North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
2013-4-25

After North Korea’s currency revaluation in 2009, North Korean currency is still unstable and North Korean markets near the DPRK-China border are reportedly filled with Chinese merchandise, with transactions being conducted mainly in Chinese yuan.

An online newspaper, the Daily NK, reported that markets in the city of Hyesan (Ryanggang Province) and surrounding areas are using Chinese yuan as the primary currency for transactions rather than local North Korean won.  Rice prices are standard indicators of inflation in North Korea and even rice was reported to be exchanged in yuan.  As the monetary value of domestic currency continues to fall, North Korea is experiencing hyperinflation and North Koreans are showing a preference for the more stable Chinese yuan over won.

With an exception of rice, vegetables, and seafood, manufactured goods including confectioneries, the daily necessities for sale in these markets are mostly from China.  As well, some South Korean items such as instant noodles, Choco Pies, and butane gas are sold openly in the markets.

Border areas have a higher rate of Chinese yuan usage than inland areas, as for years traders have been buying Chinese goods with Chinese yuan to sell in the domestic markets.  However, with the unstable domestic currency, more and more North Koreans have been using Chinese yuan over the last three years.  Some report goods bought with North Korean won must be converted to the CNY exchange rate.

As of mid-April, the exchange rate of 100 CNY to KPW was 130,000. However, Pyongsong and Pyongyang cities used mainly US dollars and local won in equal rates.

A video recording obtained by the Daily NK unveiled the landscape of the marketplace and nearby alley markets of  Hyesan and surrounding areas.  Items for sale include jackets, mufflers, gloves, coats and other winter clothing as well as cosmetics, perfumes, toothpaste, toothbrushes and other daily goods. Transactions were being made in Chinese yuan.

North Korean authorities are waging a crackdown against the use of the yuan in the markets but merchants continue to use yuan in secret.

The high number of Chinese goods in North Korean markets can be attributed to the failed production system of the people’s economy of North Korea, which began to tumble in the late 1990s. As the regime began to invest excessively in its military sector, production in the manufacturing sector declined.

Although North Korean products appear in the markets, most people prefer Chinese goods due to their better quality.

A recent article in the official state economics journal of North Korea, Kyongje Yongu (Journal of Economic Research), criticized the “trade companies for focusing on only one or two countries,” expressing concerns that, “the whole nation may experience political and economic pressure from trade companies that restrict foreign trade to only one country.”

Kim Jong Un has also expressed official disapproval against “import syndrome” of the people and regarded it as an obstacle hindering the development of North Korea’s light industry.

Although no specific country was named, it is believed that China makes up over 80 percent of North Korea’s total foreign trade. North Korea continues to show vigilance against its rising dependence on China.

Institute for Far Eastern Studies (IFES)
2013-3-21

North Korea announced that it has instituted a new law to begin levying tax in the Mount Kumgang Tourist Zone which has been — until now — a tax-free zone. In addition, a personal protection regulation for tourists was also added to its tourism regulations. North Korea has been modifying laws pertaining to the Mt. Kumgang area in order to develop it as a special tourism zone.

Last week, Yonhap News reported that it had obtained from North Korea a book that was released last November on North Korea’s laws and regulations on international economic policy. According to the book, North Korea adopted in June 2012 a new tax regulation for the Special Zone for International Tour of Mount Kumgang. The law was passed by the Presidium of the Supreme People’s Assembly.

The new tax regulation stipulated that any companies or individuals (foreigners and oversees Koreans) who conduct business transactions or make profit from the Special Zone for International Tour of Mount Kumgang are subjected to tax.

The business income tax applied in the Mount Kumgang zone are on average about 14 percent of one’s yearly profit (infrastructure projects including airport, railways, roads, and port construction only pay 10 percent) and individual income tax ranges from 5 to 30 percent when monthly income is 300 euros (approximately 430,000 KRW).

The tax regulation also covers property, inheritance, transaction, business, and local tax. This comes as a subordinate law under the Special Law for International Tourism in Mount Kumgang, which was enacted in May 2011 and subsequently revoked the monopoly rights of Hyundai Asan.

As such, this law likely will impact South Korean investment in the Mount Kumgang tourism industry.

In the past, working closely with Hyundai Asan, North Korea designated the tourist area as a tax-free zone. There were also no separate laws regarding the levying of taxes on foreigners except for South Korean tourists, who were required to pay 50 USD per person.

In the ‘Tourism Regulations of Mount Kumgang International Tourism Zone,’ a clause was added that specified the special travel bureau for international tourism was responsible for the protection of personal safety and property of tourists in Mount Kumgang. The special travel bureau for international tourism is under the jurisdiction of the Guidance Bureau of the Special Zone of Mount Kumgang International Tourism.

North Korea’s decision to insert a clause ensuring the safety of tourists is likely due to the fact that this issue has continually been raised as a main concern since the death of a South Korean tourist in the zone in July 2008 and subsequent halt of inter-Korean cooperation in the Mount Kumgang project.

In addition to the new tax and tourism regulations, North Korea also made new regulations pertaining to the foundation and management of enterprises; customs; access, visitation, and housing; insurance, and environmental protection, among others.

According to RFA:

North Korea’s regime is distributing special monthly payments in U.S. currency via a cash card system to high-ranking military officers in a bid to maintain loyalty, according to a source inside the country.

The payments can be spent at stores and restaurants equipped with card readers which accept foreign currency, the source told RFA’s Korean Service Wednesday, speaking on condition of anonymity.

“Since last year, North Korean generals in the military have been receiving a U.S. dollar cash cards every month,” said the source, who claims to have wide knowledge of the North Korean military.

“This is Kim Jong Un’s new instruction to guarantee a good lifestyle for the generals,” he said, referring to the country’s young “Supreme Leader” who took power after his father Kim Jong Il’s death in December 2011.

According to the source, four-star generals in the North Korean military receive around U.S. $1,200 each month on their cards, while three-star generals get U.S. $1,000 and two-star generals make U.S. $700. These payments are on top of their monthly salaries.

The special payments drawn by the generals dwarf the average government worker’s monthly salary of about 2,000 to 6,000 won (U.S. $0.70 to $2 based on prevailing market rates).

“The amount of cash on the card depends on the person’s level in the military,” the source said.

“When you have spent all of the cash, the card gets recharged again the following month. I’m not sure whether the provider is ‘Office 39’ of the Workers’ Party or the General Logistics Bureau.”

Office 39 of the ruling Workers Party is believed to maintain a foreign currency slush fund, while the General Logistics Bureau controls logistics, support, and procurement activities for the massive North Korean military.

The source said that recipients of the cash card are not limited to generals, but also include other high-level officers from a unit that directs infiltration activities by North Korean military agents in South Korea and another unit that is in charge of “electronic combat” in the General Reconnaissance Bureau.

“A colonel in the General Reconnaissance Bureau is able to spend up to U.S. $400 a month on the card,” the source said.

“A high-ranking military officer who is not a general can receive U.S. currency on a card if he is in charge of an important duty.”

There are a number of stores and restaurants where recipients can spend their cash in the capital Pyongyang, the source said.

Generals can also use their cards at guesthouses in seaside resort cities like Cheongjin in North Hamgyong province and Hamheung in South Hamgyong province, which only cater to officers of their rank.

For their convenience, card readers have been set up at places where foreign currency is traded, he said.

I have previously posted on the DPRK’s debit card system here, here, and here.

There are a number of reasons why this makes a particularly effective control tool.  To begin with, the military senior staff are dependent on the party to receive their elite consumer goods.  Additionally, these money balances cannot be directly spent in the markets or easily transferred to third parties.  Finally, in theory, all purchases can be audited. FECs (FOreign Excahnge Certificates) on speed.

Read the full story here:
North Korean Generals Get Cash Cards for Loyalty
RFA
2013-2-21

Pictured Above (Google Earth): The Hyesan Market (L) and a street market (R).

According to the Daily NK:

The authorities in Hyesan have embarked on an experiment that permits multiple traders to utilize each stall in the city jangmadang (market).

A source from the Yankang Province city told Daily NK on the 30th, “Hyesan Municipal People’s Committee has been struggling for a while to decide what to do with all these traders in the streets outside the market. So, they’ve decided to try and co-opt them by restarting stall-sharing arrangements. Any trader, even ones who used to trade in the streets, can now operate inside the market as long as they are ready to pay.”

“The traders rotate six days a week, and on Sundays the original stallholder gets to decide who trades there,” the source went on.

However, many of the original stallholders are reportedly angry at the move, according to the source, with many asking why they are being stopped from trading for almost half the week.

“But,” she said, “the Market Management Office is having none of it, so they have little choice but to oblige.”

The idea of stall-sharing has been tried before in Hyesan, but with little success. “Just last year they ordered the same thing to happen,” the source recalled, “but it wasn’t long before things went back to normal.”

That being said, she went on, “Now because the order has come from the Upper (Central Party), they are really trying to do it.”

Defectors from the city and others with experience of trading directly in the market say the measure has far more to do with controlling traders working illegally on the city streets than improving the efficiency of the market itself. In fact, they say the measure is likely to have a deleterious effect on market operations.

Seo Ok Ran, a 42-year old defector now living in the Dongdaemun area of Seoul pointed out, “Last year when they did this I had a hard time finding the right stallholders for the items I needed. At the end of the day, it just reduces trade.”

It is unclear whether the new rules are being applied nationwide, or are restricted to the area under the remit of Hyesan Municipal People’s Committee.

Read the full story here:
Stall-Sharing Returns to Hyesan
Daily NK
Kang Mi Jin
2012-12-1

Stephan Haggard posts some economic data from the Kaesong Industrial Zone. I repost most of it here for archival purposes:

According to the MOU, the average monthly wage at KIC has reached $128.3 as of the first half of 2012. This marks a steady increase from $68.1 in 2006, $71.0 in 2007, $74.1 in 2008, $80.3 in 2009, $93.7 in 2010, $109.3 in 2011. One source of the increase is a built-in escalator clause on the minimum wage payment, which started at $50 and has increased 5% a year over the last six years. But that only gets you to about $67 for this year.

The remainder of the observed increase is apparently the result of additional payments for overtime, which has been rising dramatically. Average weekly working hours were already 55.2 hours in 2006 but now stand at 61.6 in 2012 (up to July). If we knew that these additional hours were the result of the free choices of hard-working, upwardly mobile workers we would still probably find it a little excessive. But of course, the advantages of working in Kaesong are such that North Korean authorities have absolute power to hire and fire at will. There is no way of knowing whether workers would choose this regimen if they were organized or not.

But the story is much worse, of course, because we don’t ultimately know what share of these wage payments actually end up in the hands of the workers in the complex. Wages are paid in U.S. dollars to the North Korean authorities by the South Korean companies operating in the complex. 45% of the wage bill–15% for “social security” and 30% for “socio-cultural policy entitlements”–flows into the regime’s coffer, while the remaining 55% is supposedly given to the workers in either DPRK won or coupons.

But not so fast. A crucial question is the exchange rate at which workers are paid and the value of the “coupons” they receive. We hardly need to state the obvious: North Korean workers are not getting paid the won equivalent of their dollar salaries at anything resembling the shadow-market exchange rate that reflects actual scarcities. At least in the Yonhap report, the MOU makes no mention of what the real dollar equivalent of won payments are using a realistic exchange rate. But given the country’s high inflation and rapid depreciation of the exchange rate—see my colleague Marc Noland on this—the dollar value of what North Korean workers actually receive could be only a small fraction—even a very small fraction—of the stated dollar wage .

Why has Kaesong stayed open? The answer lies in a pretty straightforward political economy calculus on both sides. For the South, Kaesong is industrial policy for labor-intensive firms. For North Korea, it is a cash cow that even hardliners have been loath to push the way of the Mt. Kumgang project. Since 2004, total wage payments for North Korean workers in the KIC has totaled $245.7 million, rising from $380,000 in 2004 (the first year of operation) to $61.76 million in 2011 and $45.93 million in the first half of 2012. For Pyongyang, even hardliners can see that this is a no-brainer.

Institute for Far Eastern Studies
2012-10-25

Recently, eight companies in the Kaesong Industrial Complex (KIC) informed that they received tax collection notices, a unilateral decision made by the North Koreans.

The Ministry of Unification and KIC reported that out of the 123 companies, 8 companies were informed by the North Korean authorities to pay about 160,000 USD in total in taxes.

Two companies out of the eight notified companies already paid close to 20,000 USD to the North Korean tax authorities.

On top of taxation, 21 companies were notified to submit additional tax documents. This may be to collect additional information for future tax collection purposes.

The tax authorities are also requiring companies to submit documents related to show proof of purchase of raw materials, and submit cost analysis documents and a copy of bank statements showing the history transactions.

Last August, the Central Special Direct General Bureau (CSDGB) notified the Kaesong Industrial District Management Committee of new tax bylaws, which enforces a fine up to 200 times the amount of accounting manipulation and abolish the retroactive taxation system while increasing the number of documents for submission. Furthermore, the North is threatening to restrict access to the KIC, if companies fail to pay owed taxes or do not submit requested documents.

In addition to imposing fines for tax frauds, new tax bylaws demanded by the CSDGB included enforcement of additional taxes in the name of corporate income tax, sales tax, and other taxes.

The unilateral decision by the CSDGB to amend bylaws is a violation of Kaesong Industrial District Law, which requires any revision of the laws must be negotiated between the North and the South. Another problematic issue is that tax imposed on the companies is based on North Korea’s own estimation rather than tax reports submitted by the companies of the KIC.

For the first time last year, tenant companies in the KIC recorded an average operating profit of 56 million KRW, finally operating in the black after years in deficit.

UPDATE 2 (2012-10-18): Yonhap and the Korean Times pass along details of the tax increases in the Kaesong Zone:

North Korea has unilaterally imposed hefty taxes on South Korean firms operating in the joint Gaeseong inter-Korean industrial complex in the North while employees there are demanding the firms provide more severance pay, a Seoul government official said Thursday.

“The North imposed the taxes including corporate income and business taxes on some of the companies operating in the Gaeseong complex in accordance with a new tax enforcement regulation (enacted) and delivered by the North last August,” the official said.

The imposed taxes were unilaterally drawn based on the North’s estimation of business activities by the South Korean firms, according to the official. About 10-20 firms out of the total 123 South Korean firms operating in the complex located in the North Korean border city of Gaeseong were reportedly slapped with the heavy taxes.

The amount of taxes imposed and whether the firms paid them are not clearly known, but some of the companies are said to have paid the taxes amid increasing pressure from the North.

The North unilaterally issued the new tax regulations in August, which also allow the country to levy heavy fines if a South Korean firm is found to have accounting irregularities. The regulations allow fines as heavy as 200 times the amount involved in potential accounting fraud by South Korean firms.

As part of efforts to extract taxes, the North is reportedly threatening a ban on the movement of goods and people in and out of the complex if the taxes are not paid, other sources said.

South Korean firms there are protesting the levies, saying “they may thwart normal corporate activities,” but the North may not budge on the decision, they said.

In addition, North Korean employees at the Gaeseong complex are demanding that South Korean firms provide severance pay even if employees voluntarily quit.

Under the current labor terms in Kaesong, South Korean firms are required to offer severance pay only when North Korean employees are involuntarily laid off after at least one full year of employment.

As of end-August, a total of 52,881 North Korean workers were employed by South Korean firms operating in the Gaeseong complex. About 500 to 1,000 employees leave South Korean employers every year, citing health reasons or marriage.

Meanwhile, the South Korean firms continued to register an annual net loss from their operations in the Kaesong complex, the Unification Ministry handling inter-Korean issues said. The combined net loss of 119 firms out of the total 123 stood at 14 million won ($12,681) in 2011, decreasing from net losses of 134 million won and 272 million recorded in 2010 and 2009, respectively, according to the ministry.

Nearly 37 percent of the 119 firms surveyed by the ministry said they feel the North’s interference with their corporate activities is severe, the ministry said. Inability in hiring or firing North Korean workers is the most frequently cited complaint among the 119 firms polled, followed by difficulties in Internet connection and a shortage of North Korean labor.

Read previous posts on this topic below.

(more…)

Institute for Far Eastern Studies

North Korea is exerting efforts in pulling Chinese investments into its special economic zones (SEZs).

On September 7, the 8th Jilin, China-Northeast Asia Investment and Trade Expo was held in Changchun, China as well as the 6th high-level forum for Northeast Asian economic and trade joint venture to promote the joint investment projects of Rason and Hwanggumpyong special economic zones.

At the event, North Korean officials focused on explaining the advantages and favorable conditions for foreign investors, including the joint management committee to be operated by both countries and laws and regulations installed for investment protection.

In the past, North Korea mainly focused on Rason SEZ but this time around, the spotlight was turned to Hwanggumpyong. Chinese officials went on to explain the details of 14.4 square-kilometer Hwanggumpyong SEZ, where five major industries – textiles, modern agriculture, electronics and communications, culture and industrial and trade services – with industry, culture, and service serving as the three major functions of Hwanggumpyong.

Furthermore, the tariff, tax and other benefits will be provided to various industries. The processing trade industry will be exempt from tariffs, and those companies operating for more than ten years will be granted tax exemptions, while those companies contributing to the infrastructure construction, tourism and hotels will be given priority and other favorable conditions. Last year, North Korea only centered its attention to Rason SEZ, with no mentioning of Hwanggumpyong.

Out of the thirty companies that participated at the North Korean exhibit, were from Rason SEZ. These companies represent the successful cases of Rason, recognized for abundant seafood, processed foods, and textile production.

One company from Rason stated, “repair and expansion project for the road connecting Hunchun with Rason will be completed by the end of this year, which will stabilize power supply that can attract more foreign investment from China.” According to a North Korean businessperson, there are 216 companies currently operating in Rason and over 80 percent are joint venture through foreign capital.

Since January 2010, the city of Rason received the designation as the metropolitan city and has improved the business conditions. Foreign companies inviting their business partners from home to Rason became easier, where visas were processed efficiently, as quickly as a day.

There are plans of more briefing sessions for North Korean SEZs to be held in Beijing, later this month. It is planned to be held from September 26 to 27 with over 30 state managed companies and over 100 representatives participating to explain 50 new investment projects.

The invitation of this event reiterated, the purpose of this briefing session was to attract Chinese investment for North Korean companies, for the contribution of economic development and improvement of people’s lives in North Korea.”

Pictured above (Google Earth): Pohang District, Chongjin (in red)

UPDATE 1 (2012-8-23): The Daily NK, which has been the only organization to cover the housing construction in Chongjin (see original post below), reports on the classic problem of political allocation of resources (in this case housing) in socialist economies. According to the article:

A source from Chongjin told Daily NK yesterday, “This rumor started going around that the apartments they are building would first go to decorated soldiers, veterans and discharged military officers, and then the rest would be distributed to ordinary people. As soon as that happened, a group of 40 or more people, many of whom had already seen their former homes demolished and thought they had priority on the housing list, got really angry.”

“The crowd went repeatedly to both the local administrative office and the district people’s committee to demand that a list of those assigned homes be made public,” he added.

During the protests, the source said, “Those who found they were not on the list warned that they would not stand idly by if their new homes were stolen from them. They didn’t back down from the guys from the Ministry of People’s Safety either, not for more than 30 minutes.”

The head of the local administrative office vacated his post due to the trouble and hasn’t been seen since, something that has made the aggrieved individuals even angrier. Upper level cadres are also refusing to meet them, and lower level figures are trying to wash their hands of the whole affair, saying that the list of those assigned apartments can no longer be changed. No longer thinking that the problem can be solved at the district level, the group has sent a letter to the provincial authorities outlining their grievances.

“Their point is that the authorities said that only a small number of the apartments would go to those people (decorated soldiers, veterans and discharged military officers), while most of them were supposed to go to ordinary families,” the source explained.

The source also explained the backdrop, saying that thousands of homes in the Namgang and Pohang areas of the Pohang district of the city have been destroyed since last June, and that the displaced residents from those homes have all been living with relatives and friends while waiting for the chance to move into what they thought were to be their new dwellings.

The problem is not over yet, either. According to the source, “It also looks like some facilities like shops and restaurants that were not on the original plans for an area around the amusement park are also being built, which will reduce the volume of housing available. Who can say how people from that area who’ve lost their homes will object if they lose out.”

This article is interesting to me because it answers a couple of questions I have had for some time: “What happens to families displaced by urban construction projects?” [Answer: for the most part, they go live with family members until replacement housing is allocated] and “How is new housing allocated if not through de-facto sales?” [Answer: Ideally through an objective and enforceable list based on “need”. However, this process is often corrupted. See here, here and here].

ORIGINAL POST (2012-8-14): According to the Daily NK:

It has been confirmed that affluent local wholesale traders have been co-opted to support the construction of apartment buildings in Chongjin, North Hamkyung Province.

A Chongjin source told Daily NK yesterday, “The construction of high-rise apartment buildings in the Pohang district of the city is being done by enterprises and ‘shock troops’, but there are also local go-betweens at the forefront connecting affluent traders from the region with the construction teams so that the latter can get materials as needed.”

The source went on, “It seems that most of the province’s rich people have gathered here. You can tell that there are people with genuine power involved in the construction by how fast the buildings are going up now.”

Since last May, Chongjin has been working to follow in the footsteps of the Mansudae area of Pyongyang by constructing apartments for 10,000 households, including 2,000 in the Pohang district. The project is said to be part of North Hamkyung Province Party Secretary Oh Soo Yong’s determined effort to show loyalty to the regime of Kim Jong Eun. However, the Party and state lacks the power to follow through on the plans.

The situation is not rare. Rich people and brokers acting as go-betweens are actively involved in all types of construction projects in North Korea today. This was even the case when Pyongyang planned the building of 100,000 apartments in time for the 100th anniversary of the birth of Kim Il Sung earlier this year. Indeed, all North Koreans know that “without the go-betweens this country’s economy would seize up.”

Usually, the North Korean authorities get factory enterprises and units of ‘shock troops’ to do the state’s construction and set in place plans to secure the necessary cement, steel and other materials, but this part very rarely goes according to plan.

For one thing, factories need to be bribed if the construction sites want to get their materials delivered on time, so the middlemen have a close relationship with the factories. Meanwhile, the rich people who finance the construction later receive a share of the finished apartments in return.

Currently in Chongjin, a home on the 3rd or 4th floor of such an apartment costs about $5,000. A rich man investing $7,000 dollars in the construction of a building can expect to make about $3,000 in profit. Other floors cost $3,000-$4,000 at current rates. However, in Pyongyang prices are much higher, with apartments on the 3rd or 4th floor trading for as much as $10,000 dollars.

The source said, “There are nicely dressed men striding around the construction site checking on progress, and these are the rich folk.”

The publicly available satellite imagery of Chongjin is too old to show recent construction, and since I have no budget, staff, or connections to people who have the ability to get new satellite imagery, I cannot show you any recent pictures.

Despite the lack of physical evidence, however, I have good reason to believe that new residential construction is underway in Chongjin.  This is because I do have publicly-available imagery of other DPRK cities and towns which are being “upgraded” with new apartment blocks. Recently I wrote about construction in Rason. I will post imagery of additional towns and cities if I get the time.

Read the Daily NK story here:
Rich Traders Invest in Chongjin Construction
Daily NK
Choi Song Min
2012-08-10

Pictured above (Daily NK): The 2012 Won / US$1 exchange rate up to 2012-7-13.

According to data provided by the Daily NK, the won/dollar exchange rate fell (the won appreciated relative to the dollar) nearly 28.4% from 5,100W/US$1 in December 2011 (a high following Kim Jong-il’s death) to approximately 3,650W/US$1 in February 2012. Since February, however, the won has showed a steady depreciation and the exchange rate has risen 48%  to 5,400W/US$1 as of July 13.

So as I sit here eating breakfast I am wondering what caused these swings in the exchange rate?

Firstly, what was behind the dramatic fall in the exchange rate (and food prices) in January and Febraury? A simple answer may be a decrease in uncertainty and risk.  Following Kim Jong-il’s death, the DPRK did not repeat the mistakes made after the passing of Kim Il-sung.  For the most part markets remained open and “regular” activities of the state were highlighted in the domestic media and reported to contacts overseas. It is also possible that Chinese intervention, particularly in the form of food assistance and trade facilitation, could have played a role.

Secondly, does this mean that the increase in the exchange rate and food prices is a result of growing uncertainty? I am not convinced. It is beyond the scope of a blog post to tease this kind of information out, but here are some other things to think about: Economic uncertainty (pending policy changes, inflationary public finance), balance of trade (fall in net exports/rise in net imports, aid), capital flows (investment, aid, remittances), weather (drought/floods), “lean times” leading up to the fall harvest.

Some of these things matter more than others but it is important to keep in mind that the North Korean won is worth about as much today as it was when Kim Jong-il died. Since the won/US$ exchange rate is highly correlated with the price of rice (a fact that can be visually confirmed on the Daily NK web page) this means that food prices are also pretty high at the moment.

UPDATE 1 (2012-8-16): The Institute for Far Eastern Studies (IFES) has also posted a few words on this topic:

Rice Prices and Exchange Rate on the Rise
2012-8-16

Since Kim Jong Un’s ascent to power, the rice prices and exchange rates are on the rise. Despite Kim Jong Un’s proclaimed priority in elevating the quality of life for the North Korean people, uncertainty are prevalent in the country as Kim Jong Un has yet to meet the expectations of the people for economic revitalization or reform.

Compared to last year, the prices of rice last September that ranged 2,400 to 2,500 KPW per 1 kg, has jumped to 4,500 KPW in December right after the death of Kim Jong Il and exchange rates that averaged 2,800 to 3,000 KPW against one USD soared to 5,000 KPW. Although the prices have stabilized since then, the prices are climbing once again, as the price of rice in February at 3,100 KPW has gone up to 3,600 KPW/kg and exchange rate of 3,700 KPW per dollar jumped to 4,800 KPW in June.

In some places, the price of rice is reported to be above the 5,000 KPW range. According to Daily NK, an internet news outlet, the prices of rice in major cities like Pyongyang, Haesan, and Sinuiju has steadily increased for the last four months.

The price of rice in Pyongyang was 2,600 KPW/kg in April but it has slowly climbed to 3,000 KPW in June 5 to 4,900 KPW in end of June and is 5,300 KPW as of July 13. In Sinuiju and Haesan, the rice prices in April were around 2,600 to 2,700 KPW but soared to 4,300 to 5,000 KPW in July 13.

Exchange rates are also unstable as exchange rate to one US dollar that averaged 3,700 KPW in March soared to 4,200 KPW in April 25, 4,400 KPW in July 14 to 5,400 KPW by July 13.

Seasonal factors are also adding to the price fluctuations. May to August is normally a difficult time for North Korea with frequent famine. Combined with extreme drought conditions in June, accelerating inflation, and people’s rising apprehension about the economy, some rice wholesalers are not withholding the sales of rice.

The rising rice prices and exchange rate is expected to continue for the time being. Flood damages and other natural disasters and the trauma from the failure of last currency revaluation in November 2009 are factors adding to the price escalation.