North Korean Economy Watch

According to the Daily NK:

The gap between the rich and poor in North Korea is growing as the number of people trying to sell their family home to buy food expands in the aftermath of last November’s currency reforms, according to a source from inside the country.

The source from South Pyongan Province told The Daily NK on Thursday, “An increasing number of homes are being sold to buy food, and now it seems like about two out of every ten people around here have lost their home.”

According to the source, the rich buy up the houses, demolish them and build new ones to sell for a profit. Those who have amassed dollars or Chinese Yuan from trading are now turning to the housing market.

Even in Pyongyang, where the public distribution system continues to function, there are homeless people on the street, according to the source, who added, “When I was in Pyongyang, there were homeless people sleeping in the subway in large numbers.”

The source went on, “People’s lives are very difficult. There are even some who rely on digging up 5kg of wormwood, walking three hours to sell it, and only getting 100 won per kg.”

Currently, 1kg of rice sells for 400 to 500 won in Pyongyang, and 500 to 600 won in other areas.

The source also explained, “While public distribution still functions in Pyongyang, there are strict restrictions on movement, and even with our salaries we can’t buy food because there is too little.”

Since the economy is so bad, the crime rate is also going up, he added, “There are now more and more pick pocketing cases, and these days, they not only use small knives to steal purses, but even tweezers to pick stuff from pockets.”

The source’s assertion that there was public distribution until mid-June contradicts the claim of one NGO, which said that on May 26 the authorities ordered each area to look out for its own food supply. The source, when asked about the decree, said he was unaware of its existence.

Read the full story here:
Life Even Tough in Pyongyang
Daily NK
Kim So Yeol
7/2/2010

Bradley Martin, author of Under the Loving Care of the Fatherly Leader, writes in the Global Post:

Now that food shortages reportedly have forced North Korea to reverse its crackdown on capitalist-style markets, more systematic reforms for its collapsed economy may not be far behind.

The markets policy reversal came May 26 in directives issued by the cabinet and the ruling Workers’ Party to subordinate organizations, according to a report by the Seoul-based newsletter North Korea Today, which gets its information from officials and ordinary citizens inside the North. “The government cannot take any immediate measures” to relieve a food shortage that is “worse than expected,” the newsletter quoted one of the directives as saying in explanation for the policy change.

The same authorities only late last year decreed a sudden currency revaluation that crippled the “anti-socialist” markets, where stallholders had been trading for individual profit, by confiscating the traders’ wealth. The new decrees bless and deregulate what’s left of the markets, which have shrunk and in some cases closed completely in the interim, in the hope that market trading will keep people from starving. And the directives instruct managers of state-run enterprises to pursue lucrative deals — especially in foreign trade — that could help feed their employees.

This could all turn out to be the big event that finally pushes the very reluctant leadership into a multi-year campaign of serious reforms of the sort that began decades ago in Vietnam and China, according to Felix Abt, a Swiss involved in North Korean joint ventures in pharmaceutical manufacturing and computer software.

“Given an industrial stock and an infrastructure beyond repair, and the impossible task of maintaining a huge army, economic reforms appear unavoidable in the very near future,” Abt, a former president of Pyongyang’s European Business Association, wrote in an email exchange.

“It looks intriguing and it reminds me of Vietnam’s history of reforms,” said Abt, who did business for years in Vietnam before going to Pyongyang and recently has moved back to Vietnam while maintaining his involvement in North Korea.

“The Vietnamese economic situation looked dire at the beginning of the 1980s,” he explained. “Nguyen Van Linh, party secretary in Ho Chi Minh City, favored moderate economic reforms. He tried too early, lost his job and left the political bureau in 1982.

“Le Duan, secretary general of the Communist Party, was categorically against any economic reforms. He died in 1986, the year of the five-year party congress which brought Nguyen Van Linh back and elected him as his successor. The new party secretary general immediately launched the Doi Moi policy — ‘reforms.’”

Abt ventured the lesson that triggering reforms “takes something big like the death of a leading politician” in Vietnam — or, in North Korea, a “ruinous” currency revaluation.

Not every foreigner who has had firsthand economic dealings with North Korea is convinced the recent events constitute that trigger. Some worry that U.S.-led sanctions could nip any flowering of capitalism in the bud.

“The problem is still U.S. Treasury’s attitude,” said one such foreigner, who asked not to be identified further. Treasury Department officials began working several years ago to take North Korea “out of the international banking system,” discouraging trade, he noted.

Some U.S.-sponsored sanctions subsequently were eased in an effort to persuade Kim Jong Il to negotiate away his nuclear weapons capability, but after those talks went nowhere — and especially after North Korea allegedly torpedoed a South Korean warship earlier this year — enthusiasm for compromise cooled. Recent reports say Washington is moving toward aggressively strangling cash flow into the country.

There is also the argument that Kim believes he cannot afford to reform the economy because it would let in information and influences that would undermine his family’s rule by letting his isolated subjects learn that the rival South Korean system works much better.

According to Abt, one answer to both concerns could be China, which “will provide all the support necessary to the DPRK party and government to enable economic reforms without regime change.” He used the abbreviation of Democratic People’s Republic of Korea, the country’s official name. “The DPRK may expect support from other quarters, for example, the European Union, too,” he said.

“I think the dilemma of the leadership — economic upsurge versus the inflow of ‘subversive’ system-destabilizing information and ideas, particularly regarding the South — can be overcome with the necessary Chinese support,” Abt said. “Though the division of Korea can only be compared with that of Germany before 1990, China’s division — capitalist Hong Kong, capitalist Taiwan — was a sort of challenge to Deng Xiaoping and successors, too, but they learnt to manage that quite well.”

Read the full the story here:
Analysis: Kim Jong Il, the reformer?
Global Post
Bradley Martin
6/24/2010

According to Radio Free Asia:

North Koreans who can afford to save their money are ignoring a new currency brought in by the ruling Workers’ Party in the isolated Stalinist state in favor of the more trusted renminbi yuan from China.

“Our [North Korean] money is now called ‘the commoners’ currency,’ used only as a means of exchange when goods are purchased, but not as a means of saving,” a resident of Chungjin city in the northern province of Hamgyeong said.

“North Koreans [still] hold their savings in Chinese money,” the resident said.

On the country’s black markets—the chief source of essential goods for many under a planned economy in which products are scarce and often monopolized by the country’s elite—any buyer offering to pay in yuan can expect a large discount, residents say.

“Nowadays even children look for Chinese money, knowing that a hefty discount may be available if Chinese money is used in an exchange,” another source said, speaking during a visit to relatives in the northeastern Chinese city of Dandong, which borders North Korea.

The renminbi—known in North Korea simply as “B”—is strongly preferred to the local currency, as it can buy anything, the second source added.

Purported crackdown

North Korean authorities including the state security department claim to be cracking down on the use of the yuan for transactions, he said.

“But because high-ranking officials are the first to hold their savings in Chinese money, the implementation of such crackdowns is half-hearted at best, and mostly ineffective,” the source said.

“North Korean officials won’t even touch the domestic currency.”

Other sources said they fully expect the North Korean currency to collapse once enough yuan are in circulation to fuel the country’s black markets.

“It is obvious that the North Korean currency will collapse once more money enters circulation,” a third North Korean said.

That source, who like the others spoke on condition of anonymity, said the apparent stability in the North Korean currency is an illusion caused by the fact that not enough money is in circulation for it to devalue domestically.

The tight money supply partly results from nonpayment of salaries by the government, the country’s only official employer.

“In Sinuiju, only 25 percent of the people have received their salaries,” the third source said.

“Workers and those employed at manufacturing facilities received the appropriate pay only during the month after the currency reform was implemented, and then started missing paychecks,” the third source said.

Devaluation crisis

The South Korea-based Web site “Daily NK,” which publishes North Korean news, said North Koreans who use domestic currency, rather than Chinese yuan or U.S. dollars, have to pay about 10 percent more for their purchases in open markets.

North Korea issued its revalued won last December, dropping two zeroes off the old won.

At the time, the North Korean central bank put strict limits on the amount of old money that could be exchanged for the new won.

At the old rate, U.S. $1 was equal to 135 North Korean won.

The move sent shockwaves through North Korea, with reports of citizens rushing to black-market moneychangers to cash in their won for more stable U.S. dollars and Chinese yuan.

North Korean citizens were threatened with “merciless punishment” for defiance of the new currency rules and were told they had only a week to exchange a maximum of 100,000 won (U.S. $690 at the official rate, but less than U.S. $40 according to black market rates) per person of the old currency for new bills.

NGOs in Seoul reported that in response to widespread anger, those limits were raised to 150,000 won in cash and 500,000 won in bank notes.

A leading expert on the North Korean economy has said that the economic system is split between the concerns and needs of ordinary North Koreans and the country’s political elite, which runs a “royal palace economy.”

Kim Kwang Jin, visiting researcher with the U.S. Committee for Human Rights in North Korea, said the scale of Kim Jong Il’s “royal palace economy” is in the hundreds of millions of dollars a year, while the much less significant “people’s economy” doesn’t exceed a few million dollars a year.

Read the full story here:
North Koreans Shun New Won
Radio Free Asia
Sung Hwi Moon
6/23/2010

According to the Choson Ilbo:

According to a report by the Ministry of Unification submitted to the National Assembly, there are about 120 companies operating at the complex employing over 44,000 North Koreans.

The number of workers continues to grow from 42,000 in January to 43,000 in April to 44,000 this month, the report said.

Read the full story here:
Number of N.Korean Workers at Kaesong Increases Despite Inter-Korean Tensions
Choson Ilbo
6/24/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-06-17-1
6/17/2010
 
As North Korea’s food shortages worsen and reports of starvation continue to grow, the Workers’ Party of Korea have acknowledged the failure of the central food ration program. Since the end of May, the Party has permitted the operation of 24-hour markets, and the regime has ordered the people of the North to provide for themselves.

The human rights organization Good Friends reported this move on June 14. According to Good Friends, the Workers’ Party organization and guidance bureau handed down an order on May 26 titled ‘Relating to Korea’s Current Food Situation’ that allowed markets to stay open and ordered North Koreans to purchase their own food. This order, recognizing that the food shortages in the North have continued to worsen over the last six months, since the failed attempts at currency reform, acknowledged the difficulty of providing government food rations. It calls on those who were receiving rations to now feed themselves, while also calling on the Party, Cabinet, security forces and other relevant government agencies to come up with necessary countermeasures. Now, authorities officially allow the 24-hour operation of markets, something that most had already tacitly permitted, and encourage individuals, even those not working in trading companies, to actively import goods from China.

It has been reported that government food rations to all regions and all classes of society, even to those in Pyongyang, were suspended in April. The last distribution of food was a 20-day supply provided to each North Korean on April 15, the anniversary of the birth of Kim Il Sung. Because of the difficulty of travelling to markets, the suspension of rations caused many in farming communities to starve to death. When Kim Jong Il’s recent visit to China failed to secure expected food aid, the Workers’ Party had no choice but to hand down the ‘May 26 Party Decree’. While the suspension of rations has considerably extended the economic independence of North Korean people, the regime has significantly stepped up other forms of control over society. Public security officers have begun confiscating knives, saws and other potential weapons over 9 centimeters long in an effort to stem murder and other violent crimes. Additionally, state security officials are cracking down on forcefully resettling some residents of the age most likely to defect, while sending to prison those thought to have contacted relatives in South Korea.

According to Daily NK, North Korean security officials are pushing trading companies to continue trading with China, while calling on Chinese businesses to provide food aid. It also appears that North Korean customs inspections along the Tumen River have been considerably eased, and there is no real attempt to identify the origin or intended use of food imported from China. Sinheung Trading Company has asked Chinese partners investing in the North to send flour, corn and other foodstuffs. The Sinheung Trading Company is operated by the Ministry of State Security, and is responsible for earning the ministry foreign capital. It appears that food acquisition is now a matter of national security, as North Korea is expecting South Korea and the rest of the international community to economically isolate the country.

According ot Yonhap:

South Korean companies at a joint industrial complex in North Korea said Thursday they will ask their government to provide emergency funds, as business conditions worsened amid heightened cross-border tensions triggered by the North’s sinking of a southern warship in March.

The industrial park in the North’s border city of Kaesong, where 110 South Korean factories operate with some 42,000 North Koreans hired, is the last-remaining inter-Korean business project. Its future is thrown into doubt after Seoul officially blamed Pyongyang for torpedoing the 1,200-ton Cheonan on March 26 that killed 46 sailors.

South Korea has taken a series of retaliatory measures, including a ban on most inter-Korean trade and diplomatic efforts to censure the North at the U.N. Security Council.

South Korean companies at the joint complex report a sharp drop in orders amid cross-border tensions.

Earlier in the day, representatives of the South Korean firms held a meeting and decided to ask their government to provide emergency funds and ease border restrictions.

About 800 South Koreans are now working at the Kaesong park.

Read the full story here:
S. Korean firms in Kaesong to ask for emergency funds
Yonhap
6/17/2010

According to National Public Radio:

Conventional wisdom holds that the people of North Korea are trapped in a world of rigid conformity, totalitarian discipline and complete isolation from the rest of the world.

But increasingly another picture is emerging: North Koreans are far more aware of the outside world, according to evidence provided by North Korean refugees, South Korean humanitarian aid workers, Chinese traders and others.

It is rare for an American to travel to North Korea, and even rarer for an American to spend much time there. Steven Linton has done both.

“In general I think North Koreans are clearly growing in their awareness of the rest of the world. I think there’s no question about that,” Linton says.

Linton has been going to North Korea for many years. He is engaged in a campaign to combat tuberculosis there, and he says North Koreans are soaking up information about the rest of the world.

“One of the most underrated realities about North Korea is its very dynamic relationship with China, and the amount of information that flows across that border. Students; business people; it’s a continuous stream of traffic,” he says.

With that traffic come thousands of DVDs, CDs, cellular telephones, used computers and videotapes — many of them from China and South Korea.

Traders Fill Information Gap

Kim Heung Kwang came to South Korea from the North six years ago and created a group called North Korea Intellectuals Solidarity. He has his own network of people in both Koreas. Kim says market-oriented traders and smugglers in the provinces of China bordering on North Korea are filling the information gap.

He says that many Koreans in China make a living by setting up satellite TVs at their homes to receive South Korean media. Then, they burn CDs and DVDs of the programs and sell them to North Koreans — for a profit, not propaganda.

These media are so prevalent inside North Korea now that knowledge about South Korea has become commonplace, says Yoo Ho-yeol, a professor at Korea University in Seoul. Yoo regularly talks to students and refugees from North Korea.

“They are telling us that those people living along the border area, all of them know well about South Korean society or daily life,” he says.

Groups such as North Korea Intellectuals Solidarity also have managed to send cell phones across the Chinese border, and now thousands of people can call to South Korea, via cell phone systems in China, to provide news of developments inside North Korea. And they can receive text messages, photos and music via cell phones.

It was through channels such as these that news leaked out of North Korea late last year of the disastrous currency reform the government had imposed and widespread resistance to it.

Impossible To Stop Flow Of News

It is still not risk-free to possess these materials. But, says Kim of North Korea Intellectuals Solidarity, while possessing a videotape from South Korea in years past might bring a three-year prison or labor camp sentence, now the materials are so common that local authorities appear to understand they’ve already lost this battle.

“The efforts are ongoing to inspect and collect everything that they can find. But because the demand is so big and the activities are [going on in the] black market, the government is feeling that it is fundamentally impossible to eliminate all sources. So I feel that they are just going through the motion now,” he says.

And there is word of mouth. Humanitarian workers from South Korea who have brought medicine or food to North Korea say simple conversation can be transformative.

Hwang Jae-sung has done agricultural work in North Korea for an aid group from the South called Korean Sharing Movement.

“They saw what we were, and what we do and what we brought. And they go back to [their houses] and they just tell their wives and children and so on. The word spreads, a thousand miles,” Hwang says.

Sanctions Undermine Efforts

Ironically, the policies of the United States can get in the way of the freer flow of information. Some economic sanctions imposed by the U.S. have created problems for the North Korea Intellectuals Solidarity group. It has been sending USB drives that carry books, news articles, music, teaching materials and computer games to North Korea.

But North Koreans need more computers to use them, says Kim, the group’s director.

“The prerequisite for this program is enough computers in North Korea. But there are several regulations in place blocking our efforts. So I think that the United States needs to change its regulations on these matters,” he says.

The number of used computers from South Korea and Japan is enormous. But sanctions make it more difficult to get even these computers and more information into North Korea.

Read the full story and hear audio below:
Awareness Of Outside World Growing In North Korea
National Public Radio
Mike Schuster
6/15/2010

According to Barbara Demick at the Los Angeles Times:

The numbers change daily, but as of early this month, 818 South Koreans were still working alongside roughly 43,000 North Koreans. Despite the supposed ban on North Korean products, South Korea recently accepted delivery of 20 tons of peeled garlic as well as $17,000 worth of clothing and $250,000 of electrical sockets.

Lim, who is in touch with many workers and managers, says that on a human level, relations between the Koreans at Kaesong are not as hostile as one might imagine. He paraphrased North Korean bureaucrats whispering to South Koreans, “We hate Lee Myung-bak’s government but not you as people.”

The South Koreans at Kaesong either commute — downtown Seoul is only 30 miles away — or live for up to two weeks at a time in dormitories attached to the factories. There they can watch South Korean television and make telephone calls home, although they have no access to the Internet.

Since the recent crisis erupted, the South Korean government has ordered Kaesong’s factory owners to reduce their staffing, fearful of what might happen if the war of words were to erupt into an actual war.

South Korean Defense Minister Kim Tae-young said during parliamentary committee meetings last month that there was a “a great possibility” that South Korean workers could be taken hostage by the North Koreans.

To South Korean factory owners, the idea is preposterous.

“People who have never been to Kaesong and who are only watching the television news keep asking our employees, ‘Are you guys all right?’ ” said Park Yoon-gyu, president of South Korean menswear manufacturer Fine Renown, which has operated out of Kaesong since 2008.

“We South Koreans and North Koreans have become very close to each other,” he said. “Yesterday’s enemies are today’s friends.”

But a South Korean worker who spoke anonymously to the conservative Chosun Ilbo newspaper gave a less sanguine account of the atmosphere at Kaesong. He said that armed North Korean soldiers had been seen inside the compound, despite rules forbidding their presence.

The man also said that North Korean employees were stealing food, office supplies and toilet paper, and even grass seeds from a newly planted lawn, apparently following official orders to take whatever they could from South Korean companies.

Both North and South Korea have substantial amounts of money at stake in Kaesong, which lies just south of the 38th parallel — where the peninsula was divided at the end of World War II — but changed hands during the Korean War.

Kaesong is home to 120 South Korean factories, each of which required an investment of as much as $8 million, according to scholar Lim. For cash-starved North Korea, Kaesong is one of the dwindling sources of hard currency. The North Korean workers receive monthly salaries of $70 to $80, of which all but about $20 goes to the government.

Even in the crisis, the industrial park could help defuse tensions. South Korea hasn’t followed through on its threat to resume propaganda broadcasts at the DMZ, in part out of concern about what might happen to workers at Kaesong. Loudspeakers have been installed at 11 locations but remain quiet — for now, at least.

As an aside, Paul Romer is trying to push the founding of charter cities as a new strategy of reducing poverty in the developing world.  A brief summary of his work has been published in The Atlantic and is worth a read.

You can read the full Los Angeles Times story here:
For Koreas, business park remains a neutral zone
Los Angeles Times
Barbara Demick and Ju-min Park
6/13/2010

According to Yonhap:

More than half of North Korean teenage defectors viewed South Korean movies and dramas when they were in the communist country, a survey said Monday.

According to the survey conducted last month by Yoon Sun-hee, a professor for Hanyang University, 79 of 140 students, or 56 percent, in Hangyeore Middle and High School said they watched South Korean films and TV programs in North Korea.

North Korea reportedly strictly bans its people from viewing South Korean broadcasts and films.

Hangyeore, located in Anseong, 77 kilometers south of Seoul, is a school for North Korean defectors founded in 2006.

Among the respondents, 57 students said they saw South Korean movies on DVD and 43 claimed to have watched videotaped dramas, while 15 watched broadcasts on TV, the survey showed.

It did not say how the students had obtained the South Korean DVDs and videos, or gained access to the broadcasts.

Forty students said they could see the South Korean programs whenever they wanted and five watched them everyday, when asked how often they had seen the banned films.

The survey also showed that 21 teenagers said they had watched the programs once a month, six said once a year, while seven students experienced the South Korean material only once during their lifetimes in North Korea.

According to the survey, most of them said South Korean films and dramas were “interesting,” although they had to view them secretly in the reclusive country.

“It’s hard to make generalizations but the results are surprising,” said Prof. Yoon. “The result itself indicates that North Korea is more open than we expected.”

“The study shows that North Korean teenagers tend to protest against the regime and also enjoy their lives,” she added.

Some 125 respondents were living near the North Korea-China border, while 15 others were living closer inland, including Pyongyang.

Read the full story below:
More than half of young N.K. defectors watched S. Korean TV programs: poll
Yonhap
6/14/2010

According to Joong Ang Daily:

South Korean goods and services going in or out of North Korea will now have to be approved by the unification minister, according to the ministry yesterday. Trade with the Kaesong Industrial Complex will be the only exception to the rule, which takes effect Monday, the ministry said.

This is a follow-up to South Korea’s decision on May 24 to halt all inter-Korean trade, except that at Kaesong, as punishment for the sinking of the South Korean corvette Cheonan in March, which the South has blamed on the North.

“To effectively implement the government’s decision to halt inter-Korean trade, we revised the rules regarding the approval processes regarding goods and services crossing the inter-Korean border,” said Chun Hae-sung, spokesman for the ministry, in a media briefing.

Until yesterday, items traded with North Korea didn’t need to be individually approved. The report by the Korea Development Institute said the suspension of trade will cost North Korea about $280 million annually.

Read the full article here:
Ministry further restricts trade with North Korea
Joong Ang Daily
6/12/2010