Archive for the ‘Fiscal & monetary policy’ Category

DPRK replaces 5,000 won note

Monday, August 18th, 2014

UPDATE 3 (2014-9-2): Simon Cockerell has posted a photo of the new note to his instagram account. You Can see it here.

UPDATE 2 (2014-8-18): According to the Daily NK:

Daily NK has learned that the recent 5000 KPW note exchange has prompted an overall apathetic response from residents in North Korea. As Daily NK first reported here on July 31st the North Korean authorities informed residents that the largest denomination monetary unit would be replaced with a new bill.

US Dollars and Chinese Yuan being the currencies of choice in the markets, the recent collection and exchange of the highest denomination bill “doesn’t really affect people’s lives.”

A source in the capital reported to Daily NK on August 14, “A new [5000 KPW] note has been issued, but the exchange of old to new notes hasn’t made much headway.” This is hardly a nuisance to most residents, who are used to adapting, she went on to explain. “People are fairly indifferent about the new 5000 bill, and anyone who expresses concern about it is considered to be a fool by others.”

Production of the new 5000 KPW notes began last year; at the end of July 2014, the Chosun Central Bank announced that residents would have until 2017 to exchange the old bills. “At first, residents didn’t know what the exchange rate would be when they converted to the new bills, so a bit of chaos ensued; once they found out it was a 1:1 exchange rate, things have been pretty quiet of late,” she explained. “The number of residents holding 5000 KPW notes is pretty low so there isn’t an atmosphere of concern surrounding the matter.” The source did add that it cannot be verified at this time if those in rural or farming areas are equally as impervious to the matter.

The source cited two chief factors underpinning this resident indifference: trust in the authorities continues to decline, as does the value of North Korean currency.

The 5000 KPW bill is the largest denomination of bill in North Korean currency, but when compared with foreign currencies like Chinese Yuan or US Dollars, its value is dismal, considered by most to be “wastepaper.” By current exchange rates, 1 USD is equal to 8000 KPW; in other words, the largest note in North Korea [5000 KPW] is less than 1 USD or equal to approximately 5 RMB.

Moreover, at current market prices, 5,000 KPW [6000 KPW per kilo] is insufficient for people to purchase a kilo of rice or a dozen eggs [5000 KPW yields six eggs at present]. “Even when people buy a block of tofu [700 KPW], they use dollars,” the source explained. “Because merchants only do business in US Dollars of Chinese Yuan, people save all their money in these currencies.”

Citing the 2009 currency reforms, she explained the shift in public sentiment on the KPW, “People won’t suffer any losses even if there are 10 more currency reforms. Even those in poorer, rural areas regard North Korean currency as something for ‘use by the state’ and keep their assets in rice and other goods. ”

This shift in attitude of North Korean currency as “means of exchange” to “means of savings” occurred during and after the Arduous March in the 1990s [the North Korean famine if 1994-1998]. After ceasing distribution of regular food rations, starvation quickly became rife. In order to minimize dependency on a broken state system, people sought to build assets by saving as much KPW as possible.

Tragically, those savings were reduced to worthless scraps of paper during the currency reforms in 2009.The goal of the currency redenomination of November 30, 2009 was officially to bring inflation under control and eliminate monetary overhang, but the result of the 100:1 redenomination was catastrophic. This led to a complete transformation in resident commercial activity. The North Korean residents lost complete faith in state-issued banknotes and adopted foreign currencies, namely Chinese Yuan and US Dollars, as the preferred legal tender for business transactions.

“Because KPW is ‘not even worth counting’, there are more and more people who don’t care about the new 5,000 won bill,” she went on. “Instead of curiosity or trepidation as to the motivations behind the exchange, people just feel reassured by holding onto foreign currency.”

Once the privilege of traders and Party officials working abroad, accessibility to these foreign currencies has trickled down to market vendors and young students. Daily NK has recently learned that markets in all major cities in the North even provide small change back to customers in US Dollars and Chinese Renminbi.

Read the full story here:
Residents Indifferent to 5000 KPW Swap
Daily NK
Seol Song Ah
2014-8-18

UPDATE 1 (2014-8-12): Chris Green has more at NK News here.

ORIGINAL POST (2014-8-11): According to the Choson Ilbo:

North Korea’s new 5,000 banknotes no longer feature a picture of nation founder and demigod Kim Il-sung. But the new note shows Kim’s childhood home in Mangyongdae.

The new bills feature the house prominently on the front and on the back a museum in Pyongyang that displays gifts Kim and his son Jong-il received from foreign leaders*.

During a botched currency reform in 2009, Kim Il-sung was also dropped from the 2,000 and 1,000 won bills.

The 5,000 won note is North Korea’s largest denomination and nominally worth around US$50, though its actual market value is nearer $1. Workers in the North Korean state economy are paid some W3,000 a month on average, making it vital for most to seek other forms of income.

A North Korean source said when the new notes were officially announced on July 25, they sparked fears of yet another misguided currency reform, triggering a certain amount of chaos as food prices surged temporarily and some people began stockpiling food.

* Presumably the Choson Ilbo is referring to the International Friendship Exhibition at Myohyangsan. This is not in Pyongyang (Though it used to be!).

Read the full story here:
N.Korea Drops Kim Il-sung from New Banknotes
Choson Ilbo
2014-8-11

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Rice prices starting to increase…

Friday, July 25th, 2014

According to the Daily NK:

Market rice prices in North Korea held steady throughout the “farming hardship period” in April and May; however, prices have recently started to rise. In towns near the border, including those in the provinces of Yangkang and North Hamkyung, rice has reached 6,000 KPW per kilo, inside sources report.

“From the end of last week, the cost of rice began to rise, reaching 6,000 KPW,” a source in North Hamkyung Province reported to Daily NK on the 25th. “All five of the markets in Hyesan, including Yunbong, Masan and Hyesan, have seen the same sudden leap.”

“People are used to small fluctuations in rice prices, but they don’t often see a quick 1,000 KPW increase,” she went on.

A source in Yangkang Province confirmed the increase. “Just a few days ago, rice was 5,000 KPW, so imagine my surprise when I went to buy it yesterday,” she said. “It seems that even the sellers don’t know why it happened.”

“They don’t need to be sure why prices have risen; simply, if one raises the price of her rice, the rest will follow suit,” she added.

The source went on to say that she examined conditions across the city on Daily NK’s behalf, checking markets in areas that could have been in a different condition. “Because miners are receiving their rations, I thought maybe prices around mines would be stabler,” she reported, “but in Masan, one of those areas, it was also 6,000 KPW.”

Last month, rice cost 4,300 KPW in Pyongyang, 4,500 KPW in Sinuiji and 5,050 KPW in Hyesan. Moreover, prices actually went down last week, to 4,250 KPW, 4,380 KPW and 4,800 KPW respectively. But now they have increased by 1,000 KPW within a week.

Daily NK sources speculate that the reason for the sharp increase is due to reduced distribution of rice and below-average yield of early new potatoes. Of course, April and May are called the “farming hardship period” for a reason; in other words, supply-side limitations could simply be filtering down to the retail market.

According to the source, local people are concerned that prices could rise to 7,000 KPW, the high point reached during the mourning period for Kim Jong Il at the start of 2012. However, others are less worried, saying, “Since fall is right in front of us, prices won’t rise any more.”

Although rice prices usually vary in accordance with fluctuations in currency exchange rates, recent ups and downs have not followed this pattern. Despite the fact that the North Korean Won is currently 30 KPW stronger per Chinese Yuan higher than it was last month, rice prices have sharply increased.

“In fifteen days, people will harvest barley and have corn that was planted earlier. So rice prices won’t go up any more,” the source in Yangkang Province said. However, the source in North Hamkyung Province voiced the concern that “flooding from the monsoon may influence yields of barley, corn and other grains.”

Analyzing the situation, Kwon Tae Jin of GS&J Institute said, “Rice is never abundant in Hyesan; it must have been affected by drought in eastern parts of China. Travel restrictions put in place to prevent the spread of diseases may have contributed to the increase as well.”

“Once the corn is harvested in August, prices will stabilize for a while. But a poor yield overall could cause them to start rising later,” he predicted.

Read the full story here:
Markets See Quick Spike in Rice Prices
Daily NK
Kang Mi Jin
2014-7-25

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North Korea joins OECD anti-money laundering group

Saturday, July 19th, 2014

According to the JoongAng Daily:

North Korea has joined the Asia Pacific Group on Money Laundering (APG), whose purpose is to prevent funding of terrorism and development of nuclear weapons.

Members of the APG unanimously decided to accept North Korea and Tuvalu as observers during its general meeting held in Macau yesterday.

APG is the Asia Pacific unit of the Financial Action Task Force under the Organization for Economic Cooperation and Development (OECD).

The Financial Action Task Force (FATF) has 41 member countries including the U.S., South Korea, China and Japan and observers include countries such as Germany, France and the U.K., as well as 27 international organizations such as the Asia Development Bank and World Bank.

Since North Korea has been accepted as an observer, it has to follow several rules including the prevention of money laundering, funding of terrorist organizations or actions, sharing its knowledge and experience and following global regulations and laws.

The APG will decide later whether to elevate North Korea from observer status to a member country once it evaluates Pyongyang based on its annual reports to the organization and visits by the representatives of the group over the next three years.

South Korea and many other members are trying to figure out the motive behind the unexpected move by Pyongyang, because North Korea was previously opposed to joining the APG.

“[North Korea’s motive] is a mystery to us,” said a high ranking government official, who requested anonymity. “We suspect that North Korea, while looking for ways to ease the international financial restrictions imposed on them, decided to show their efforts in improving their global image [by joining the APG].

“But since the lists that they need to follow are long, we will probably have wait and see how sincere and determined they are with their decision.”

In other words, it could be a facade as a way for North Korea to ease the sanctions imposed on it, since the possibility that Pyongyang will give up its nuclear ambitions is low.

The action is particularly suspicious because up until last year’s APG meeting held in Shanghai, North Korea refused to join the organization because of the rule requiring members and observers to follow global standards. North Korea at the time argued that it would join the APG only after the agreement to follow UN resolutions was taken out.

The resolutions include prevention of money laundering, nuclear terrorism and development of nuclear weapons, which is the opposite of the North Korean government’s goal of securing both economic growth and nuclear weapons.

But now, North Korea has agreed to follow all regulations presented by APG.

The tide seemed to have turned as financial sanctions imposed by the international community and led by the U.S. have intensified.

Pyongyang suffered heavily last year after the U.S. and China closed the accounts of the Foreign Trade Bank of North Korea, which was known as the money laundering window for Pyongyang. The money laundered through the trade bank is suspected of being used in funding the regime’s control over the country.

In May, the state-run Bank of China said it had notified the Foreign Trade Bank of North Korea that it was closing all of its accounts and suspending all financial transactions. It did not specify the number of accounts in the bank.

The move came as a shock considering China and North Korea’s strong ties. China was previously the lifeline of North Korea, whose economy has been heavily dependent on its close ally.

Last year wasn’t the first time that North Korea’s accounts have been shut down. In 2005, the U.S. froze North Korea’s accounts at Macau’s Banco Delta Asia, which was a heavy blow to Pyongyang’s ability to secure foreign capital.

The recent change of heart seems to have been triggered by a report by the U.S. State Department in May designating North Korea as a country that is non-cooperative against terror, citing its decision not to join either the FATF or APG.

Although suspicious, the South Korean government isn’t disapproving of the move by the North, as there are positive aspects such as better transparency of Pyongyang’s finances if it conforms to the APG’s regulations.

And if Pyongyang doesn’t follow the rules and loses its license as an observer, the sanctions against North Korea will further tighten.

“North Korean representatives, after their acceptance was approved [in Macau], stressed that they will work on following the APG’s international standards and our [South Korean] government has emphasized the importance of following the resolutions set by the United Nations Security Council,” said a government official.

Read the full story here:
North Korea joins OECD anti-money laundering group
JoongAng Daily
Jung Won-yeop and Park Jin-seok
2014-7-19

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Mobilization of idle funds emphasized for fiscal expansion

Friday, June 20th, 2014

Institute for Far Eastern Studies (IFES)
2014-6-18

With the international sanctions against the DPRK and the country’s continual isolation, North Korean authorities are stressing the need to mobilize the “cash in the closet” being kept by more and more North Korean people and institutions.

According to an article published in the Kim Il Sung University Gazette (Vol. 1, 2014, January 20), “The Basic Direction of Financial Management and Measures to Resolve Funding Problems Based on Kimilsung-Kimjongilism,” one solution to finance the enormous defense and economic construction costs is to “mobilize idle funds.”

The article states the following: “Some of the funds that are being circulated in the market have strayed away from the normal production process and distribution passage and remain harbored in the hands of organizations, enterprises, and people. . . . Mobilization of idle funds shall meet the funding needs of the state and serve as a source of supplementary income to increase state revenue.”

The article adds that “The state should secure idle funds of institutions and enterprises through banks and mobilize idle cash kept by the people through savings and insurance,” and furthermore states that “Banks should concentrate to have control over idle funds.”

According to the article, “Dependence on foreign aid to resolve funding problems will lead to continuous financial subjugation.” Mobilization of idle funds is seen as a necessary policy to realize the national goal of “autonomous economy,” which takes precedence over attracting foreign investment.

Since the early 2000s, North Korea has emphasized the need to mobilize institutions’ and persons’ idle funds. But the North Korean people remain reluctant to save money in banks for the fear of revealing their income to authorities and anxiety over the possibility of losing their savings.

The recent increase in North Korean academia’s emphasis on the “fiscal expansion through the mobilization of idle funds” began from late last year, but it also appears to serve the purpose of attracting capital to fund economic development zone projects, which is currently suffering from fund shortages.

North Korea continues to seek opportunities to expand trade and exchanges with Russia and China but is also turning an eye toward the domestic market to fully maximize its objective of fiscal expansion.

In addition, the issue of introducing commercial banks (as a means to effectively mobilize idle funds of the private sector) is being raised again — a policy that remained inactive for a decade due to insignificant results.

North Korea instituted the Commercial Banking Act in 2006, but the actual operation of the bank has yet to be confirmed.  

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Politburo meeting and 1st session of the 13th SPA

Thursday, April 10th, 2014

UPDATE 3 (2014-4-23): Michael Madden and Ruediger Frank have published articles in 38 north analyzing the “election” results.

UPDATE 2 (2014-4-17): 3th Supreme People’s Assembly Holds First Session, Few Changes in Pak Pong Ju’s Cabinet
Institute for Far Eastern Studies (IFES)

The first session of the 13th Supreme People’s Assembly (SPA) held by the Kim Jong Un regime concluded on April 9, 2014 showing no major personnel changes within the Cabinet. The existing regime will continue to lead the North Korean economy, and their recent economic reform measures are expected to gain momentum.

At this session, it was decided that North Korea will retain Prime Minister Pak Pong Ju as leader of the Cabinet, and that many of the other high-level officials will maintain their positions in economic affairs.

It is therefore expected that the Kim Jong Un regime’s economic reform measures, such as the expansion of farmers’ authority (through the Subworkteam Management System), the construction of economic development zones (EDZs), and the system promoting the independent economic management of factories (and all other production facilities), will be implemented smoothly and stably.

It is also expected that North Korea will ramp up the implementation of its economic management improvement measures due to their recent success, which exceeded the state’s expectations. This directly coincides with the decision to retain Pak Pong Ju as Premier, and is an effort to secure the stability, continuity and longevity of North Korean economic policy.

Only three high-level officials in the economic department were replaced at this first session of the SPA: Han Yong Guk replaced Kim Kwang Yong as the forestry minister, Kim Chon Gyun replaced Paek Ryong Chon as the President of the Central Bank, and Ri Je Son was appointed as the Minister of Atomic Energy Industry.

The Ministry of Atomic Energy Industry is presumed to be an expanded and reformed version of the General Bureau of Atomic Energy (GBAE), which previously operated as an entity under the Cabinet. Established in 2013 at the 7th session of the 12th SPA, the Ministry of Atomic Energy Industry is responsible for North Korea’s nuclear program, nuclear policy, and the “byungjin line”, a policy that emphasizes the parallel development of economy and nuclear weaponry.

In 2013, the Korean Central News Agency (KCNA) announced the establishment of the Ministry of Atomic Energy Industry, saying it will “both modernize and systemize the nation’s atomic energy industry.” In the announcement, the KCNA also said, “because [the Ministry] has been founded on a firm base of cutting-edge technology, both the production and quality of nuclear materials will increase, and development will be made in self-sustaining nuclear powered industries.”

The newly appointed Ri Je Son has served as the General Director of the GBAE since 1997, and was the target of United Nations Security Council sanctions after North Korea’s second nuclear test in 2009.

Han Yong Guk has risen up through the ranks in the forestry sector, and Kim Chon Gyun has previously served as both director and vice-president of the Central Bank of the DPRK.

These small changes in Cabinet personnel do in fact signify efforts to maintain the stability of the nation’s economic policy, but the fact that these changes are so few in number also signifies that, after the execution of Jang Song Thaek, “re-shuffling” of personnel within the Cabinet had already taken place to some degree.

Before his execution, Jang Song Thaek had influences on many ministries within the Cabinet, including the ministries of commerce, metal and coal industries, and the Cabinet’s Extractive Industries. Since his execution, North Korea has replaced the head of these ministries.

UPDATE 1 [1st session of SPA] (2014-4-9): KCNA has posted many articles on the first session of the SPA. I have archived the important ones below:

Story 1: 1st Session of 13th SPA of DPRK Held  (KCNA) (PDF). Notes: Kim Jong-un elected as First Chairman of the NDC. State posts determined. One interesting agenda item was not elaborated on: “2. Election of the State Guidance Organ of the DPRK”.

Story 2: DPRK National Defence Commission Elected (KCNA):

Pyongyang, April 9 (KCNA) — The following National Defence Commission was elected at the First Session of the 13th Supreme People’s Assembly of the DPRK:

First chairman of the NDC of the DPRK Kim Jong Un

Vice-chairmen of the NDC Choe Ryong Hae, Ri Yong Mu and O Kuk Ryol

Members of the NDC Jang Jong Nam, Pak To Chun, Kim Won Hong, Choe Pu Il and Jo Chun Ryong.

Yonhap reports on Choe Ryong-hae:

Choe Ryong-hae, a top military official, has become a truly influential figure second to only North Korean leader Kim Jong-un on April 9 when the newly launched North Korean parliament elected him as new vice chairman of the communist country’s most powerful body, National Defense Commission (NDC), during its first session.

Choe, the director of the North Korean army’s General Political Bureau, took up the mighty post that had been kept vacant since Jang Song-thaek, a powerful uncle of the North Korean leader, was executed on treason charges in December.

With his NDC appointment, Choe has grabbed all of the No. 2 positions of the North’s three core power bodies, the Political Bureau of the Workers’ Party’s Central Committee and the party’s Central Military Commission.

Story 3: Presidium of Supreme People’s Assembly of DPRK Elected (KCNA):

Pyongyang, April 9 (KCNA) — The following Presidium of the Supreme People’s Assembly of the DPRK was elected at the First Session of the 13th Supreme People’s Assembly:

President of the Presidium of the SPA of the DPRK Kim Yong Nam

Its Vice-Presidents Yang Hyong Sop and Kim Yong Dae

Its Honorary Vice-Presidents Kim Yong Ju and Choe Yong Rim

Its Secretary General Hong Son Ok

Its Members Kim Yang Gon, Thae Jong Su, Jon Yong Nam, Hyon Sang Ju, Ri Myong Gil, Kim Jong Sun, Kim Wan Su, Ryu Mi Yong, Kang Myong Chol, Kang Su Rin and Jon Kyong Nam.

Story 4: Members of DPRK Cabinet Appointed (KCNA) (PDF).

Yonhap reports:

Meanwhile, the North apparently opted for stability by making no dramatic changes in a Cabinet shakeup, which the parliament rubber-stamped during its session.

The North’s octogenarian titular head of state, Kim Yong-nam, retained his position as president of the Presidium of the Supreme People’s Assembly, with Premier Pak Pong-ju also keeping his job.

What is notable is that the North replaced its foreign minister. Ri Su-yong, a former ambassador to Switzerland, was named to replace Pak Ui-chun as the top diplomat of the communist country.

Ri is known to have served as a guardian of leader Kim and his younger sister Kim Yo-jong when they studied at an international school in Switzerland in the 1990s.

NK News reports on other changes:

Mun Myong Hak replaced Ri Yong Yong as Minister of Coal Industry
Kim Yong Gwang replaced Han Hyo Yon as Minister of Metallurgical Industry
Ri Hak Chol replaced Kang Min Chol as Minister of Mining Industry
Han Ryong Guk replaced Kim Kwang Yong as Minister of Forestry
Kim Kyong Nam replaced Ri Song Ho as Minister of Commerce
Pak Chun Nam replaced Hong Kwang Sun as Minister of Culture
Kim Chon Gyun replaced Paek Ryong Chon as President of the Central Bank
Pak Myong Chol replaced Kim Pyong Ryul as President of the Supreme Court (not a cabinet position)

Story 5: Director of Supreme Public Prosecutors Office Appointed, President of Supreme Court Elected (KCNA)

Pyongyang, April 9 (KCNA) — The 1st Session of the 13th Supreme People’s Assembly of the DPRK appointed Jang Pyong Gyu as director of the Supreme Public Prosecutors Office and elected Pak Myong Chol as president of the Supreme Court.

Story 6: Panel Committees of SPA of DPRK Elected (KCNA)

The following Legislation Committee and Budget Committee, panel committees of the Supreme People’s Assembly of the DPRK, were elected at the 1st Session of the 13th SPA of the DPRK:

Legislation Committee of the SPA of the DPRK
Chairman Choe Pu Il
Members Jang Pyong Gyu, Pak Myong Chol, Pak Thae Dok, Thae Hyong Chol, Cha Hui Rim and Pak Myong Guk.

Budget Committee of the SPA of the DPRK
Chairman O Su Yong
Members Pak Yong Ho, Kye Yong Sam, Hong So Hon, Kim Hui Suk, Choe Yong Il and Pak Hyong Ryol.

Story 7: Statistics on the SPA members (KCNA)

The elected deputies to the SPA are the genuine people’s representatives who are devoting themselves to strengthening the DPRK government and accomplishing the revolutionary cause of Juche, remaining loyal to the idea and guidance of supreme leader Kim Jong Un.

Among the SPA deputies are anti-Japanese revolutionary fighters who participated in the anti-Japanese armed struggle led by President Kim Il Sung and veterans of the Fatherland Liberation War.

17.2 percent of the deputies are service personnel who are performing shining feats at posts to defend the country and worksites to build a rich and powerful country, true to the Songun revolutionary leadership of Supreme Commander Kim Jong Un.

Workers account for 12. 7 percent, cooperative farmers 11.1 percent and women 16.3 percent. They are bringing about shining labor innovations in the van of the heroic advance to build a thriving socialist nation.

Also among the deputies are officials of the party and power bodies, administrative and economic organs and working people’s organizations, those in the fields of science, education, public health, literature and arts and media and various other sectors and those of the General Association of Korean Residents in Japan and organizations under it.

Winners of Order of Kim Il Sung, Kim Il Sung Prize, Order of Kim Jong Il and Kim Jong Il Prize account for 30.2 percent, recipients of the titles of the DPRK hero and labor hero 14. 6 percent and recipients of academic degrees and titles including professors and doctors and scientists, technicians and experts 91.7 percent.

3.9 percent of the deputies are aged below 39, 66.9 percent 40-59, 29.2 percent above 60 and 94.2 percent of them graduated from universities or received similar level of education.

Story 8: Report on Implementation of State Budget for 2013 and State Budget for 2014 (KCNA)(PDF).

16% of the total expenditure was spent for national defence, thus contributing to smashing the enemies’ reckless moves to ignite a nuclear war and the anti-DPRK confrontation racket and powerfully demonstrating the dignity and might of the DPRK.

45.2% of the total expenditure went to the field of economic construction to consolidate the foundation of the self-supporting economy, bring a surge in the production in various fields of the national economy including agriculture and usher in a heyday in construction.

38.8% of the total expenditure was spent for the field of cultural construction including education, healthcare, sports and music and arts, contributing to the enforcement of popular policies and the building of a highly-civilized socialist nation.

This year’s state budgetary revenue and expenditure have been shaped in such a manner as to meet the financial needs for realizing the Party’s plan to build a thriving nation as early as possible and carrying out the national economy plan.

The state budgetary revenue is expected to grow 4.3% over last year. Out of this, transaction revenue is expected to swell 4.5%, the revenue from the profits of state enterprises 7.9%, that from the profits of cooperative organizations 4.8%, that from real estate rent 9.5%, that from social insurance 5.1%, that from sale of properties and price differential 2.4%, other revenues 1.7% and the revenue from economic and trade zone 5.1%.

This year’s state budget envisages that provinces, cities and counties will ensure the expenditure with their own incomes and deliver revenue to the national budget for their fulfillment of the plan for local budgetary revenue and expenditure.

The state budgetary expenditure is expected to increase 6.5% over last year. Out of this, spending for the fields of agriculture, stockbreeding and fishery is expected to go up 5.1%, that for capital construction 4.3%, that for science and technology 3.6%, that for the vanguard sector of the national economy and the fields of basic industry and light industry 5.2%, that for education 5.6%, that for healthcare 2.2%, that for social insurance and social security 1.4%, that for sports 17.1% and that for culture 1.3%.

15.9% of the total state budgetary expenditure is expected to be spent for national defence this year and a huge amount of educational aid fund and stipends is to be sent to the children of Koreans in Japan.

According to the Wall Street Journal’s Korea Real Time:

The last publicly available figure for Pyongyang’s annual budget, in 2008, was 451.3 billion North Korean won. Based on the latest available market rate, that would be roughly equivalent to $61.8 million. Using that figure to calculate spending on national defense would give a figure of around $8.65 million.

Here are the pictured from Rodong Sinmun:

 2014-04-10-SPA-1

 

2014-04-10-SPA-2

 

2014-04-10-SPA-3

ADDITIONAL INFORMATION:

1. The Daily NK has an interview with a participant in the 12th SPA.

2. Here is 13th SPA “election” coverage.

ORIGINAL POST [Politburo] (2014-4-9): KCNA reports on the meeting of the Political Bureau of the Worker’s Party:

Meeting of Political Bureau of C.C., WPK Held under Guidance of Kim Jong Un

Pyongyang, April 8 (KCNA) — A meeting of the Political Bureau of the Central Committee of the Workers’ Party of Korea was held under the guidance of Kim Jong Un, first secretary of the Workers’ Party of Korea, first chairman of the National Defence Commission of the DPRK and supreme commander of the Korean People’s Army, on April 8.

It was attended by members of the Presidium of the Political Bureau of the C.C., the WPK, and members and alternate members of the Political Bureau of the C.C., the WPK.

Vice-premiers of the Cabinet and some department directors, first vice-department directors and vice-department directors of the C.C., the WPK were present at the meeting as observers.

The meeting discussed the issue of reinforcing the organization for increasing the leadership role and function of the Party as required by the developing revolution.

It discussed a proposal for forming the state leadership body to be submitted to the First Session of the 13th Supreme People’s Assembly.

It also discussed an organizational matter.

Decisions on the relevant agenda items were unanimously adopted at the meeting.

Kim Jong Un at the meeting set forth important tasks to be fulfilled to further strengthen the WPK to be an invincible revolutionary party, firmly protect the dignity and sovereignty of the country and dynamically accelerate the work to improve the standard of the people’s living and the building of a rich and powerful country.

The meeting held under the guidance of Kim Jong Un marks a historic occasion that encouraged the service personnel and people in the struggle to dynamically advance along the road of independence, Songun and socialism under the uplifted banner of great Kimilsungism-Kimjongilism and provided an important milestone in bringing earlier the building of a thriving nation and a great revolutionary event of national reunification.

Here are photos from Rodong Sinmun:

2014-04-09-politburo-1

 

2014-04-09-politburo-2

 

2014-04-09-politburo-3

Here is coverage in the Daily NK.

Read the full story here:
Meeting of Political Bureau of C.C., WPK Held under Guidance of Kim Jong Un
KCNA
2014-4-8

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Russia and DPRK discuss economic opportunities

Saturday, March 29th, 2014

What are the opportunities? Rason port, Iron Silk Road (Rail), Kaesong Industrial Complex, gas pipeline.

According to RIA Novosti:

Russia and North Korea have signed a new protocol to transition to using the ruble for payments between the two countries as part of an effort to boost annual bilateral trade to $1 billion by 2020, Russia’s Far East Development Ministry said Friday.

The announcement came as Russian officials have expressed a desire to explore new markets for the country’s businesses, following the introduction of sanctions by the West in reaction to Moscow’s stance over Crimea. Russian leaders have simultaneously reassured international investors the country remains open for business, and there are no plans to restrict international commerce.

The protocol announced Friday came following a visit of a Russian delegation to the Asian country for a meeting of a standing bilateral commission, timed to mark the 65th anniversary of a cooperation agreement between the Soviet Union and North Korea.

The parties agreed to move towards settling payments in rubles as well as adopting further measures to boost bilateral trade, including easing visa procedures and providing for Russian access to proposed special economic zones in the country, the ministry’s statement said.

The ministry reaffirmed the countries’ mutual interest in joint projects with South Korea, including international connections for railways [Iron Silk Road], gas pipelines and power lines.

The Russian delegation also proposed the entry of Russian businesses into the Kaesong Industrial Park, a special economic zone in North Korea just north of Seoul where South Korean companies are allowed to employ northern workers.

The two sides identified areas for further cooperation, including a transshipment complex at the port of Rason and technical cooperation for the modernization of North Korea’s mining sector, automobile industry and electric power plants.

According to the statement, during the talks Russian Far East Development Minister Alexander Galushka emphasized that achieving such goals would only be possible if stability is maintained on the Korean peninsula.

The next meeting of the bilateral commission is scheduled for June in Russia’s far eastern Vladivostok.

Here is what Yonhap reports:

North Korea and Russia have agreed to boost economic ties by pushing for trilateral projects involving South Korea, including a plan to support Russian companies’ entry into an inter-Korean industrial complex, a media report said Saturday.

The agreement between the two was made earlier this week when Russia’s Far East Development Minister Alexander Galushka visited the North for a five-day run until Friday to explore ways to boost bilateral economic cooperation, according to the Russian news agency RIA Novosti.

“The Russian delegation proposed the entry of Russian businesses into the Kaesong Industrial Park, a special economic zone in North Korea just north of Seoul where South Korean companies are allowed to employ northern workers,” the RIA Novosti reported, citing the ministry.

Officials of Seoul’s unification ministry, which handles inter-Korean affairs, welcomed the agreement between the North and Russia, while stressing the importance of Russia’s prior consultation with the South.

“Russian companies’ making inroads into the Kaesong park is desirable in terms of the internationalization of the complex … It would also prevent the North from unilaterally reversing its agreement with Seoul over the Kaeesong operation,” the ministry official said, requesting anonymity.

Internationalization of the enclave, a symbol of inter-Korean detente, is one of the key topics for inter-Korean meetings aimed at ensuring its normal operations and further invigorating the complex. The Kaesong park resumed operations in September, more than five months after the North unilaterally closed it in anger over Seoul-Washington joint military exercises.

“But it is crucial for Russia to discuss the matter with our side first as it is basically operated by the South Korean authorities,” he added.

A handful of companies from China, Australia and Germany have so far expressed interests in making an investment in the Kaesong complex, prompting the Seoul government to review holding joint presentation sessions with the North to lure investors from overseas, according to another ministry official.

Here is additional information from Yonhap on recent shipments from Russia to the DPRK:

Russia exported US$21.16 million’s worth of jib cranes, machinery used mostly for cargo handling at ports, to North Korea last year, accounting for nearly 22 percent of its total exports to the North, according to the report by the Korea Trade-Investment Promotion Agency (KOTRA). The amount surpasses that of Russia’s traditional export goods such as coal, petroleum and bituminous oil.

There were no records of the machines being exported to North Korea the year before, with the 2011 amount standing at $139,000.

North Korea and Russia maintain economic relations that include a project that would make North Korea’s northeastern port city of Rajin a logistics hub by connecting it to Russia’s Trans-Siberian Railway. North Korea is said to have agreed to a long-term lease of the No. 3 dock at Rajin port to Russia and that it is modernizing facilities there. The cranes may be for such modernization efforts, the KOTRA report said.

Also noteworthy is Russia’s exports of ambulances to the North, amounting to approximately 10.1 billion won ($9.45 million), the fourth largest in terms of value. Ambulances are a relatively new product on the trade list.

KCNA’s reporting of the meeting was much more muted:

DPRK Premier Meets Minister of Development of Far East of Russia

Pyongyang, March 26 (KCNA) — Pak Pong Ju, premier of the DPRK Cabinet, met Alexandr Galushka, minister of the Development of Far East of Russia who is chairman of the Russian side to the Inter-governmental Committee for Cooperation in Trade, Economy, Science and Technology between the DPRK and Russia, and his party.

He had a friendly talk with them who paid a courtesy call on him at the Mansudae Assembly Hall on Wednesday.

Minutes of Talks between Governments of DPRK, Russia Signed

Pyongyang, March 26 (KCNA) — Minutes of talks on cooperation in trade, economy, science and technology between the governments of the DPRK and Russia were signed here Wednesday.

Present at the signing ceremony were Ri Ryong Nam, minister of Foreign Trade who is chairman of the DPRK side to the Inter-governmental Committee for Cooperation in Trade, Economy, Science and Technology between the DPRK and Russia, and officials concerned, Alexandr Galushka, minister for the Development of Far East who is chairman of the Russian side to the Inter-governmental Committee, and his party and Alexandr Timonin, Russian ambassador to the DPRK.

Ri Ryong Nam and Alexandr Galushka signed the minutes of the talks.

Read the full story here:
Russia, North Korea Agree to Settle Payments in Rubles in Trade Pact
RIA Novosti
2014-3-28

N. Korea, Russia to discuss supporting Moscow firms’ advance into Kaesong park
Yonhap
2014-3-29

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Rice prices falling / won value rising

Tuesday, March 25th, 2014

The Daily NK has just updated their very valuable tables of rice prices and exchange rates. Things appear to have improved for the won and for those who have to make purchases with it.

Here is the most recent data on the Won/US$ exchange rate:

 

DPRK-USD-ER-2014-3-24

 

In March 2013 it took approximately W8,700 to buy one US$. Today that number has fallen to as low as W7,300. Most of the won’s gain in value has taken place in the last month.  As of February 2014, the US$ was worth W8,400–meaning the Won/US$ exchange rate has fallen (the currency has appreciated) by appx 13% since then.

Since the Chinese Yuan trades in a narrow band around the US$, the data would look much the same in terms of the Chinese currency.

Of course what remains to be seen is how stable the rate will be going forward.

The Daily NK also offers time series data on the price of rice:

Rice-price-2014-3-24

According to the chart above, the price of a kilo rice has fallen from approximately W6,900 in March of 2013 to W4,000 in March 2014. A fall of 42% in the last year!

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Russia to forgive DPRK debt – transact in rubles (2006-present)

Thursday, March 20th, 2014

UPDATE 10 (2014-10-20): According to RIA Novosti, the Russians and North Koreans have conducted their first transaction in rubles:

The first transactions in rubles between Russia and North Korea were carried out in October, Russia’s Far East Development Ministry said in a statement Monday.

“Russia and the DPRK [Democratic People’s Republic of Korea] have begun carrying out transactions in rubles in the framework of agreements, reached during the 6th meeting of the intergovernmental committee on commercial-economic relations between the Russian Federation and the DPRK, headed by the Minister for the Development of the Russian Far East Alexander Galushka,” the statement posted on ministry’s website reads.

In May, Russian President Vladimir Putin signed a law ratifying an agreement on settlement of the DPRK’s debt to Russia. Russia agreed to write off 90 percent of the North Korea’s debt to the former Soviet Union, which amounted to $10.94 billion as of September 17, 2012. The remaining 10 percent ($1.09 billion) is to be paid off in 40 installments over the next 20 years.

No word yet on what was purchased.

UPDATE 9 (2014-6-5): RIA Novosti reports that Russia and the DPRK will begin negotiating bilateral trade contracts in rubles rather than dollars. According to the article:

Russia and North Korea are preparing to launch bilateral transactions in the Russian ruble this month to boost trade turnover between the two nations to $1 billion by 2020, Russia’s Far East Development Minister said Thursday.

In May 2014, Moscow agreed to write off 10.94 billion of Pyongyang’s Soviet debt with the remaining 1.09 billion to be paid in installments over the next 20 years.

“The decision to write off DPRK’s debt to Russia has opened up the way to resolve a wide range of issues that was previously blocked by this debt load. Ruble transactions between Russia and DPRK will begin as early as this month, with first bank accounts to be set up in Russian banks,” Far East’s Development Minister Alexander Galushko said.

North Korea currently uses euros as the official currency in settling overseas trade deals.

The announcement came on the heels of a meeting in Russia’s far eastern city of Vladivostok where Galushko took part in the sixth annual session of the Russian-Korean standing commission, an intergovernmental agency on trade, economic and scientific cooperation.

The minister added that Russia hoped to ramp up its trade turnover with Korea to $1 billion, up from the current $112 million. “It is not much,” he pointed out, saying that a greater degree of Korea’s commitment to the existing bilateral projects could whip up sales to $400-500 million.

UPDATE 8 (2014-4-19): Russia has reportedly [formally] written of the DPRK’s debt. According to Reuters:

The State Duma lower house on Friday ratified a 2012 agreement to write off the bulk of North Korea’s debt. It said the total debt stood at $10.96 billion as of Sept. 17, 2012.

The rest of the debt, $1.09 billion, would be redeemed during the next 20 years, to be paid in equal instalments every six months. The outstanding debt owed by North Korea will be managed by Russia’s state development bank, Vnesheconombank.

Russia’s Deputy Finance Minister Sergei Storchak told Russian media that the money could be used to fund mutual projects in North Korea, including a proposed gas pipeline and a railway to South Korea.

More at the Voice of Russia.

UPDATE 7 (2014-3-20): Russian Duma committee recommends write off $10 b DPRK debt. According to Voice of Russia:

Committee of the State Duma for the budget and taxes has issued a recommendation to the MPs to ratify an agreement between the Russian government and the Democratic People’s Republic of Korea on settling the North Korea’s debt to Russia on the Soviet-era loans issued to that country.

The document that was submitted for ratification by the Russian government features the agreements reached at the negotiations that lasted almost twenty years and took account of the special features of financial, political and economic relations between Russia and North Korea.

Debt settlement embraces all the categories of reciprocal financial claims and obligations of the former USSR and the DPRK, with the precise parameters registered on the date when the agreement is signed.

Overall amount of the DPRK’s financial obligations to Russia stood at an equivalent of $ 10.96 billion as of September 17, 2012.

“This amount is rather conventional in many ways – not only because of the exchange rate but also due to the interest rates accumulated over a huge period or, in other words, a non-return of the loans because many of them were issued in the 1980’s,” Sergei Storchak, a deputy minister of finance said at the session.

“We applied a standard pattern in which we write off 90% of the debts amount and 10% is left over,” he said. “We agreed to utilize this 10% for financing the joint projects implemented on the North Korean territory.”

There projects are related to the energy sector, healthcare, and the country’s foodstuff security.

“Frankly speaking, we hope we’ll be able to attain agreement in the course of future joint work on allotting plots of land for construction of a gas pipeline on the DPRK territory,” Storchak said adding that Russia’s major producer and exporter of natural gas, OAO Gazprom, continues eyeing a possible integration in the Korean market of gas.

For this purpose, it will need some land acquisitions and “a part of the debt can be utilized for this purpose,” Storchak said.

Russian government officials say settlement of debts on the loans issued by the former USSR with the observance of conditions coordinated with Pyongyang pursues three objectives.

In the first place, it removes the problem of North Korea’s outstanding debt to the Russian Federation that was an irritating factor for bilateral relations for quite some time.

Secondly, the agreements that have been reached enable Russia to exert noticeable influence on the DPRK’s social and economic development through projects in healthcare, education, and the energy sector, since Russia will have a say in the decisions on their financing.

Thirdly, owing to the presence of big enough debt claims, Russia will have an opportunity to take part in multilateral talks on settling the North Korean debts in the format of the Paris Club of Sovereign Debtors and to influence the terms of debt repayments in Pyongyang’s interests.

You can read more about the gas pipeline here.

UPDATE 6 (2012-9-18): RIA Novosti reports that the DPRK and Russia have signed a debt deal.  According to the article:

Russia and North Korea have signed a deal on settlement of the DPRK’s $11 billion debts to Russia, Deputy Finance Minister Sergei Storchak told Prime news agency on Tuesday.

“It was signed yesterday,” Storchak said.

Russia and North Korea have been negotiating over the issue of Pyongyang’s debt to Russia, left over from the Soviet era, for the last four years without result. Russia did not rule out writing off part of the debt and either rescheduling the remainder or offsetting it against investment.

Storchak previously said it was understood a debt settlement would involve a conversion of the ruble debt into dollars, giving an initial discount of around 90 percent of the debt.

The remaining debt of over $1 billion would be used in a “debt for aid exchange” plan to assist with joint education, health and energy projects in North Korea.

Here is coverage of the deal in KCNA:

Agreement on Debt Settlement between DPRK, Russia Signed

Pyongyang, September 18 (KCNA) — An agreement on settling the debt incurred by the loan provided by the former Soviet Union which the DPRK owes to the Russian Federation was signed between the governments of the two countries in Moscow on Monday.

The agreement was inked by Vice-Minister of Finance Ki Kwang Ho from the DPRK side and Vice-Minister of Finance Sergey Storchak from the Russian side.

The conclusion of the agreement on the debt settlement would create fresh conditions for boosting the relations of economic cooperation between the two countries in the future.

The Wall Street Journal offers some additional details on the deal:

Deputy Finance Minister Sergei Storchak told Interfax that the “restructuring conditions are standard in connection with our membership in the Paris Club, with a conversion into U.S. dollars at an appropriate discounted rate with the balance of the debt to be used for a debt-for-aid program.”

The $11 billion figure was reached by using the Soviet conversion rate of 67 kopecks to the dollar, the ministry said, which at today’s exchange rate would make the debt just $238 million. Russia has reached similar agreements over the years with many former Soviet-clients in larger part because there was little chance the loans would ever be repaid.

Russian and North Korea had resumed negotiations over the decades-old debt in August 2011, following a meeting between former Russian President Dmitry Medvedev and the late-North Korean leader Kim Jong Il. During the meeting, the two sides agreed to pursue a pipeline project that would send Russian gas to South Korea via North Korea.

The following June, a preliminary agreement was reached and the finance ministry submitted a proposal to the Russian government for approval, Interfax reported.

Experts say the settlement of the long-stalled debt talks represented a change in political will on both sides and would help spur along the pipeline project as well as other railway and electricity deals.

“The decision on a settlement of debt is a significant step as it removes the obstacles for cooperation. Now credits can be granted,” said Alexander Vorontsov, an expert on North Korea at the Russian Academy of Sciences.

Read more below:

(more…)

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Bus transportation popular in DPRK

Thursday, March 13th, 2014

Phyongsong-bus-station-2013-5-3

Pictured above (Google Earth): Phyongsong Bus Station (2013-5-3)

According to the Daily NK:

Not only are North Korean people able to buy and sell goods in markets using hard currency these days; US Dollars or Chinese Renminbi are also in use for the ubiquitous “servi-cha,” one of North Korea’s few reliable means of mass transit.

A source from North Hamkyung Province told Daily NK on the 11th, “Trains only run about once a week, and you’d be a fool if you believed that they would run on time. Demand has risen thanks to this state of affairs, so people are making good money from running servi-cha.”

“If you want to ride a servi-cha you can’t use Chosun currency, you have to use Chinese or American money,” the source went on to claim. “You can get anywhere in the country that you want for 200 Yuan.”

The source said that people in Hyesan opt to travel by servi-cha in part because the journey can take up to a week by train but only takes a day by servi-cha. The route from Pyongsung to Chongjin costs 100 Yuan, and a similar amount is required for the trip from the North Hamkyung Province county of Kilju to the border near Hyesan.

According to the source, the price of North Korean gasoline is currently 11 Yuan per kg, approximately two to three Yuan cheaper than the Chinese equivalent. Diesel trades at 6 Yuan. The source said, “There is no problem running a vehicle these days because there are fuel traders selling cheap North Korean gas alongside every road in the country that buses use.”

Many owners of servi-cha have purchased buses rather than utilizing trucks, as they used to do. Owners offer a portion of their income to local government agencies and enterprises, in effect forming the North Korean equivalent of a Chinese “red hat enterprise.”

These privately run buses are clean and popular, and the business itself is seen by operators as an easy way to earn good money. The servi-cha are mainly new vehicles from China or second-hand ones from Japan, and the average cost is in the vicinity of 12,000 USD (though size and type of vehicle both vary). A well run business can earn 3000 USD per month.

In theory, if a traveller wishes to visit a different region, prior to travel he or she must obtain a certificate authorizing the visit. The 2nd Department of his or her Provincial People’s Committee ordinarily issues these permits; however, corruption among Party officials means that these can also be bought illicitly.

According to the source, servi-cha owners deliver regular bribes to senior security service officials running No. 10 Checkpoints, which are in place on every major thoroughfare connecting regions for the purpose of checking transit papers. These payments ensure rapid transit for customers.

Read the full story here:
Servi-Cha Professionalizing for Kim Jong Eun Era
Daily NK
Seol Song Ah
2014-03-13

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Babson on post-Jang economic management

Monday, February 24th, 2014

Writing in 38 North, Bradley Babson comments on the effect Jang Song-thaek purge will have on North Korea’s economic management moving forward:

With Jang’s demise there is now a potential opportunity to make fundamental changes in the North Korean economic management and financial systems. Removing his influence over major foreign exchange earning enterprises operating outside any institutionalized supervision means that some other mechanisms must be put in place to manage these important national resources. Whether this will lead to a more rational system of cabinet-managed financial institutions serving an economic development strategy endorsed by Kim Jong Un is a basic question. Early indications are that the cabinet will be empowered to exercise more centralized control over the economy,[2] but how far this will extend into the fragmented financial system remains to be seen.

One indicator of possible significant change is whether the KPA will regain its former economic independence or become more closely integrated with national economic and financial management. This is important for improving efficiency in allocation of resources for economic development and having more control in balancing security expenditures with investments in the general economy.

Another indicator will be whether the existing system that provides funds for sustaining luxury goods patronage for the Pyongyang elite and for showcase projects like equipping the new Masik Pass ski resort, will be handed over to new more loyal technocrats to manage. Or will the Cabinet be given more latitude to shape the future political economy and distribution of wealth, given the reality that access to market power is becoming more valuable for the Pyongyang elite than receiving patronage? This would be a major change that could lead to new incentives for more rational economic management. Acknowledgment that markets are here to stay would open the possibility of addressing the need to build new financial institutional capabilities required for mobilizing and regulating private savings and economic activity. This would also help focus attention on ways to improve macroeconomic management of the mixed state-directed and market economy system.

Read the full story here:
The Demise of Jang Song Thaek and the Future of North Korea’s Financial System
38 North
Bradley Babson
2014-2-24

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