North Korean Economy Watch

According to this SDC web page:

Following a decision made by the Swiss Parliament, the SDC’s special programme in North Korea will be discontinued at the end of 2011.

There was not much in the media on this, but a reader pointed me to this article:

Switzerland is standing by a decision to stop development aid to North Korea, which has focused on improving food security in the internationally isolated country.

The foreign ministry says it now has a strategy for the withdrawal of Swiss development workers from the communist country by the end of 2011.

In 2008 the government approved a motion by parliamentarian Gerhard Pfister demanding a halt to development aid in response to North Korea’s continuing nuclear ambitions.

“The atomic weapon programme violates international agreements. North Korea has shown itself to be utterly uncooperative, despite international efforts. It threatens to destabilise the region,” the motion said.

Although Switzerland has no official representation in the communist country, diplomatic relations were established in 1974.

The Swiss Agency for Development and Cooperation (SDC) has had an office in the capital, Pyongyang, since 1997 [Possibly located here]. According to the motion, the SDC justified its work there by saying that “supporting the reform process” should improve food security. The SDC cited a “tentative opening” of the country as a success.

Pfister maintains that today North Korea is no longer showing a “tentative opening” – rather the opposite.

The SDC’s main priority in the country has been aid projects aimed at improving the efficiency and sustainability of North Korean agriculture.

Consistent policy?

The central question is whether it is wiser to isolate a totalitarian regime or to cooperate with it. The attitude of the Swiss parliament and government is clear: stop development aid.

But is the issue simply black and white? On December 21 Switzerland celebrated – in the presence of the North Korean foreign minister – the 35th anniversary of diplomatic relations.

On December 28 Blaise Godet, the Beijing-based Swiss diplomat responsible for North Korea, told the Neue Zürcher Zeitung that Switzerland had nurtured a consistent policy of engagement and political dialogue. “We want to contribute to solutions,” he said.

As for the ending of aid at the end of 2011, foreign ministry spokesman Erik Reumann told swissinfo.ch that “the SDC would follow the decision of the government and parliament. A dismantling plan exists that will guarantee a well-organised withdrawal from North Korea”.

Similarities with Switzerland

While the Swiss government and parliament want to end development aid to North Korea, former justice minister Christoph Blocher, a leading figure in the rightwing Swiss People’s Party, has written in detail about his visit to the country – on a hiking holiday.

The self-confessed anti-communist noted in the Weltwoche weekly magazine in November that “one thing North Korea and Switzerland have in common is that both countries want to keep their autonomy and are working for a safe future”.

In Pyongyang Blocher said he came across “normal conditions”, but admitted that “we only had access to those areas and streets considered presentable”. Nevertheless, he continued, “the streets are tidy and the Korean people are all clean and decently dressed, and go everywhere on foot. People walk”.

But Blocher agreed that the food situation was unsatisfactory.

The Swiss Agency for Development and Cooperation (SADC) web page is here.Here is a report they helped produce: Tools for building Confidence on the Korean Peninsula.

Institute for Far Eastern Studies (IFES)
NK Brief No.10-01-19-1
2010-01-19

Last year, despite the impact of the economic recession, North Korea’s second nuclear test and other issues hindering inter-Korean exchanges, the previously sharply shrinking value of North-South Korean trade appeared to steady.

According to a report from the South Korean Customs Administration released on January 18, inter-Korean trade last year was down 8.5 percent from the previous year, amounting to 1.66608 billion USD. Exports to North Korea were worth 732.62 million USD, while 933.46 million USD worth of goods were brought into South Korea, giving Seoul a 200 million dollar trade deficit. Inter-Korean trade hit its lowest point last year in February (100.89 million USD), but since then showed slow-but-steady growth, hitting 173.18 in September.

In the aftermath of last year’s economic recession, together with the North Korean nuclear test, naval clashes in the West Sea in the area of the Northern Limit Line, etc., there were many difficult issues in 2009, but as inter-Korean trade numbers recovered in the fourth quarter, tensions eased slightly. Despite strained political tensions between the two Koreas, trade seemed not to be seriously affected, as DPRK goods were offloaded from a North Korean ship at Incheon Harbor and replaced with silica used for metal casting just six days after a clash between North and South Korean naval ships.

While growing trade is positive, this is the second year in a row South Korea has recorded a trade deficit with the North. In 2008, Seoul’s cross-border imports exceeded imports by 53.96 million USD. With Lehman Brothers’ collapse in September 2008 and the economic stagnation that followed, the South continued to record trade deficits for 15 straight months, until November of last year.

In December 2009, South Korean trade was back in the black (23.91 million USD) for the first time in 16 months. Looking back over time, it can be seen that inter-Korean trade has improved considerably over the years, recording a mere 705.68 million USD in 2004, 1.08872 billion USD in 2005, climbing to 1.3796 billion in 2006 and 1.79494 billion USD in 2007, and 1.82078 billion USD in 2008.

The import of North Korean sand, mushrooms, and smokeless charcoal briquettes in October 2009 required the permission of the South Korean government. This reflects Seoul’s more strict controls over management and oversight of inter-Korean trade following the sanctions and heightened concerns over cash deliveries to Pyongyang after its second nuclear test on May 25, 2009. Since the nuclear test, the South Korean government has limited the import of North Korean goods to only those that could ease losses being suffered by South Korean manufacturers.

According to the South Korean Ministry of Unification, among North Korean exports to the South in 2008, sand was the largest (according to value) export, with charcoal ranking ninth and (pine) mushrooms ranking eighteenth. 

Yonhap offered a short blurb: 

Trade between South and North Korea declined 8.5 percent on-year in 2009 due mainly to the worldwide economic slowdown that sapped demand and investments, a government report said Monday.

The Korea Customs Service (KCS) said inter-Korean trade reached US$1.66 billion last year, down from a record high of $1.82 billion tallied for 2008.

Read the full article here:
Inter-Korean trade falls off 8.5 pct in 2009
Yonhap
1/18/2009

Institute for Far Eastern Studies (IFES)
NK Brief No.10-01-18-1
2010-01-18

Following the currency reform undertaken by North Korea at the end of 2009, the Chinese newspaper International Herald Leader (國際先驅導報) reported on January 7 that the Choson Bank of Trade had set the USD:DPRK Won exchange rate at 1:96.9. There have been other reports of the DPRK’s new exchange rate through organizations related to North Korea, but this is the first report of an official exchange rate by an official Chinese media source. The International Herald Leader is the global news paper of the government-run Xinhua news agency.

Good Friends, a South Korea-based organization working for human rights in the North, had reported earlier that the new exchange rate was 1 USD:35 Won. The conflicting reports appear to be a result of a constantly changing exchange rate. North Korean authorities control the exchange rate, announcing changes to the exchange rate system at their whim.

According to the International Herald Leader, the exchange rates for the new DPRK Won are 96.9:1 USD, 138.35:1 Euro and 14.19:1 Chinese Yuan. These new rates are approximately 25-30 percent lower than previous rates, indicating a rise in the value of the DPRK Won.

North Korean security forces released a notice titled ‘Regarding the Strict Punishment of Those Overissuing Foreign Currency Within the Republic’ on December 28, and banned the use of foreign currency across the country beginning January 1. Immediately following the announcement of the measure banning the use of foreign currency, the DPRK Won:PRC Yuan exchange rate rose sharply, indicating a steep drop in the value of the Won.

Until the December 28 announcement banning foreign currency, North Koreans were exchanging Chinese money for the new DPRK Won at a rate of 1:5 (the official rate was 1:1.6). Before the currency reform, the Won:Yuan exchange rate was 600:1. However, after the ban on foreign currency, the value of the new North Korean money quickly fell, with the exchange rate toppling 4-5 times over within just days. According to a Daily NK report, on January 5 of this year, the Won:Yuan exchange rate in Hyesan, Yanggang Province hit 20:1, while in North Hamgyeong Province’s cities and towns of Hoeryeong, Onseong, Musan, and Cheongjin, the Won is being exchanged for Yuan at a rate of 1:15. Therefore, it appears that the Chinese media’s report of a 1:14.19 exchange rate reflects the reality of only some regions of North Korea.

According to Yonhap (1/15/2009):

North Korea told South Korea on Friday that it will accept the 10,000 tons of corn aid that South Korea offered in October, Seoul’s Unification Ministry said.

North Korea sent a fax message to the South, saying it “will receive the corn aid,” said ministry spokeswoman Lee Jong-joo.

Joseph Bermudez, a military analyst for Jane’s Intelligence Review and author of The Armed Forces of North Korea, has launched a journal dedicated to the discussion of the DPRK military: KPA Journal.

According to the introduction by Mr. Bermudez:

The goals of this modest publication are to allow me to freely share with readers new, interesting or updated information concerning: all aspects of the Korean People’s Army (KPA, more commonly known as the North Korean Army) from its birth until present; ballistic missile development; intelligence operations (e.g., seaborne infiltration operations, etc.); and other defense and intelligence issues concerning the Democratic People’s Republic of Korea (DPRK, more commonly known as North Korea).

As I have researched, written and lectured on these subjects during the past 25+ years I’ve frequently come upon fragments or collections of interesting information that either didn’t fit into then current projects or that was deleted by editors in order to save space. Recently, while conducting research for three book projects—Combat History of the Korean People’s Army, DPRK Intelligence Services 1945-1975, and an update to my earlier North Korean Special Forces: Second Edition—I once again encountered numerous examples of these fragments and collections. Rather than let this information remain in my files unused I’ve decided to use it for KPA Journal.

Additionally, as I have written reports and articles concerning recent DPRK related issues new information has subsequently come to light. It is my hope to utilize KPA Journal to share such updated information with readers. While it is my hope that KPA Journal will eventually be a monthly publication, initially it will be distributed on an irregular basis until the time arrives when I can dedicate more energy to it.

A KPA Journal website is under construction and should be online later this year at www.kpajournal.com. It will eventually serve as a repository for issues of KPA Journal, declassified documents, longer research projects, previously authored articles and more.

Should readers find any of this information of interest or value, and decide to use it in your own research efforts, I would greatly appreciate your citing KPA Journal as your source.

Readers are encouraged to share KPA Journal with friends and colleagues. If they wish to be added to the mailing list, or should you not desire to be on the mailing list, please contact me at kpajournal@gmail.com.

Download Vol. 1, No. 1 here (PDF).

According to Yonhap:

China has expanded its mining rights in North Korea to cover as many as 20 sites, a South Korean report said Thursday.

China is a leading investor in North Korea, which, according to a South Korean study, is believed to have enormous deposits of natural resources, including coal, nickel, molybdenum and bronze.

Further efforts to isolate the DPRK economically allow China to capture even more of these resources at bargain prices.  The North Koreans, for their part, are not happy about this.  According to the Steel Guru:

At an international conference held in Yanjiin in October, Director of the Economy Institute at the North Korean Academy of Social Sciences Mr Kim Chol Jun had revealed that his country is restricting exports of unprocessed resources. He added that “Mineral resources are exported at high prices by processing them. Exports of cheap unprocessed goods are a loss to the state.”

South Korea’s Unification Ministry estimates that underground mineral resources in North Korea are valued at about JPY 540 and the amount of deposits of magnetite used to trim the weight of automobile parts is the world’s largest at 3 billion tonnes to 4 billion tonnes. In addition to iron ore, North Korea is said to be rich in such rare metals as molybdenum and rare earth.

On a positive note, Chinese takeover of the mines could possibly lead to greater investment in mine working conditions if only to increase output—-although no data is really available to determine if this is the case.

I have been unable to locate the report mentioned in Yonhap because the story did not give any information about the title, author, publisher, or even the date or place it was released.

…it is very cold in the DPRK right now. The image below was taken January 3, 2010:

Click on image for much larger version.

According to a press release from Koryo Tours:

Koryo Tours has been informed that a more general opening of the DPRK (North Korea) to US tourists is likely to take effect in 2010. It is expected that American citizens, who had previously been restricted to visiting North Korea only during the annual Arirang Mass Games festival which runs from August to October may now be permitted to enter the country year-round. Normal restrictions on American tourists also include staying in North Korea a maximum of 4 nights and only being permitted to enter and exit the country by plane from China, there is also a 4 times weekly train that runs from Pyongyang to Beijing, as yet it is unclear whether these restrictions will also be dropped but a decision is expected before too long.

Koryo Tours has been operating trips to North Korea since 1993 and is universally recognised as the only specialist/expert in this unique area. Unlike the competition, we are also regular visitors; rather than ship our clients off and hope for the best, we work in conjunction with the Korean tour guides as cultural conduits. ensuring everyone has the optimum experience from this journey of a lifetime. Recommended by all the North Korean guidebooks, we consult with international media regarding information and analysis on DPRK tourism and have produced three award winning documentaries on North Korea in association with the BBC (www.koryogroupcom). There’s more to see in North Korea than most people imagine, and with this new policy it seems likely that Americans will now have the opportunity to see more than ever.

I have visited the DPRK twice (though not wth Koryo Tours) and I recommend the trip. Koryo’s tour dates can be found here—although the dates for American tourists will likely be expanded.

Nicholas Eberstadt has some interesting statistics in a Wall Street Journal op-ed this week:

For a variety of reasons—possibly including unintended reverberations from the past decade’s nuclear drama—the remonetization [of 2002] did not work well. Too much new money was chasing too few goods, sparking significant inflation. By November 2009, the North Korean won’s black-market value in dollars was barely 5% of the level when the 2002 measures were implemented, a depreciation averaging over 3% per month.

…

The speed and depth of the won’s resulting plunge has been dizzying. The nominal market price of rice is reportedly higher today than it was in November 2009, before currency reform. This would imply 100-fold inflation and then some in just over one month. The won-yuan exchange rate along the North Korea-China border has reportedly dropped by almost 50% over the past month, even after discounting for the 100-to-1 currency conversion. The government apparently has no confidence in its own currency move, and is now betting against it. News reports indicate that Pyongyang this month is issuing soldiers in its public security forces twice their nominal monthly pre-reform wages (a 20,000% raise in light of the currency conversion). If the government finances more wage hikes like this by running the printing presses, it will turn the currency into a toxic asset no one wants to hold.

…

The botched currency reform also has revealed how little North Korean decision-makers understand their own economy, much less the outside world. On a related note, the regime’s supposed heir apparent, Kim Jong Eun, was the mastermind behind the North Korean currency reform, according to South Korean intelligence. This may just be bad intelligence or disinformation. But if accurate, it raises disturbing questions about the judgment of the rising generation of North Korean leadership.

Read the full story here:
North Korean Money Troubles
Wall Street Journal
Nicholas Ebererstadt
1/11/10

Caijing (Chinese Finance Magazine)
12/20/2009
Translated by Bert Acosta

A Chinese reporter from the Chinese state media outlet Xinhua saw a government public notice posted on the entryway to a market stating that beginning January 1, 2010, North Korea will prohibit the circulation of foreign currencies on the open market.

Issued by the DPRK’s Public Safety Bureau, these regulations will apply to official state administrations, enterprises, social organizations (such as the military and special organizations), citizens, and foreigners. After these rules come into effect, citizens of the DPRK will not be permitted to use the Dollar, Euro, and other foreign currencies in stores and restaurants. Foreigners bringing these currencies into the DPRK must exchange them for Wan – even at the airport and international hotels.  The various exchange and transportation fees of the past will also change to a Won-centric system.

The notice also states that, in accordance with government authority, related institutions will adopt steps to establish a strict national monetary circulation system. The foreign exchange needs of all organizations will be guaranteed by state planning, and all related banks will be required to established foreign currency and Won exchange programs to responsibly undertake the task of exchange.

Furthermore, the notice stated that organizations found violating exchange regulations will be ordered to cease operational activities or be disbanded – with the government confiscating its trade capital and other resources. Regarding products purchased with foreign currencies, black market trading, usury loans, broker activities, bribery, illegal currency exchange, and other illegal actions, violators will be prosecuted in conformity with legal provisions.

This is North Korea’s first economic management measure since revaluing the Won on November 30th, 2009.  Since revaluing its currency, North Korea has not announced an official exchange rate.