on the railway linking Seoul to the North’s northwestern city of Sinuiju.

After that, the Koreas will check the eastern railway on the North’s side that connects Mout Kumgang to its northeastern North Hamgyong province.

South and North Korea are looking to hold a ground-breaking ceremony for work on the rail and road systems along the eastern and western regions either in late November or early December.

Meanwhile, the two Koreas plan to hold working-level talks starting this week to implement agreements of the inter-Korean summit held in Pyongyang last month.

Full article/source:
Koreas to start joint inspection of western railway as early as this week
Yonhap News
2018-10-21

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Explaining North Korea’s exchange rate stability: it’s all about the companies

Thursday, September 13th, 2018

By Benjamin Katzeff Silberstein and Peter Ward 

The stability of the market exchange rate for won-to-US dollars has been one of the most puzzling features of the economy over the past few years, and particularly so during the so-called period of “maximum pressure” and heavy sanctions by the international community. The market exchange has not once moved out of its ordinary – also remarkably stabile – territory over the past few years, as the following graph shows with clarity:

Won for USD-rates on the markets, 2009–September 2018. Data source: Daily NK. Graph: NK Econ Watch.

Thus far, to my knowledge, there have been two main, potential explanations:

(1) Maximum pressure is not having a meaningful impact on the North Korean economy as a whole. Even though it can’t export coal, minerals or textiles under current sanctions, its main sources for foreign currency revenue, the sanctions aren’t being enforced strictly enough to impact the economy as a whole, and foreign currency keeps flowing into the economy.

This explanation is pretty easy to dismiss offhand, since we know with more or less certainty that North Korea’s exports of these goods have plunged as Chinese sanctions enforcement has been fairly strict since the late summer/early fall of last year, even though it’s waxed and waned as it always does.

(2) The second explanation, most notably put forward by Bill Brown, is that Pyongyang is much better at monetary policy management than they’re given credit for. Chiefly (but not solely) through decreasing the amount of won in circulation, by giving state-owned enterprises (SOEs) smaller loans and credits in won, the government is able to keep the exchange rate stabile.

Speaking with my friend and colleague Peter Ward, a researcher of North Korean economic policy under Kim Jong-un and avid reader of North Korean economics journals, he explained a third possibility, partially in line with the latter hypothesis posed above. Ward visited North Korea twice in the past year, and was able to confirm many of the economic policy developments he had first detected in the literature from Pyongyang.

In short, Ward’s explanation is as follows: the main holders and users of foreign exchange in North Korea are not individual citizens, but state-owned enterprises, which legally (since 2013) use foreign exchange in transactions amongst themselves. The quantities of foreign exchange held by SOEs make them, and not the foreign currency markets that individual citizens access and use, the main determinant of the market exchange rate for foreign currency. Therefore, most of the foreign currency in circulation has been there for several years, not entering or exiting monetary circulation.

I asked Ward to share some of his thoughts with the readers of North Korean Economy Watch. Below is a brief Q&A of sorts.

Benjamin Katzeff Silberstein (BKS): first, when did this practice of SOEs trading in foreign currency become common and legally permissive?

Peter Ward (PW): probably around early 2013. This is when the “policy to make domestic production and exports one” came into force. The idea is to align domestic input prices for manufacturing, and consumer goods prices, with prevailing prices on international markets. This is literally what North Korean economics literature says that they aim to do, despite ostensibly being a socialist system in theory.

BKS: How is the FX-market price in North Korea determined? And where do the FX-market for SOEs and that for private citizens intersect?

PW: We don’t know, but one could imagine that there are major foreign exchange markets in North Korea – regional markets, both markets on the ground, so to speak, and between enterprises within regions. How does the center know the prevailing price? The regional price department of the regional People’s Committee price office and market management office (they may either be separate or the same) probably simply calls the local People’s Committee, who supposedly gathers this information from the local market management offices. At any rate, there’s reporting of the prevailing local exchange rate throughout the system.

Major enterprises will also know how much their inputs costs in foreign exchange, and a sense of how much their products would sell for on the world market. In that way, they’re able to assess the costs of their inputs in the world market (or at least China), and know how much they need to charge to make a profit or break even.

The market for individual citizens and SOEs intersect at several levels. SOEs likely source much of their inputs from wholesale markets, and from domestic private traders. They also obtain some of their foreign exchange from loans from private individuals. Private citizens can legally lend money to SOEs, but investments in SOEs by private citizens also happen, though they’re technically not legal, and both these investments and loans probably happen quite often in foreign exchange.

So the market price equilibrium happens through all these conduits, and as on any market, it is determined by countless instances of bargaining between traders, SOEs, and to a proportionally smaller extent, private citizens.

BKS: so where is the FX coming from, to begin with?

PW: if most inter-enterprise contracts and transactions are denominated in foreign currency, they’d be insulated from any sudden, exogenous trade shocks, such as sanctions. They’re still trading amongst themselves with whatever FX-holdings they have. For all intents and purposes, foreign currency inside North Korea is the principal legal tender – that’s what’s likely used for all major transactions inside the country, so exogenous shocks such as sanctions, from the outside, don’t necessarily impact the market price for foreign currency inside the country.

BKS: Is it likely, in your view and judging from your observations in North Korea, that the government maintains a price ceiling on the market exchange rate?

PW: Yes, it is. The government maintains price ceilings on a range of commodities, at least that’s what people inside the country say. They probably have an informal peg to the RMB, since China is their principal trade partner. It looks like it, but we don’t know for sure if they do. One possibility is that have significant cash reserves of RMB…

BKS: is it possible that China is simply helping North Korea keep the won stabile, by simply funneling RMB in?

PW: that’s certainly a possibility. The North Korean government keep a very close eye on the exchange rate, both in terms of physical cash in circulation and deposits in bank accounts, which SOEs have – both domestic and foreign currency bank accounts. They’ll keep a tight control over domestic currency-denominated loans to SOEs – that’s certainly one way of doing it. State banks will probably be encouraged to denominate such loans in foreign currency.

The government can also keep a pretty tight rope around money in circulation, since enterprises now have their own individual accounting system. The central government isn’t constantly borrowing money from the central bank to pump into SOEs, so the amount of money created by the central bank to lend to SOEs has gone down a lot.

That, at least partially, explains how the government manages to keep domestic currency circulation down. It doesn’t look like they’re printing much money overall, I saw bills from the pre-2009 currency re-denomination being used as late as July this year. And the highest denomination of North Korean won in circulation is the 5,000 won note, which has a market value of around 60 US cents, hardly appropriate for anything more groceries.

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North Koreans are getting paid deposits on banking, scholar says

Wednesday, September 12th, 2018

By Benjamin Katzeff Silberstein

Daily NK recently reported on a conference in Seoul, where one scholar working on the North Korean economic system, Jung Eun Lee, said that there’s at least anecdotal evidence to suggest that some North Koreans, who have (bravely) chosen to deposit money in regular banks, are actually getting paid interest on their deposits:

Another researcher at the press conference stated that system-wide, market-friendly reforms have occurred in the financial sector following Kim’s rise to power. North Korea under Kim Jong Un has been implementing a policy where “idle currency” is absorbed into the official economy. The policy is significant because it shows that the state is partially adopting capitalist practices.

“The North Korean authorities are emphasizing bank credit and releasing articles saying that ‘banks do not ask about the state of [customers’] ownership or the source of their deposit balance,” said Jung Eun Lee, another research fellow at KINU. “There are more and more North Koreans who say they have received both the principal and interest from their money deposited in North Korean banks.”

“What is more interesting is that the North Korea’s Central Bank launched a domestic electronic payment card called the Jongsong Card in 2015, and the number of stores accepting the card is increasing […] The use of electronic payment cards is increasing in Pyongyang and their use is expanding because [consumers] benefit by being able to prevent exposure of their identities, and are not burdened by the need to accept change during their financial transactions,” Jung concluded.

Full article:
Increasing autonomy for North Korean enterprises
Ha Yoon Ah
Daily NK
2018-09-10

There is likely much more happening under the surface in North Korean financial development than what reaches the audience in South Korea in the rest of the world. (See, for example, Peter Ward’s recent twitter-thread on financing of state-owned enterprise operations). If this assessment is true – that North Koreans have, in sizable numbers, been receiving interest on their deposits, it’s pretty significant. I’m not fully sure it’s a new development, but given the backdrop of the past few years – not least the currency revaluation in 2009 – it would mean that the official banking system has been able to gain some hard-earned trust back from at least a portion of citizens.

Now, it’s entirely possible that people are primarily depositing money for other reasons than savings. For example, with the payment cards that have popped up in recent years, people by definition have to deposit their cash with state-owned banks to use these cards, which many may do simply out of convenience. And then, the deposits earn interest as a nice side-effect. It’s certainly notable if more North Koreans trust that state-owned banks won’t confiscate the hard-earned cash that they choose to deposit, but it might not be a revolutionary development.

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North Korean state security agents fine Chinese visitors for making phone calls abroad

Thursday, August 9th, 2018

Benjamin Katzeff Silberstein

Daily NK:

North Korean Ministry of State Security (MSS) agents have been ramping up the issuance of monetary fines for Chinese business people and drivers in the country for various infractions.

“Chinese business people and truck drivers are being fined for taking calls from China while they are in North Korea,” a source in China close to North Korean affairs told Daily NK on August 7. “A surveillance agent stationed near the Wonjong Border Customs Office is stopping vehicles driven by Chinese business people and truckers who are detected receiving calls and issuing them with fines.”

“Chinese tourists have their phones confiscated by travel agencies so they cannot make calls, but business people and truck drivers are under no such restrictions and could previously receive calls from China without issue,” he continued, adding that international calls to China are permitted within a radius of one kilometer of the customs office.

Chinese nationals affected are responding with incredulity at the 1,000 yuan fines for taking calls from China but “they are forced to pay the fine, however, because they depend on good relations with the North Korean authorities to conduct cross-border business.”

MSS agents have long forced North Koreans to pay bribes in exchange for letting them off the hook for making international calls. But these agents are now more pressed than ever to find ways to earn money and it appears that Chinese nationals are now in their crosshairs.

The North Korean government keeps a watchful eye over the activities of its agents, but corruption has such deep roots within the MSS that agents have no qualms with taking advantage of Chinese nationals.

One of the driving forces behind the push to earn more money is the nationwide requirement to pay “loyalty funds,” which is aimed at supporting development of the Wonsan-Kalma marine tourist zone and the Samjiyon area.

On top of their surveillance of cellphone users, MSS agents are also fining Chinese vehicles that carry North Korean passengers.

‘There are cases where Chinese truck drivers take on North Korean passengers to make a little extra cash, but MSS agents are cracking down on this activity and fining the drivers 500 KPW for each male passenger and 1,000 KPW for each female passenger. Chinese drivers are now increasingly ignoring hitchhikers on the road,” a source in North Hamgyong Province added.

“The fines are causing Chinese business people to be more watchful of their activities in North Korea. Some are even questioning whether they should even be doing business in the country.”

Article source:
MSS agents fine Chinese nationals for infractions to earn money
Mun Dong-hui
Daily NK
2018-08-09

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South Korean officials in North Korea for joint forest inspection

Wednesday, August 8th, 2018

Benjamin Katzeff Silberstein

Yonhap reports:

A group of South Korean officials left for North Korea on Wednesday to conduct a joint inspection of forests and protect trees from harmful insects and diseases, the unification ministry said.

The officials led by a senior forest agency policymaker crossed into Mount Kumgang on the North’s east coast, where they will jointly examine the forests there, according to the ministry.

They will return home later in the afternoon.

The one-day trip follows up on the agreement reached during working-level inter-Korean talks early last month for forestry cooperation.

They agreed to cooperate in protecting forests along the inter-Korean border and in other areas from damage caused by harmful insects and diseases.

The two Koreas conducted a similar on-site inspection in July 2015 near Mount Kumgang. Two months later, they carried out efforts to fight insects and other damage, which was said to have cost them over 100 million won (US$89,400).

Meanwhile, the North will send six transport officials to the South on Thursday to hold a meeting and discuss details related to their cooperation in modernizing and possibly connecting railways over their border, the ministry said.

The meeting, the second of its kind, will be held at the Customs, Immigration and Quarantine (CIQ) office in Paju, just south of the inter-Korean border.

It came after their first meeting in Kaesong last month to discuss the outcome of an inspection of the conditions of the 15.3 kilometer-long railways from the North’s border town to the Military Demarcation Line (MDL) that separates the two Koreas.

Article source:
S. Korean officials visit N. Korea for joint inspection of forests
Yonhap News
2018-08-08

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