North Korean Economy Watch

According to the Daily NK:

Today, the North Korean markets seem to have returned to the days before the currency redenomination. The price of rice appears to be rather stable, especially when compared with that of February or March. Especially, following Kim Jong Il’s trip to China, rumors indicating that food would be imported began to circulate, and this has made declining prices even more marked.

According to inside sources, the price of rice in Hoiryeong, North Hamkyung Province is now 480 won per kilo (June 4th), 420 won in Sinuiju (June 7th), 360 won in Sunam-district of Pyongyang (June 2nd), and 380 won in Sariwon (June 7th). The price of corn is approximately 50% that of rice, although recently in Hwanghae Province, households using corn as feed for pigs drove an unusual situation where the corn price reached almost 70% that of rice.

The exact nature of Chinese support for North Korea cannot be confirmed officially, however, the North Korean regime’s encouraging foreign currency earning enterprises to import food from China since March seems to have contributed to rice price stabilization.

One inside source added that the “reactivation of food smuggling on the border between North Korea and China” has also helped.

However, the main overall reason for the failure of the initial prediction, “When the farm hardship period comes in May and June, food prices will skyrocket” appears to have been the normalization of the market.

The source commented, “Compared with the situation prior to the currency redenomination, trading in industrial goods has decreased slightly, however, it is close to its previous condition. Since buyers and sellers can access that market any time, price volatility is not that great anymore.”

That being said, the opening hours of the market have been reduced since the authorities handed down a “rice planting battle order” in early May which stated, “Everyone must participate in the rice planting battle. The market should only be used for the purchase of food, side dishes and those necessities required for the day.”

The source explained, “Markets everywhere now open between 2 and 4 P.M. and close at sunset,” adding that there are small differences depending on the particular market. In North Hamkyung Province, the market normally closes at sunset; however, markets in Hwanghae Province and Pyongan Province, which are under heavier pressure due to the rice planting, close earlier, at around 6 P.M.

But concerns about food will not be solved even if the price of rice remains stable. Merchants are still watching prices with a concerned look since rumors constantly assert that food prices will increase again in July. The North Hamkyung Provincial Party Committee held a cadres meeting last May in which it released news that food distribution for the months from July to October must be prepared by each unit individually, meaning that the central authorities have no plans to assist.

The agricultural situation is one concern. North Korea has been suffering from a severe fertilizer crisis since the beginning of spring farm preparations. After Kim Jong Il’s visit to China, Chinese fertilizer was imported which temporarily alleviated the situation, but the rumor is that fertilizer for the summer has yet to arrive.

Recently, Kim Jong Il visited a domestic fertilizer production facility, Namheung Youth Chemical Works in Anju City, South Pyongan Province. There, he complimented factory management, saying, “It is a relief to know that fertilizer is being produced in Namheung.” The incident displays North Korea’s concerns about fertilizer.

Other factors which destabilize food prices are the icy inter-Korean relationship and international community sanctions.

Recently, around the North Korean market, the number of street vendors, so-called ‘grasshoppers’ has greatly increased. One source explained, “This situation has been caused by the middle class being demoted to the lower classes due to the big damage they incurred during the currency redenomination.”

Sharply decreasing trade in higher priced goods like home appliances and furniture is derived from the same source.

The tumbling credibility of the North Korean currency is another ongoing worry, as is a lack of small denomination bills. One source explained, “If you purchase a 30,000 won jumper from Sungyo Market in Pyongyang, the cost is $30 (market exchange rate, the equivalent of 27,000 won on the day), but it is 30,000 won if you pay in North Korean currency.” That’s a ten percent mark-up for people using local currency, the material representation of a lack of trust in the won.

In areas of Pyongyang, Wonsan, Sariwon, and Haeju, dollars and then Euros are preferred over won, but in Jagang Province, Yangkang Province, and North Hamkyung Province, Yuan are preferable to dollars. Places where all four; U.S. dollars, Yuan, Euros and won are being used are Sinujiu and the port city of Nampo on the west coast. One source explained that due to this situation, high-priced products like televisions, DVD players and refrigerators are being sold only for U.S. dollars or Yuan.

Also, he added, “There is a shortage of small bills which is causing some inconveniences in market trading.”

At the time of the currency redenomination, North Korea displayed 7 kinds of small bills and coins; 1 chon, 5 chon, 10 chon, 50 chon, 1 won, 5 won, and 10 won. The source explained that demand for the ‘chon’ unit coins is practically non-existent; the problem is that 1 won, 5 won, and 10 won are frequently used in market trading but a shortage of bills is causing inconvenience. Merchants are setting the price of goods mostly in increments of 10 won and 50 won as a result.

Read the full story here:
Everything Is Stable, But for How Long?
Daily NK
Park In-ho
6-9-2010

According to CanKor Report #323, 2 June 2010:

North Korea began opening up to nongovernmental organizations in the 1990s, when severe food shortages forced it to seek outside aid. While both the famine of the mid-90s and the efforts to alleviate it got a good deal of press at the time, attention to this aspect of North Korea has fallen off in recent years as most press coverage now deals with the nuclear issues or questions of leadership succession. But while NGO activities may have dropped off over the last decade, a select few groups continue in their efforts to better the lives of ordinary North Koreans, despite all the limitations and difficulties they face in doing so.

CanKor has collected a partial list of nongovernmental organizations from the non-six-party talk countries currently engaged in humanitarian activities in North Korea. While some have been left out at their own request due to the politically sensitive nature of their work, we will endeavour to present regular updates on current or new projects in the DPRK. Readers are encouraged to write in and inform us of any activities we may report.

Featured Project:  Mennonite Central Committee

MCC has been engaged in the DPRK since the mid 1990s, the earlier years through the Canadian Food Grains Bank (CFGB) in partnership with other organizations to support the Food Aid Liaison Unit (FALU), and also together with other non-resident NGOs such as Caritas International, American Friends Service Committee (AFSC), and Foods Resource Bank/Church of the Brethren Global Foods Crisis Fund to support sustainable agriculture and provide humanitarian assistance. Between 1995 and 2006, approximately $15 million in food and other material resources was sent to the DPRK by MCC.

Since 2006 and the dissolving of FALU, MCC has worked in the DPRK through its MCC NE Asia office. MCC has continued to send food and material resources to orphanages, initially via First Steps, and eventually in direct relationship. Soymilk production equipment was also provided to assist orphanages and soymilk production facilities to increase production of their own nutritional needs. MCC also sends food and material resources to tuberculosis hospitals and rest homes through its partnership with Christian Friends of Korea. Greenhouses have also been provided to enable these facilities to raise more of their own food needs.

Here   is a story on MCC’s partnership with First Steps in sending soybeans to orphanages in the DPRK and

Here   is a story on MCC’s cooperation with Christian Friends of Korea in sending food and other material resources to TB facilities.

Beginning in 2009, MCC is partnering with the Ministry of Agriculture in the DPRK on a three- year food security project. Given the success of conservation agriculture in other climatically-similar districts around the world, including Asia and Canada, this project aims to build longer-term food security at three cooperative farms and surrounding areas by increasing the scale of conservation agriculture practiced on each farm.

This is being done through the provision of technical support, training, specialized equipment and inputs. The program will benefit 12,287 residents on the three project farms. The total budget for the 3-year project is U.S.$1 million, with approximately 75% of the funding provided through CFGB and the remainder through individual donations to MCC. Click here   for a news release about the conservation agriculture project. In the interest of further engagement, MCC has also hosted delegations from the DPRK in both the U.S. and Canada, most recently an agricultural delegation to Canada in the fall of 2008. MCC also looks for ways to advocate DPRK engagement with Canadian and American governments. MCC seeks to share its resources in the name of Christ with those in need, placing emphasis on people-to-people relationships.

CanKor has more on NGOs here.

Daily NK
Yoo Gwan Hee
5/14/2010

A source in North Korea has told The Daily NK that fertilizer shortages near the North Korean border have been alleviated by imports arriving from China.

“Chinese fertilizer has been imported through Hoiryeong. It was not done officially by the authorities, but by trade enterprises. They imported fertilizer in bulk and then sold it to the markets,” the source, who lives in the city, told The Daily NK yesterday.

Therefore, individuals and collective farm managers are still not able to get it through the national distribution system, but can obtain it on the open market.

“In Hoiryeong, a 50kg sack of fertilizer is being sold for 200 Yuan, which is approximately 22,000 North Korean Won,” said the source. Another source from Hyesan reported to The Daily NK the day before that, in the Hyesan jangmadang, the same quantity of fertilizer was being sold for 220 Yuan.

Until late last month, sources were reporting that fertilizer was “nowhere to be seen in the market.” Before that, one source said, “We could see it in the markets, but that was left over from last year.” Then, it was going for between 30,000 and 50,000 North Korean won per 50kg sack. Now enterprises are importing it from China, its price has dropped by around half.

In North Korea, May is the month when farmers are at their busiest, or to cite a proverb, it is the period during which “even the fire-pokers bustle with activity.” Therefore, individuals and farmers are all desperately seeking fertilizer.

Lee Min Bok, a former researcher with the Agriculture Institute of North Korea, explained why. “Growth of plants at the beginning of the planting period is really important because that decides the amount of grain it produces,” he said. “Therefore, applying fertilizer is decisive for the year’s farming. In times of fertilizer shortage, a maximum of 60% productivity can be achieved.”

It has been reported that many residents living near the border and who rely mainly on small farms believe China has relieved their worries.

However, it remains to be seen whether the importation of Chinese fertilizer will have an impact on the farming process in state-owned farms. It is not possible to say at this time whether the imported fertilizer has been or will be provided to those farms.

In North Korean farms, fertilizer ought to be applied three times a year: at the beginning, middle and end of the farming process. But with unfavorable circumstances negatively affecting the supply of fertilizer since the 1990s, use has been circumscribed, and it has only been added at the beginning and end of the

According to Bloomberg:

United Nations food aid to North Korea will run out the end of next month following a drop in international donations after the country detonated a nuclear device, the World Food Program said.

“We have resources to carry us through to June,” Lena Savelli, a Beijing-based spokeswoman for the UN agency, said in a telephone interview today. “We quite urgently need more donors to come forward and give us resources.”

The agency is in talks with donors on how to extend the program as it seeks to continue operations, she said. Kim Jong Il’s regime has relied on outside aid to feed its 24 million people since the mid-1990s when famine caused by floods, drought and economic mismanagement is estimated to have killed as many as 2 million people.

The aid shortfall may put further pressure on Kim following a botched currency revaluation late last year and tougher UN Security Council sanctions after a second nuclear test in May 2009. The Council should also consider the totalitarian regime’s human rights violations to force changes, Vitit Muntarbhorn, UN special rapporteur on North Korea’s human rights, said in a May 1 interview in Seoul.

“It’s a very helpless situation, sadly, for the people,” he said. “Given that the Security Council is the law- enforcement organ of the United Nations, it’s incumbent upon them to take it up,” said Muntarbhorn, 57, whose six-year term as the official for North Korea, expires in June.

Read the full article here:
North Korea’s Food Aid Will Run Out Next Month, UN Agency Says
Bloomberg
Bomi Lim
5/3/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-04-28-1
2010-04-28

The price of rice in North Korean markets, steadily declining until the end of March, saw an upswing in April. Rising prices indicate early concerns over food shortages expected during the lean crop season of May-June.

Recently, in the Nammun Market of Hyeryeong City (Satellite image here), rice that sold for 300 Won/Kg at the end of March was priced at 500 Won/Kg, and when there were no special rations delivered on the ‘Day of the Sun’, Kim Il Sung’s birthday (April 15), rumors spread that no state rations would be forthcoming, driving market prices up further.

Pyongyang itself was not immune to the rising prices. As rations were handed to Pyongyang residents in March, rice fell to as low as 200 Won/Kg in the Seongyo Market (Satellite image here), but by April 15, it had climbed back to 300 Won/Kg with rumors of upcoming shortages.

In the past, rice prices have fluctuated due to rumors of rations and/or food shortages, but since the latest currency reform, prices have been much more susceptible to people’s emotional concerns. Daily NK has been watching rice prices in Hyeryeong’s Nammun Market since February, and concluded that as rumors of price increases spread, price tags in markets shot up, at which time sellers felt the urge to dump their goods, bringing prices back down.

Immediately following last year’s currency reforms, North Korean authorities ordered the closing of markets. These markets reopened on February 5. Authorities had also dictated that rice be sold for 24 Won/Kg, but the time markets reopened, a ‘compromise plan’ allowed prices to climb to 240 Won/Kg. Within a month (March 7), prices shot up to 1,500 Won, only to crash back down weeks later (April 2) to 300 Won. Such drastic price fluctuations indicate a limited availability of food in the markets. This kind of seesawing prices reflects a lack of trust in authorities. As residents lost faith in North Korean authorities, they tried to sell their holdings, but differences in domestic prices, exchange rates, and black markets meant severe price instability.

From December to January, restrictions on the use of foreign currency, along with a sharp drop-off in rice trading, really drove up prices. However, authorities’ restrictions on foreign currency began to waiver, and this, combined with the launch of investigations into illegal hording of food supplies by businesses and foreign trading companies, led to an influx of rice into markets, bringing prices back down.

Now, with the future of rations in question even in Pyongyang and other major cities, rice prices are again on the rise. With many people predicting that economic conditions and food supplies will be lean in the near future, market prices will likely continue to increase. In North Korea, the price of rice is an important index, reflecting economic stability.

Great reporting by the Choson Ilbo–which provides video footage (before and after) of the DPRK’s currency reform on the market  in northern Onsong.

(October 2009)

(March 2010)

Video of the market is available from the the Choson Ilbo and ABC web pages.

According to the Choson Ilbo:

Footage taken in October shows a bustling market, but the same place in March is almost deserted, with only a few traders selling goods. In October, the market was overflowing with food, clothes, shoes, cooking oils, squid and other goods. But three months after the currency debacle, only a few bags of corn are visible in the stalls. Products that were part of South Korean aid shipments to North Korea can also be spotted.

“Judging by the fact that the market was still deserted even in late March, it appears that retailers are waiting until prices go up even more,” said an official at the Unification Ministry. “The sale of goods picked up somewhat after North Korean authorities increased supply by importing products from China and other countries ahead of Kim Il-sung’s birthday” on April 15, a North Korean source said.

Onsong market before the currency revaluation used to include both roofed and open-air stalls where unauthorized merchants sold goods on mats placed on the ground. The square in front of the train station was also a bustling market where traders sold products away from the watchful eye of the authorities. But in early March 90 percent of the stalls were empty.

Pastor Kim Sung-eun of the Caleb Mission said, “If the owners of roofed stalls, who paid a fee for official approval to sell goods, disappeared, it suggests that North Korea’s middle class has collapsed.”

There was also evidence of South Korean aid products being sold in the markets. Bags of grain bearing the South Korean Red Cross symbol could be seen in various parts of the market. Some North Koreans used them as shopping bags. Goods sent as part of aid shipments by South Korea including grain bags are said to be very popular in the North. “There are rumors that high-ranking North Korean officials sold South Korean aid products in the markets, but none of them have been confirmed,” a Unification ministry official said.

“The market opens around 8:30 a.m. and closes around 7 p.m. after sunset,” said a North Korean defector from Onsong. “It’s heartbreaking to see the once bustling market so empty.”

This particular market is not visible on Google Earth.  The imagery is low-resolution and likely predates the construction of the market. See for yourself.

Back in 2007 a German breeder of large rabbits expressed concern that some rabbits he sold to the DPRK had been eaten.  You can read about it here.

Well, the rabbit story is back.  According to Radio Free Asia:

The fate of dozens of giant rabbits sent to North Korean to start breeding a cheap source of protein for the famine-hit poor is still unknown, leading to speculation that they may already have been eaten by officials in the isolated Stalinist state.

“I am not aware of [exactly] what happened after we sent the rabbits,” said Jin Sook Lee, the director of the German charity, the German Overseas Korean Cooperation Association. “I don’t even know if they are being used to boost the food supply.”

She said the intended breeding program had run into difficulties once the German-bred outsize rabbits arrived in the isolated Stalinist state, where some sectors of the population still face malnutrition.

To ensure the successful expansion of the giant rabbit population, rabbit cross-breeding and species hybridization were needed, Lee said.

But many female rabbits failed to get pregnant, and of the rabbit kittens that were born, many were deformed, she added.

Boosting ‘rabbit-breeding’

Several charities have raised money to send giant rabbits to North Korea to boost the food supply, as the animals yield up to 10 kilos (22 lbs) of meat.

While the uber-bunnies normally breed as rapidly as their smaller cousins, the French humanitarian group Premier Urgence said it had send staff to North Korea to boost “rabbit breeding skills” among officials in charge of the farms.

The charity, which has received around U.S.$1.5 million in European Commission assistance funds for North Korea, said last November it planned to send a further 200 giant rabbits purchased in neighboring China to North Korea.

Chinese media have meanwhile reported comments made to the German magazine Der Spiegel by the original breeder of giant rabbits Karl Szmolinsky, who has had no information from North Korean officials since he sent 12 rabbits to boost the breeding farms in 2007.

“The only conclusion I can come to is that my rabbits made a nice meal for someone,” an online Chinese farmers’ news service quoted him as saying.

“I would really like to go over there and give them a hand.”

Premiere Urgence said in November that it had sent giant rabbits to seven farms in the country, including Ryongsung in Pyongyang, Youngtan in Northern Hwanghae province, Mikok, and Chungjong in Northern Pyongan province.

Livestock failures

Premiere Urgence said it planned to help the North Koreans improve giant rabbit reproductive rates by sending equipment and working on rabbit-farming skills.

The group said in November it had already dispatched three international staff members to Pyongyang, including a French and a Dutch national, while seven local staff members were already in the office, tasked with technical and clerical duties.

In an attempt to overcome severe food shortages, the North Korean authorities have already experimented with chicken, cow, and pig farming.

However, because of the decrepit state of North Korea’s facilities and the lack of technical skills, most attempts to raise livestock for food appear to have failed.

Director Lee said that sending giant rabbits from Europe was very expensive, costing about U.S. $100 per animal.

The first two rabbits to travel to North Korea paid a fare of U.S. $1,300, with vaccinations and veterinary fees on top of that.

She said her group had given up further plans to send giant rabbits to North Korea.

Experts also said the giant rabbits require more than one kilo (2.2 lbs) of carrots and potatoes daily, hard to come by in impoverished North Korea.

Szmolinsky, 67, of the eastern German town of Eberswalde near Berlin, was first approached by North Korean officials in 2006 after he won a prize for breeding Germany’s largest rabbit.

According to the United Nations, North Korea suffers widespread food shortages, and many people “struggle to feed themselves on a diet critically deficient in protein, fats, and micronutrients.”

Each of Szmolinsky’s rabbits produces around seven kilos (15 lbs) of meat, and under normal conditions should be able to produce 60 offspring a year.

Read the full story here:
Giant Rabbits’ Fate ‘Unknown’
Radio Free Asia
Noh Jung-min
4/19/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-04-20-1
2010-04-20

Ri Ki Song, a professor at the Institute of Economics, a part of North Korea’s Academy of Social Sciences, acknowledged during an interview on April 18 that the North’s currency revaluation of last November had caused some instability to unfold across the country. Professor Ri emphasized during an interview in Pyongyang with Kyoto News, “there was some temporary unrest in some areas . . . but there was absolutely no social upheaval and unstable situations were immediately controlled.”

Professor Ri, in answering questions for the Japanese news agency, was the first North Korean to acknowledge the problems caused by the reform. Regarding foreign media reports of the currency reform, Ri stated that the articles did not reflect the reality of the situation, and that the reforms had not destabilized the North Korean society. These comments were in line with those he made on April 1, when he stated at an APTN press conference, “Many people outside of North Korea have been noisily prattling on about problems emerging during exchange rate fluctuations, but there is no social unrest of the kind they speak of.”

He explained that some instability had occurred because price controls and other measures had not immediately followed the revaluation, and that “markets did not open for a few days [after the currency reform],” acknowledging that preparations for the measures had been insufficient. He also explained that following the currency reform, North Korean authorities had taken steps such as reducing prices on some foods and slashing unproductive expenditures. The government also encouraged women to take up jobs in light industry and in the service sector, and repaired the transport system. In an effort to develop the economy in 2010, the North Korean government boosted the budgets for the light industrial sector by 10.1 percent, and that of agriculture by 9.4 percent.

Professor Ri went on to say that authorities had reduced the price of a kilogram of rice from 40 won to 24 won, had lowered the price of eggs to 8 won, and had cut the prices on cooking oil and soap, as well. He added that this trend will continue for the near future.

The currency revaluation, the first of its kind since 1992, was aimed primarily at increasing the value of the North’s money and harnessing inflation, but despite the reform, the government is still managing foreign exchange rates. While keeping exchange rates under control, Ri stated that authorities could still adjust the value of the won, depending on economic developments as well as other domestic and international conditions.

In both the APTN and Kyoto interviews, Professor Ri called foreign coverage of the North’s economic situation “exceptional,” and insisted that nothing was wrong with the DPRK economy.

According to the Times of India:

Economic sanctions by the United States and other western countries is actually strengthening the Kim Jong-il’s regime, a German social worker involved with a non-government organization told reporters here this morning. Sanctions are also affecting life in other ways like the new-found emphasis on sustainable agriculture, she said.

“The leaders are using the sanctions as a justification. People believe the country is in a bad condition because of outside forces,” Karin Janz, country director in North Korea for the German NGO Welthungerhilfe, said while speaking at the Foreign Correspondents Club in Beijing. The official media justified its actions as efforts to fortify the nation against the onslaught of foreign forces, and the people fully believed it, she said.

The sanctions have hit the North Korean agriculture and caused fears of a worsening of the food situation, Karin said. “The North Korean agriculture is highly industrialized,” she said while explaining the country’s agriculture is heavily dependent on imported farm machines and chemical fertilizers. Most of these materials came from South Korea, which has now slammed the doors.

The government has suddenly realized the value of sustainable development and is asking agricultural cooperatives to change their focus. They are being asked to go for organic farming, grow composts and reduce their dependence on chemicals. It is a new policy on sustainable development by default, she said.

“It could be a good start in the direction of sustainable development. But it is a long way to rehabilitate the soil, which is badly damaged” she said.

The Internet is banned to ensure that local citizens do not communicate with the outside world. There is a limited form of Intranet for university students to chat among themselves. But if the ban on Internet were to be lifted, most North Koreans will use it to absorb new knowledge and grow the country with new technological inputs.

“I cannot imagine some kind of opposition rising because it is simply not possible,” she said while discussing the highly militarized nature of the society. The government controls every aspect of life in North Korea and ordinary people seem to be comfortable living in some kind of a “safety shell”, she said.

Patriotism runs high among the people and most have full faith in their leaders. The only sign of dissatisfaction Karin saw was in January when currency reforms hit a large number of people very badly. People who held old currency notes suddenly found they could not exchange them for the new Won notes the government introduced early this year.

Welthungerhilfe is one of the few foreign NGOs that are still operating in North Korea when most of the others have left either because of the challenges posed by government rules and the drying of financing from western sources. There are many Chinese NGOs but the local government does not allow they to communication with those from western countries.

In her five years travelling across nine provinces of North Korea, Karin has not come across a single case of starvation. The food situation is bad, but it is not as grave as the western media tended to show, she said. The government has also done a fairly good job of developing infrastructure and provide school education although the conditions are still a far cry from what prevails in the developed world, she said.

Here is the Welthungerlife North Korea web page (in German).  Here is the page in English (via Google Translate).

I cannot prove it, but I am willing to bet that Welthungerhilfe built these greenhouses near Kujang (via Kernbeisser).  These greenhouses are too new to be visible on Google Earth.

Read the full story here:
Economic sanctions strengthen North Korea’s dictatorship, says German NGO
The Times of India
Saibal Dasgupta
4/20/2010

Wall Street Journal
Marcus Noland
4/12/2010

North Korea likes to project an image of strength to the world. But back home, there is a serious economic crisis playing out that could have long-term repercussions. Historians may look back and see this as a tipping point.

The crisis originated in November, when the government sprang upon the public a confiscatory currency reform that wiped out household saving and the working capital of traders and entrepreneurs. The value of the North Korean won predictably plunged as people abandoned it for foreign currencies and even physical goods—anything that could preserve value. The second shoe dropped a month later when the state extended its war on privately held capital, banning the use of foreign currencies.

The government’s intent was to reconstitute orthodox communism. Earlier in August, North Korean leader Kim Jong-il’s sister, Kim Kyong Hui, telegraphed the move in an essay extolling the superiority of central planning over the decentralized market—even trashing the notion of giving enterprise managers greater autonomy in the context of a socialist economy. The regime’s basic motive—to crush the market and strengthen direct state control—was confirmed by central bank statements immediately after the reform.

But the policy, which was supposed to constitute the political coming out of expected heir Kim Jong-un, Kim Jong-il’s third and youngest son, unleashed extraordinary, though sporadic, protests. The government backtracked, allowed markets to reopen and in February issued an unprecedented apology. Park Nam-ki, a 77-year-old technocrat who upon becoming the Party’s economics chief allegedly vowed to end the “capitalist fantasy,” was scapegoated and reportedly executed.

Once broken, the economy may prove difficult to repair. Prices for goods such as rice, corn, and the dollar rose 6,000 percent or more after the reform. And while prices have come down from their peak as the government has relaxed some of its strictures, they are currently still 600 percent or more above their prereform levels—in spite of the money-supply contraction.

The United Nations’ Food and Agriculture Organization reports that the country is more than one million metric tons short of grain. This estimate is likely exaggerated due to faulty methodology, but anecdotal reports of hunger are emerging from returning visitors and refugee networks. It appears the government persuaded farmers in cooperatives to accept cash in lieu of half of their annual in-kind grain allotment—then rendered the bonus worthless via the currency reform. Farmers are now hoarding grain however they can: The United Nations Development Program reports that post-harvest losses amount to 30 percent. The farm economy has been severely disrupted. But unlike the 1990s famine, which was largely an urban phenomenon and killed perhaps a million people, hunger is now reported in the countryside.

The state’s response to these developments has not been reassuring. After Mr. Park was executed, he was replaced by an octogenarian, Yun Gi Jeong, known primarily as a confidante of North Korea’s founder, Kim Il-sung. The political police have been bureaucratically elevated and placed directly under the National Defense Commission, from where Kim Jong-il runs the state. This is not the behavior of a confident or competent government.

The recent missteps are particularly damaging because they are so obviously self-inflicted and nakedly incompatible with the regime’s narrative that ascribes all the nation’s challenges to hostile foreign forces. A survey of 300 North Korean refugees conducted in November 2008 by Stephan Haggard of the University of California San Diego found that respondents were increasingly accessing foreign sources of news and disinclined to accept the government’s explanations, instead holding it responsible for their plight. The currency fiasco will accelerate these trends.

Widespread disillusion, even dissent, does not guarantee mobilization, however. The same survey found that the population remains atomized and mostly fearful of communicating these views, even to friends and family. But the state can justify its hatred of the market in one respect: People participating in market activities are significantly more likely to communicate their dissent to their peers.

There is no reason to expect that this attempt to revive orthodox communism will succeed. But an influx of aid, which would allow the state to keep goods on the shelves and satisfy key constituencies, would make it easier. It is rumored that Kim Jong-il will visit China later this month and that the Chinese will extract a commitment by the North Koreans to rejoin the stalled Six Party Talks over its nuclear program.

If North Korea does agree, economic distress and the opportunity to wheedle more aid out of China and the United States may explain this change of heart. China has effectively taken up the mantle of the previous South Korean government’s “sunshine policy,” and within the US government there are already discussions of another “food for talks” swap to bring the North Koreans back to the table.

North Korea’s retrograde moves are wrecking its economy and propagating discontent among the masses. But the country is bereft of civil society institutions capable of channeling that discontent into constructive political action. Aid and repression may permit the regime to pursue anachronistic communism for some time, but the next leader will inherit an ultimately untenable situation.