North Korean Economy Watch

Following up on a previous blog post, the Choson Ilbo informs us of the DPRK’s new policies designed to collect “back wages” for North Korean workers in the Kaesong Industrial Zone:

South Korean firms will be ordered to close down or pay fines if they delay pay for North Korean staff at the joint Kaesong Industrial Complex, North Korean authorities reportedly told the firms in November.

The Kaesong Industrial Council on Wednesday said North Korea last November notified South Korea’s Unification Ministry and the Kaesong Industrial Complex management committee of 27-point labor rules in the Kaesong Industrial Complex. Under the rules, South Korean firms will be fined up to US$2,000 if they delay a month’s pay and ordered to suspend operations for 10 days and pay an additional 300 percent of basic pay to staff who have worked for more than 24 hours without a break if they delay pay for two months.

The council worries that now firms in the Kaesong complex are receiving fewer orders due to the recession, they could face heavy costs if the rules are strictly applied.

A total of 93 South Korean firms are currently operating in Kaesong. They are paying about $75, including the minimum wage and social security, per month on average to each North Korean worker.

To get a better idea of the context of this story see a previous post here. 

The full article can be read here:
N.Korea Warned Kaesong Firms Over Staff Pay
Choson Ilbo
3/5/2009

The global financial crisis/recession is affecting some of the DPRK’s most visible assets. 

The first example comes from the Kaesong Industrial Zone, where South Korean firms are obliged to pay North Korean workers’ wages in $US directly to the North Korean government.  Since the South Korean Won/$US exchange rate has risen significantly in recent months, companies in the Zone have seen their labor costs (denominated in $US) soar.  Since wages are fixed and firms are unable to lay off workers, some have responded by simply not paying wages—which does not affect the workers so much as it does the North Korean government’s finances, since it keeps most of the funds.

Quoting from Radio Free Asia:

Authorities in North Korea have warned South Korean companies in its Kaesong industrial area they must pay workers’ wages or face fines, as many investors begin to feel the effects of the economic downturn.

Lee Lim-dong, secretary general of the Committee of the Association of Enterprises Invested in the Kaesong Industrial Complex, said the issue of unpaid salaries was brought up late last year but had now become a formal demand.

“This time around, official notification was issued to all South Korean enterprises invested in Kaesong, through the Kaesong Industrial District Management Committee (KIDMC),” Lee said.

South Korean businesses invested in Kaesong have already incurred serious losses due to the depreciation of the South Korean won against the U.S. dollar, according to Kim Kyu Chol, head of the Forum for Inter-Korean Relations, a Seoul-based group monitoring inter-Korean business relations.

“They already have to spend 30-45 percent more on labor [because of this],” he said, adding that the lives of South Korean entrepreneurs in the Kaesong economic zone would now be even more difficult.

… 

According to Park Yong-man, director of Green Textile Co.—a South Korean company invested in Kaesong—“The official notification was sent to all South Korean companies in Kaesong on Feb. 10.”

Meanwhile, Kim said, one South Korean electroplating company had already failed to pay its North Korean workers for more than three months and had been suspended.

Seven South Korean companies in Kaesong are currently unable to pay their North Korean workers on time and will soon be in bigger trouble because of the new measures, Kim said.

South Korean companies operating in Kaesong are not allowed to recruit or dismiss North Korean staff directly, and North Korean authorities impose quotas of staffing numbers on them.

In early February, North Korean officials said that salaries of North Korean supervisors watching over the night shift at South Korean enterprises in Kaesong would have to increase by 200-300 percent, putting further pressure on labor costs.

And companies can be suspended from operations for failing to pay their employees for more than a month.

Kim said South Korean companies in Kaesong don’t need more supervisors or clerical workers, which the North Korean side has sought.

“They are already facing a managerial crisis, and a [demanded] 50 percent increase in the number of North Korean managerial staff is pushing it too hard,” he said, adding that South Korean enterprises would find this hard to accept.

Until recently, the Kaesong Industrial District Management Committee (KIDMC), a joint North-South panel overseeing the complex, was responsible for half of the U.S. $10 a month transportation allowance given to North Korean workers in Kaesong.

North Korea demanded as of Jan. 1 that South Korea Kaesong companies must now pay the entire cost.

Now hard bargaining can pay off sometimes, especially for North Korea, but with all that has happened in the Zone recently it seems as if the DPRK actually wants these businesses to leave.  The DPRK’s negotiators are smart enough to know that the pie is shrinking and they naturally want to protect their share, but unfortunately they don’t yet seem to appreciate that their actions will have serious ramifications on future investment in the Zone once the global economy turns the corner.

Example No. 2: Unfortunately, recent economic conditions have also reduced the number of South Korean tourists venturing abroad where they might enjoy diversions such as eating in a North Korean-owned restaurant.

Quoting from Japan Probe:

Ever since a North Korean government restaurant opened in Bangkok two years ago, the Japanese press have been regularly visiting the place with hidden cameras to catch a glimpse of its dinnertime performances. However, it has now been discovered that the restaurant recently went out of business.

Most of its business had come from South Korean tourists, but the weakening of the won and the decline in tourism to Thailand due to the airport protests seem to have dealt a death blow to the restaurant. Attempts to contact North Korea-run restaurants in Cambodia and Vietnam failed, suggesting that those restaurants may have also gone under. It has also been said that a similar North Korean restaurant in China has suffered a big drop in business.

Read the RFA article here:
North Korea Warning Over Labor
Radio Free Asia
J.W. Noh
9/26/2009

Institute for Far Eastern Studies (IFES)
NK Brief No. 09-2-26-1
2/26/2009

It has been reported that 2-3 day’s worth of special rations were issued to parts of North Pyongan and South Hwanghae provinces, including to those North Koreans working in the Kaesong Industrial Complex, to mark the February 16 birthday of Kim Jong Il.

For families with more than four members, 2 kilograms of rice and 2 kilograms of noodles, with corn making up the rest of the rations. Smaller families received a kilogram each of rice and noodles, in addition to corn. Recently, rations have been in very short supply, even on farms, so North Koreans have been very much looking forward to these special rations.

Since last year, the number of guards stationed at farms was increased sharply, along with increasingly more intrusive house searches, as the theft and consumption of food by those living on the farms was banned. Over the past few years, as the state failed to provide steady rations to the farmers and families on the agricultural plots, these farmers began stealing rice from the cooperative farms as a means to maintain their lifestyles.

However, in November and December of last year, inspections were carried out in cities and districts as grain management on farms was strengthened, leading to an increase in theft of foodstuffs. Those caught stealing would be dragged in front of labor authorities and often sentenced to confinement.

The districts receiving these special rations were all specifically chosen by North Korean authorities. Hweryong City, in North Hamgyong Province, is the hometown of Kim Jong Il’s mother, Kim Jong Sook, while the Samjiyon district, in Yanggang Province, is where Kim Jong Il claims to have been born. Kaesong was thought to have been chosen in order to propagandize the rations to the outside world.

One source reported that in 2006, an anti-socialist group emerged in the city of Hweryong, and that leaders of citizen groups were appealing, “It is difficult to live in our mother (Kim Jong Sook)’s hometown…Let’s all flee to China,” and since Kim Jong Il became aware of the uprising, special rations have been given on holidays and other special occasions. That said, currently, Kim Jong Il’s practice of gift giving continues to be aimed at the leading class in the North, with city and district Party secretaries also receiving gifts, along with central Party authorities. Gifts are also provided to state heroes and model laborers.

See previous posts on Kim’s birthday rations here.

See photos of Birthday rations from the Daily NK here.

Bradley Martin writes in Bloomberg this morning:

A U.K. businessman is seeking to raise $50 million to invest in North Korea, reviving a 2005 plan after the U.S. government removed the communist regime from its list of countries that support terrorism.

ChosunFund Pte. Ltd. will join with North Korean partners for mining and energy projects, Colin McAskill, founder of the Singapore-incorporated fund, said in an interview.

“The country holds huge natural resources but is capital starved and lacks the technology and management skills with which to develop them,” McAskill said.

North Korea’s economy collapsed in the 1990s with the demise of communist regimes in Eastern Europe that had provided aid and favorable trade terms. McAskill scrapped the original fund after U.S.-imposed sanctions that led to a freezing of North Korean deposits at international banks.

The U.S. government removed the terrorist designation last October in exchange for wider scrutiny of North Korea’s nuclear weapons programs. U.S. Secretary of State Hillary Clinton said Feb. 20 that ties with North Korea won’t improve as long as it continues provocative verbal attacks on South Korea.

McAskill, 69, said he has been consulting on potential North Korean projects since 1987. While the country attracts one-off investment deals such as a recent contract licensing Orascom Telecom Holding SAE to provide wireless telephone services, it has struggled to raise money from global financial markets since defaulting on overseas debt in the 1970s.

London-based emerging markets money manager Fabien Pictet & Partners Ltd. was considering a fund that would invest in South Korean companies that do business with the North. The idea is “on hold for the time being,” Jonathan Neill, managing director, said in an e-mail.

Read the full story here:
North Korea Fund Seeks $50 Million After Terror Label Removed
Bloomberg
Bradley Martin
2/24/2009

Institute for Far Esatern Studies (IFES)
NK Brief No. 09-2-18-1
2/18/2009

The online newsletter Open News for North Korea has recently reported that the cost of rice in the DPRK has fallen drastically. The report stated, “The price of rice in a number of cities, including Pyongyang, Nampo, Sinuiju, Hyesan, and Chungjin, has fallen an average of 300-400 won since the middle of last month,” but noted, “however, this is the nominal price, and considering that North Korea’s exchange rate has risen 10-20 percent compared to the Chinese Yuan, the actual fall in price is even greater.”

The price of one kilogram of rice in Pyongyang at the end of last month was 1700-1800 won (earlier prices were from 2000-2100 won); In Pyongsong and Soonchun, 1700won (2100 won), in Sinuiju, 1660 won (2000 won), in Hyesan, 1800 won (2500 won at the end of November), and Chungjin, 1800-1900 won (2000-2500 won at the beginning of January).

The newsletter attributed the drop in prices to the fact that rations from last year’s harvest were distributed to farmers on collective farms in January, and those farmers are now selling those rations in markets. The article explained that prices drop in January and February every year for the same reason.

In addition, North Korea reported that last year’s harvest was the largest in recent years, and that the North had imported large quantities of foodstuffs from China over the past several months. The newsletter stated that this, along with U.S. food aid shipped to Nampo, further added to the drop in prices.

“The North Korean Cabinet handed down an internal order to exchange foreign currency gained through exports until the end of December last year to import as much food as possible,” and the North imported 500 tons of Chinese rice through Sinuiju by January 9. Authorities insisted that after this first import, “[the North] will continue to exchange foreign currency for rice.”

These rice imports are being handled by mining and trade offices, including coal mining companies, the Central Party Underground Special Offices (Reungra Office 88, etc.), Kangsung Trade Office No. 54, which is controlled by the North’s military, Ryongaksan Trade Office, Eunpasan Trade Office.

North Korea is setting aside some imported rice as emergency stores, explaining that they are “in case South-North tensions escalate.”

Wednesday 4 March, 14:00 – 17:30
KVK The Hague, Randstadzaal
Koningskade 30, 2596 AA  Den Haag

This event is sponsored by GPI Consultancy (see previous posts here).

Speakers include:

Willem Lobbes, boardmember of the Dutch Korean Tradeclub, Director of Lobbes Insurance Consultants

Representative of the DPRK Embassy in Bern, Switzerland

Egbert Wissink, CEO of NovolinQ BV

Professor Evert Jacobsen, University of Wageningen

Kees van Galen, CEO VNC Asia Travel
 
Paul Tjia, Director of GPI Consultancy

The AGENDA can be found here (PDF).

The REGISTRATION FORM can be downloaded here.

The South Korean and Indian governments are finalizing a trade concession agreement that will lower Indian import tariffs on some goods produced in the Kaesong Zone. According to India’s Economic Times:

Sounds odd, but some select North Korean goods may soon get special trade concession in India after New Delhi signs a trade pact with South Korea. In fact, the North Korean city of Gaesung will emerge as a major beneficiary as part of the terms and conditions of the India-South Korea comprehensive economic partnership agreement (CEPA), which is likely to be signed soon, sources close to the development told SundayET. The North Korean city is located just 60 km north of Seoul, the capital of South Korea.

Though Indian negotiators initially showed reluctance to such a deal, South Koreans were very keen as many of their companies have invested heavily in the region and set up many factories in that city, using cheap North Korean labourers. Goods produced at Gaesung include low-end engineering products, leather goods, jewellery, chemicals and textiles.

When contacted, commerce secretary GK Pillai confirmed to SundayET that India would extend the same concession to goods produced at Gaesung too. “It’s a matter of 30-40 products which are not very high-end. Those are not cars or steel. Yes, Gaesung is in North Korea, but it’s very much a part of South Korea’s economic co-operation plan. Both the Indian and the Korean (South Korean) governments have agreed to the CEPA, and it should be coming into effect from June or July this year,” he said.

Once the partnership agreement is signed, it will be the first such instance in which India recognises the outward processing concept and gives the same status to goods produced outside the negotiating country with those produced inside. Though Mr Pillai said there was no issue regarding Gaesung, sources close to the development added that India was not very keen on allowing those products.

“India was opposed to the idea as other countries too may demand the same model later. What if a country entering into a trade agreement with India chooses a place in Bangladesh or Pakistan for outward processing,” said a senior government official.

The trade volume between India and North Korea is quite insignificant if it’s compared with that of India-South Korea. During FY08, India’s import from North Korea was worth a mere $161 million, which was 2.6% of that from South Korea. In case of exports, the figures are somewhat better. The total export from India to North Korea was $850 mn in FY08 which was 29% of India’s export to South Korea.

The Bank of Korea, the South’s central bank and most cited source of DPRK economic statistics, estimates North Korea’s gross exports (to all countries except South Korea) in 2006 and 2007 at $950 and $920 (USD in millions) respectively.  They estimate the DPRK’s imports in these years at $2,050 and $2,020 (USD in millions) respectively. 

According to the data in this article, North Korea’s exports to India ($161 million) are a non-trivial 17.5% of its total exports (assuming the 2007 number is approximately current and changes in inflation and exchange rates are trivial).  The DPRK’s imports from India, $850 million in 2008 (according to the article), are a whopping 42% of North Korea’s estimated 2007 total imports.  Either India is now one of the DPRK’s major trading partners, or there was a short-term spike in DPRK-India trading activity, or these numbers are fishy.

Setting this debate aside, a further question arises—how will these transactions be recorded?  Since the DPRK has a trade relationship with India, will goods from Kaesong be flown/shipped from the DPRK to India and counted as North Korean trade, or will goods be shipped from Kaesong to South Korea and then sent to India—to be counted as South Korean trade? 

My suspicion is that the Kaesong goods will be counted as South Korean merchandise trade since this is a South Korea-India trade deal.  If the goods are recorded as South Korean, agreements of this sort will make it much more difficult in the future to determine the DPRK’s trade volume using mirror statistics.  This is because the country of origin records kept by the DPRK’s trading partners will show goods produced in the Kaesong zone as originating in South Korea.  As a result, the DPRK’s merchandise exports could go underestimated.

Read the full story here:
Ever heard of Gaesung? Gear up for its products
The Economic Times
Shantanu Nandan Sharma
2/15/2009

The Institute for Far Eastern Studies (IFES) published an interesting paper (with the above title) on legal reform in the DPRK.  Below are some highlights.  Links to the entire paper at the bottom.

As citizens have been left without state provisions for subsistence since the state did not have the material resources to supply the people through its central rationing system, the vast majority of individuals and organizations had to support themselves. Legitimizing commercial and market activity and expanding the scope of private ownership were a part of this effort. One of the most important laws reflecting this transformation is the Damage Compensation Law (sonhae bosang-beop), which is the North Korean version of a general torts law. This law holds an individual or any legal entity liable for its tort when damage is inflicted. Monetary compensation is the rule, while restoration is allowed when possible.

Under the socialist system, where the state is responsible for the provision of a citizen’s livelihood, tort law was of little use. Even in the case of death, one’s family would not suffer economically since the state provided sustenance rations. However, with the collapse of the public distribution system, the North Korean authorities could no longer maintain their socialist system. Since an individual now has to rely on his or her own devices, the loss of the employment, for example, directly inflicts a financial burden on the individual or family. Therefore, damage to property or person should be compensated for by the responsible party. Therefore, the new damage compensation law acts as a new mechanism for the protection of private property, and strengthens individual responsibility for negligent acts that inflict damage on others.

and…

Relaxation of law and order, along with the laxity of organizational control due to economic difficulties, changed individual attitudes toward government authorities and organizations in which these individuals were members. Individuals became more independent from the state and its organizations, since both the state and more directly engaged organizations lost important means of control over individuals in society due to the lack of resources and the inability to provide basic necessities to the people.

Under these circumstances, individual victims had no appropriate method to seek compensation for damage through an official dispute resolution process. This has led to an environment in which self-remedy has become the rule, rather than the exception. Although new criminal law punishes those who have used force in asserting their rights, there is no effective means of dispute resolution outside of taking advantage of officials willing to look the other way in exchange for favors, or hiring thugs to more directly resolve disagreements. Citizens can buy justice through bribes, and law enforcement officials are especially helpful in these endeavors when their palms are greased. This is much more economical as well as effective than bringing a case to the relevant official agency, which is generally incapable of resolving problems and instead further exploits the situation.

On courts and lawyers…

For example, the most prominent role of the court in North Korea, where other types of lawsuit are very unusual, was to handle divorce settlements, since divorce through simple agreement of the two parties was not allowed. Ordinary citizens went so far as to perceive settlement of divorce to be the most important role of the court. Criminal cases were also unusual. Political crime is handled through a non-judicial process, while many deviances are resolved through unofficial processes within more local organizations. The role of the court in resolving disputes was negligible, aside from divorce. Since the role of law enforcement agencies is to protect the state and secure the socialist system, the most important qualification for them is not legal expertise, but rather, loyalty and devotion to the North Korean ideology and system.

On the other hand, the Lawyer’s Act of 1993 prescribes the required qualifications of a lawyer. Those who are eligible to work as lawyers are those who are certified legal professionals, those who have working experience of no less than 5 years in legal affairs, or those who have a professional license in a certain area and have passed the bar examination after a short-term course in legal education. This qualification for working as a lawyer signifies that the state wants to equip the judicial system with legal professionals. Although there is no explicit professional qualification for a judge or prosecutor, we may assume that legal professionals have been elected or recruited in practice. This trend is likely to be reinforced as these social changes continue to unfold.

New provisions were also introduced to reinforce the judicial system. For example, interference with a law enforcement official’s performance of duties is now a punishable offence ; Threatening a witness or exacting revenge has been criminalized ; Non-execution of judgment will now be punished. Although the introduction of these provisions was an expression of the government’s effort to bring in a more effective judicial system, it would not be an easy task under the vague status of transformation. The state is very cautious and reluctant to undertake bold or fundamental changes due to concerns about political instability. Therefore, it takes time for various coherent mechanisms to fully support a market system.

You can download the entire paper in PDF format here.

You can read it on the IFES web page here.

Martyn Williams writes in The Standard:

Koryolink, the North Korean 3G cellular network established in mid-December by Egypt’s Orascom Telecom, has attracted several thousand subscribers in the first two weeks since it began accepting applications in January.

“We didn’t start sales until about two weeks ago,” said Naguib Sawiris, chairman of Orascom Telecom in a telephone interview. “So far we have about 6,000 applications. The important point is that they are normal citizens, not the privileged or miliary generals or party higher-ups. For the first time they have been able to go to a shop and get a mobile phone.”

Orascom has a single shop in Pyongyang and is in the process of expanding its sales network, he said.

But while Koryolink’s first customers might not have high-profile official jobs, they are among the more wealthy in society and price, particularly of the handsets, stands as an obstacle to greater penetration.

“The price is quite high,” said Sawiris. “The government has put a big tax on handsets and it’s making it difficult for everyone to participate but we are having negotiations with the government to reduce that.”

The handsets Koryolink is offering, localized Korean versions of phones from China’s Huawei, cost between US$400 and $600 after the government levy has been added and there’s also calling charges.

The cheapest subscription costs 850 North Korean won per month. That’s about US$6 at the official exchange rate but only 24 cents at the current black market rate used by many citizens and traders. Calls on this tariff are charged at 10.2 won per minute. The highest package costs 2,550 won per month and call rates are 6.8 won per minute.

But all calls can be monitored:

With the launch of the Koryolink network the state continues to have the ability to monitor what its citizens are saying and can eavesdrop on calls if it wants, said Sawiris.

“That’s the right of the government,” he said.

How long to get the project moving?

It took about a year from that initial contact to reach an agreement and another nine months to get the network installed.

“We were quite worried about 2 things: the time it would take and the fact that they would really let normal citizens purchase lines.”

The full article is worth reading here:
North Korean 3G service attracts 6,000 in 2 weeks
The Standard
Martyn Williams
2/5/2009

The purpose of these types of indexes is to put pressure on world governments to improve their economic policies.  Unfortunately, the DPRK has come in last place for as long as I have been paying attention….

From the 2009 Index of Economic Freedom:

North Korea’s economic freedom score is 2, making its economy the least free in the 2009 Index. North Korea is ranked 41st out of 41 countries in the Asia-Pacific region.

North Korea does not score well in any single area of economic freedom, although it does score some minimal points in investment freedom and property rights. The Communist Party controls and commands almost every aspect of economic activity. Since the early 1990s, North Korea has replaced the doctrine of Marxism’Leninism with the late Kim Il-Sung’s juche (self-reliance) as the official state ideology. Yet the country’s impoverished population is heavily dependent on government subsidies in housing and food rations even though the state-run rationing system has deteriorated significantly in recent years.

North Korea devotes a disproportionately large share of GDP to military spending, further exacerbating the country’s already poor economic situation. Normal foreign trade is minimal, with China and South Korea being the most important trading partners. Trade with India is increasing. No courts are independent of political interference, and private property (particularly land) is strictly regulated by the state. Corruption is rampant but hard to distinguish from regular economic activity in a system in which arbitrary government control is the norm.

The Democratic People’s Republic of Korea is one of the world’s most oppressed and closed societies, and its Communist rulers have repressed basic human rights and nationalized all industry since the country’s founding in 1948. In the 1990s, floods and droughts exacerbated systemic shortcomings and led to severe famine and millions of civilian deaths. North Korea’s economy is mainly supported by international aid and trade with its major trading partners, China and South Korea.

Business Freedom
0.0
The overall freedom to start, operate, and close a business is extremely restricted by North Korea’s national regulatory environment. The state regulates the economy heavily through central planning. Economic reforms implemented in 2002 allegedly brought some changes at the enterprise and industrial levels, but entrepreneurial activity is virtually impossible.

Trade Freedom
0.0
The government controls all imports and exports, and formal trade is minimal. North Korean trade statistics are limited and compiled from trading partners’ data. Most trade is de facto aid, mainly from North Korea’s two main trading partners, China and South Korea. Non-tariff barriers are significant. Inter-Korean trade remains constrained by North Korea’s unwillingness to implement needed reform. Given the minimal level of trade, a score of zero was assigned.

Fiscal Freedom
0.0
No data on income or corporate tax rates are available because no effective tax system is in place. The government plans and manages almost every part of the economy. Given the absence of published official macroeconomic data, such figures as are available with respect to North Korea’s government expenditures are suspect and outdated.

Government Size
0.0
The government owns virtually all property and sets production levels for most products, and state-owned industries account for nearly all GDP. The state directs all significant economic activity. Large military spending further drains scarce resources.

Monetary Freedom
0.0
Price and wage reforms introduced in July 2002 consisted of reducing government subsidies and telling producers to charge prices that more closely reflect costs. Without matching supply-side measures to boost output, the result has been rampant inflation for many staple goods. Because of the ongoing crisis in agriculture, the government has banned sales of grain at markets and returned to rationing. A score of zero was assigned.

Investment Freedom
10.0
North Korea generally does not welcome foreign investment. A small number of projects may be approved by top levels of government; however, the scale of these investments is also small. Numerous countries employ sanctions against North Korea, and ongoing political and security concerns make investment extremely hazardous. Internal laws do not allow for international dispute arbitration. One attempt to open the economy to foreigners was North Korea’s first special economic zone, located at the remote Rajin-Sonbong site in the Northeast. Wage rates in the special zone are unrealistically high because the state controls the labor supply and insists on taking a share of wages. More recent special zones at Mt. Kumgang and Kaesong are more enticing. Aside from these few economic zones where investment is approved on a case-by-case basis, foreign investment is prohibited.

Financial Freedom
0.0
North Korea is a command-and-control economy with virtually no functioning financial sector. Access to financing is very limited and constrained by the country’s failed economy. The central bank also serves as a commercial bank and had more than 200 local branches in 2007. The government provides most funding for industries and takes a percentage from enterprises. Foreign aid agencies have set up microcredit schemes to lend to farmers and small businesses. A rumored overhaul of the financial system to permit firms to borrow from banks instead of receiving state-directed capital has not materialized. Because of debts dating back to the 1970s, most foreign banks will not enter North Korea.

Property Rights
5.0
Property rights are not guaranteed. Almost all property, including nearly all real property, belongs to the state, and the judiciary is not independent. The government even controls all chattel property (domestically produced goods as well as all imports and exports).

Freedom From Corruption
5.0
After the mid-1990s economic collapse and subsequent famines, North Korea developed an immense informal market, especially in agricultural goods. Informal trading with China in currency and goods is active. There are many indicators of corruption in the government and security forces. Military and government officials reportedly divert food aid from international donors and demand bribes before distributing it.

Labor Freedom
0.0
As the main source of employment, the state determines wages. Since the 2002 economic reforms, factory managers have had limited autonomy to set wages and offer incentives, but highly restrictive government regulations hinder any employment and productivity growth.