North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-08-06-1
8/6/2010

Over the last five months, regular food rations have not been provided even to those in the capital city of Pyongyang, indicating the severity of food shortages in North Korea. According to the ROK Ministry of Unification, rice and corn were added to the list of goods with controlled prices in at least one market in Pyongyang. A list of controlled goods with state-set upper price limits has been distributed to each market throughout North Korea since 2003. While prices may vary slightly, comparing them with earlier price caps gives a good indication of the availability of goods.

The July appearance of rice and corn on the list of restricted goods, neither of which has been on the list even as far back as February, when strict market controls were enacted in the aftermath of failed currency reform measures, indicates that the ration system is not operating normally, even in Pyongyang. It also means that not only are officials not receiving normal rations, but that average residents are relying more on markets for their food. One Unification Ministry official stated, “Rice was on the list of controlled goods in markets outside of Pyongyang in February, but couldn’t be found in markets in the capital city…in July, rice and corn emerged [as items with price caps] in Pyongyang markets.” The official also explained that as the food ration system collapsed even in Pyongyang, the issuance of price caps on rice and corn was an indication that more people were turning to the markets to buy these staples.

Looking at other goods on the list, it appears that agricultural goods cost 3~7 times more in July than in February, and manufactured goods were as much as 7 times more expensive. Necessary goods, both agricultural and manufactured, have grown considerably more expensive in North Korea over just five months. More specifically, beans were up 3.6-fold; chicken, 3.3-fold; lettuce, 3-fold; apples, 6.3-fold; rice and corn, 2-fold. Ball-point pens and other daily-use items were up 5~6-fold. In July, rice sold for 550 won per kilogram, while corn was priced at 280 won per kilo.

The price caps are upper limits set by North Korean authorities, but the reality is that goods are often sold at higher prices. The shortage of agricultural goods, and the fact that the Chinese Yuan has appreciated 3-fold since February, has led to these record price-hikes. On May 26, Workers’ Party of Korea (WPK) authorities issued a decree, “Regarding Korea’s Current Food Situation,” calling for residents to fend for themselves. As prices skyrocketed on agricultural goods, one measure adopted by North Korean authorities has been to more than double exports of iron ore from Musan, North Hamgyong Province to China, while drastically increasing the import of corn. This increased import of corn has brought down the price of rice from 1,200 to 900 won per kilogram in Musan, while corn itself has fallen from 600 to 500 won. On the other hand, the drop in the foreign currency exchange rate in mid-July caused a shortage of dollars, driving the price of rice up to as high as 1,200 won per kilogram in some regions.

According ot the Daily NK:

South Korea has granted permission for an aid shipment of anti-malarial medication, the seventh shipment of aid to North Korea since the Cheonan sinking.

An Ministry of Unification said today, “We have decided to allow a shipment of anti-malarial medication worth $335,000, which was requested by the Korean Sharing Movement.”

Korean Sharing Movement is a well-known aid organization targetting North Korea.

The Korean Sharing Movement says it plans to send malaria diagnosis kits, mosquito nets and vaccines for pregnant women among other things to Jangpung, Geumcheon, Tosan and Kaesong, which are areas of North Korea adjacent to Gyeonggi Province, the province which surrounds Seoul.

Funding for the project has been provided by the government of Gyeonggi Province.

Most previous, post-Cheonan shipments have been aid for infants and children. Earlier this month, two aid consignments of infant-related aid were sent.

The Unification Ministry in Seoul, upon granting permission for the previous shipments, explained, “While South Korea will hold off on inter-Korean business projects on principle, we will continue providing purely humanitarian aid for the weak, such as infants and children.”

Including today’s shipment, the total cost of aid sent since punitive measures against North Korea were announced on May 24 has been approximately $603,000.

The current shipment of anti-malarial medication is being sent, the Ministry of Unification explained today, because malaria has the potential to spread into South Korea during the summer months.

Read the full story here:
Rok to send malaria medication to DPRK
Daily NK
Chris Green
6/24/2010

According to Joong Ang Daily:

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

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

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

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

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

According to KBS:

The Unification Ministry has asked South Korean companies that trade with North Korea to put off paying for goods manufactured in the North.

Ministry spokesman Chun Hae-sung told reporters Monday that the ministry made the request in consideration of sanctions and the suspension of inter-Korean trade following the North’s sinking of the “Cheonan” naval ship.

South Korean companies operating at the Gaeseong Industrial Complex manufacture labor-intensive goods using North Korean manpower.

The South Korean government suspended inter-Korean trade except for production at the Gaeseong complex last month to punish the North after the Cheonan incident.

Read the full story here:
Firms Asked to Put Off Payments to NK
KBS
6/7/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-05-27-1
5/27/2010

On May 24, the South Korean government announced, in response to the Cheonan incident, the cessation of inter-Korean exchanges and other sanctions against Pyongyang. These measures will directly impact the North, costing it 250~300 million USD. According to the Ministry of Unification, North Korea earned 245.19 million USD from inter-Korean cooperative schemes not related to the Kaesong Industrial Complex. This does not include additions monies for customs fees, transportation costs, mediation fees and other incidentals.

About 254 million USD worth of goods were produced on commission in the North after raw materials or partially manufactured products were sent from the South. 10~15 percent of this (25-38 million USD) covers labor and other costs. Therefore, by halting all exchanges and cooperative schemes other than the Kaesong Industrial Complex, North Korea stands to lose at least 200 million USD.

In particular, as the South has banned the import of North Korean sand and marine products, both known to be money-earners for the North’s military, it appears these sanctions have the potential to really pressure Pyongyang. In addition, preventing North Korean ships from using South Korean waters could cost an additional nine million USD. An additional 6 billion won-worth of government-related projects for the North has also been suspended. Ultimately, the cessation of inter-Korean exchange will cost North Korea 250~300 million USD.

The Korea Defense Institute estimates that through inter-Korean projects, tourism, and the Kaesong Industrial Complex, North Korea earned 180 million USD in 2004, but that jumped to 233 million USD in 2005, 341 million in 2006, and 534 million USD in 2007, before falling to 490 million in 2008, and 347 million USD last year.

It appears that the reduction in foreign currency earned by the North has somewhat impacted its economy. Now, the cessation of inter-Korean contacts means further reduction in the North’s access to foreign currency, possibly causing severe shortages of daily necessities because of a lack of trade and insufficient production capacity. If inter-Korean trade ceases, the North can no longer earn foreign capital from Seoul, and this could cause DPRK-PRC trade to drop off, if the North is unable to cover its bills.

It will also cause a loss of jobs for all those North Koreans involved in consignment production, fishing, farming, and other areas of the economy hit by the freeze in trade with the South. As the processing-on-consignment business has reached 30~35 million USD per year, labor involved in the industry nears that of the Kaesong Industrial Complex, and could mean the loss of as many as 40,000 jobs.

While the government has decided to maintain the Kaesong Industrial Complex, it plans to downsize the ROK manpower by 40-50 percent. The reason given is to be able to ensure the safety of the workers, but if the number of workers is cut by 50 percent, this cannot help but have a huge impact on production, raising concerns with North and South Korean employees alike.

According to the Donga Ilbo:

The Unification Ministry said Monday that it has asked ministries to suspend aid to North Korea requiring government budget.

The ministry had issued recommendations to delay the signing of new contracts and the shipment of materials to the North to companies involved in inter-Korean cooperation.

Ministry spokesman Chun Hae-sung said, “We sent official letters to 10 related ministries, including the Strategy and Finance Ministry, the Health and Welfare Ministry, and the Korea Forestry Service Friday asking for the temporary suspension of assistance projects for North Korea run by those ministries.”

“This measure has been taken in light of the North’s seizure of South Korean real estate in the Mount Kumgang area and the grave nature of inter-Korean relations of late.”

Seoul has also begun efforts to survey inter-Korean projects conducted by the 10 ministries. Last year, the ministries ran a budget of six billion won (5.2 million U.S. dollars) to assist the North.

The Unification Ministry also contacted companies involved in inter-Korean cooperation, excluding those operating at the Kaesong Industrial Complex, to refrain from making new contracts, investment and visits Tuesday and Wednesday last week.

With analysts saying Seoul has taken a series of measures in the wake of the Cheonan sinking, a Unification Ministry source said, “Since the situation in inter-Korean relations has gotten grave and highly treacherous, we informed related ministries as a preemptive measure to reduce risks.”

Unification Minister Hyun In-taek also told reporters Monday, “We can hardly say that we’ve taken any practical countermeasures.”

Read the full story here:
Ministries Asked to Suspend Aid to N. Korea
Donga Ilbo
5/18/2010

According to Yonhap:

North Korea’s market prices and currency exchange rate appear to be stabilizing after severe fluctuations from an abrupt government-led currency reform last year, the Seoul government said Tuesday.

North Korea carried out a currency revaluation last November, a measure it said was to curb inflation. Analysts here linked it to a power transition from North Korean leader Kim Jong-il to his third and youngest son, Jong-un. The currency redenomination is said to have fueled inflation and severe food shortages, causing social unrest in the tightly controlled nation.

In its latest North Korea report submitted to parliament’s foreign affairs committee, the Unification Ministry said that market prices in the country were on a “downward path” following recent measures by the North Korean authorities.

A kilogram of rice, which cost around 20 North Korean won immediately after the revaluation, soared to 1,000 won in mid-March but dropped to the 500-600 won range in early April, the ministry said.

The value of the North Korean won against the U.S. dollar, which nosedived to the 2,000-won range in mid-March from the 30-won range, also rose to the 600-700 won level in early April, according the ministry.

On Kim Jong-il, the ministry said the reclusive leader has made 43 public appearances this year as of Monday, about the same as last year during the same period, and added he is “actively continuing public outings.” Kim is believed to have suffered a stroke in 2008, which spawned speculation of an imminent power transfer.

Read the full sotry here:
N. Korea’s inflation, exchange rate stabilizing after currency reform shock: Seoul
Yonhap
Tony Chang
4/13/2010

According to Yonhap:

The chief of Hyundai Asan Corp., a South Korean firm that runs tours to North Korea, expressed his intention to step down on Thursday to take responsibility for failing to resume the inter-Korean tour business.

“(I) couldn’t settle them even after running to revive tours (to Mount Kumgang and Kaesong) and normalize business,” Hyundai Asan President Cho Kun-shik said in an e-mail sent to company employees. “I thought taking clear responsibility for results as a president was critical for the firm and the business”.

He intends to resign after a shareholder meeting scheduled for next Wednesday.

Hyundai had been operating tourism projects to the scenic Mount Kumgang on North Korea’s east coast and Kaesong, the ancient capital of the Goryeo Dynasty (A.D. 918-1392).

Cho, a former vice minister with the Ministry of Unification, took the company’s helm in August 2008, a month after tours to the famed mountain resort were suspended following the shooting death of a South Korean woman in the area. Visits to Kaesong were stopped in December of the same year.

He took office vowing to reopen the tour programs, which remain on hold as the two Koreas have yet to reach an agreement over terms for their resumption.

The postponement in relaunching the tours has prompted almost 70 percent of the company’s employees to leave the firm. “I felt regretful for not having reinstated those who had left,” Cho said.

Last week, North Korea accused the Seoul government of effectively blocking South Koreans from visiting its tourist attractions and warned it could revoke all deals covering inter-Korean tours.

But Seoul has demanded an official apology for the shooting death and a pledge that such an incident will not occur in the future, while saying a formal investigation must be carried out to determine why the shooting occurred.

As of February, Hyundai Asan suffered a loss of 257.9 billion won (US$228.1 million) in sales stemming from the travel suspension, according to the company.

Amid growing losses, the firm sold off part of its assets, previously used for the tour program, including 51 tour buses and 41 heavy vehicles.

Mount Kumgang had been a popular tourist spot for South Koreans since it was opened to them in 1998 as a symbol of inter-Korean rapprochement spearheaded by the liberal government of Kim Dae-jung at that time.

Read the full story here:
Hyundai Asan chief offers to resign over suspended inter-Korean tour program
Yonhap
3/18/2010

According to the Choson Ilbo:

North Korea is believed to have been given 300,000 tons of food either on credit or as aid last year, mostly from China, the Unification Ministry told the National Assembly’s Foreign Affairs, Trade and Unification Committee on Tuesday. That is enough to feed the entire population of North Korea for a month.

The UN Food and Agriculture Organization on Monday said North Korea faces a shortage of 1.25 million tons of food, but that did not take into account the amount provided by China and other countries. Unification Ministry Hyun In-taek said, “North Korea has been suffering from problems in food supply and distribution since its currency reform and has been taking measures to deal with the situation.”

Read the full article here:
N.Korea Took 300,000 Tons of Food Aid Last Year
Choson Ilbo
2/24/2010

According to the Daily NK:

The 2010 total budget for South Korea’s Ministry of Unification has risen to approximately $135.3 million overall, a year-on-year increase of 26.9%. This incorporates a project budget of $103 million. The project budget excludes personnel costs and other overheads.

The slice of the project budget earmarked for defector support is $73.07 million, some 70.9% of the total. Other budgeted items included unification education ($7.3 million, 7.1%), situation analysis ($4.7 million, 4.6%), unification policy ($3.6 million, 3.7%) and support for abductees ($3.9 million, 3.7%). In addition, the budget for inter-Korean meetings, information and economic cooperation was set at $10.2 million dollars.

The most significant increase is that for North Korea situation analysis projects, which has risen from just $0.35 million in 2009 to $4.8 million this year.

This steep budget increase comes as a direct result of a new situation analysis department, set up in May, 2009 for the purposes of systematic investigation and analysis of the North Korean situation. The size of the budget is similar to that for equivalent undertakings during the period up until the late 1990s when North Korea situation analysis was one of the primary tasks of the Ministry of Unification.

A strategic decision to try and take back the lead in information gathering seems to have been a factor in the decision to proceed with this project and allocate a substantial slice of the budget to it. The Ministry of Unification’s decision to proclaim 2010 a “key turning point” and forge ahead in inter-Korean relations requires the establishment of support systems to gather and analyze data.

Despite being technically in charge of inter-Korean relations, the Ministry of Unification has always relied heavily on intelligence agencies for information. This project appears to reflect the Ministry’s desire to understand inter-Korean relations independently and establish a system imbued with the Ministry’s own character.

The decision seems also to incorporate an implicit understanding that the Ministry of Unification should be able to demonstrate its information gathering capacity in various locations, not least inter-Korean economic cooperation locations like the Kaesong Industrial Complex.

In reality, the Ministry is also in a good position to systematically collect up-to-date information on North Korea from persons entering Hanawon, the education center for defectors, and from those South Koreans who visit North Korea with Ministry approval. Finally, the Ministry is also best-placed to interact with international organization officials who have information regarding the provision of aid and economic and agricultural conditions.

The major projects the Ministry of Unification is pursuing within the budget in order to strengthen its North Korea situation analysis capacity are; ▲ Development of a “North Korea situation index;” ▲ Establishment of a system to digitize North Korean broadcast data collection; and ▲ Establishment of infrastructure for the analysis of gathered data.

The Ministry is investing $1.62 million in its North Korea situation index development project. The aim is to develop an objective statistical index to evaluate situational changes in North Korean politics, diplomacy, military, economy, society and culture.

The digital data collection project is simply to facilitate the changeover from analog to digital data collection.

Infrastructure for the analysis of North Korea data simply means establishing a database on individuals during this year, extending the range of information into the fields of geography and industry in 2011.

In other areas of the budgetary allocation, unification education targeting the young is an interesting feature this year.

The Ministry has earmarked $0.53 million for a “Grand Youth Peaceful Reunification Rally” in commemoration of the 60th anniversary of the Korean War. The budget for school unification education has increased 8.2 times from $0.27 million in 2009 to $2.24 million this year.

The Ministry also plans to spend a further $4.5 million this year to acquire land and fund designs for the second Hanawon project, which is scheduled for completion by 2012 at a budget of $31.21 million. Currently, a number of possible sites in Gangwon Province are being considered.

Separate from the regular Ministry budget, inter-Korea cooperation funding levels are set in accordance with the state of inter-Korean relations. The South Korean government plans to prepare a budget for the ‘Grand Bargain’ using inter-Korean cooperation funds as and when progress is made in inter-Korean relations.

Read the full article here:
Unification Ministry Budgets for New Intelligence Role
Daily NK
Kim So Yeol
1/6/10