Remittances to DPRK grow

From the Choson Ilbo:

The number of North Korean refugees who remit money to their families in the North is rising. “Some 15,000 North Korean refugees have settled in the country, and over 6,000 of them are remitting money to North Korea,” a government official said. “We understand the size of the remittances is also growing.” An official with a refugee organization said there must be more than 10,000 who remit money to their families in the North.

If some 6,000 North Korean refugees here send money North, and a refugee remits US$1,000 a year, some $6 million is sent to North Korea per year. To that should be added 20,000-30,000 of the 100,000 North Koreans estimated to live in China.

Remittance routes are clandestine. Money is remitted to a Chinese broker, who contacts another in North Korea, who pays the recipient with his own money and settles the account with the Chinese broker later, leaving no documentary trail.

Currencies are usually American dollars and Chinese yuan. Commissions range between 15 and 20 percent, according to sources. “Remittances through brokers designated by North Koreans generally reach the recipient without a hitch, but Chinese brokers contacted in China are liable to steal the money,” a refugee said. The brokers handle tens of millions of dollars and are linked to organized gangs.

In the past, remittances required enormous bribes. First a man had to be sent to North Korea to bribe guards, with commissions exceeding 40 percent. But with the emergence of remittance brokers and the establishment of an organized system, the amount of money that reaches North Korean families has increased substantially.

The North Korean won is practically worthless in international exchange. A North Korean workers’ average salary was between W2,500 and 3,000 as of the end of 2008. Given that US$1 is traded at W3,200, $1,000 is the equivalent of 100 years’ worth of earnings and buys two apartments in places like Chongjin, North Hamgyeong Province, or Hamhung, South Hamgyeong Province.

In the past, the DPRK has promoted remittances—particularly to Koreans repatriated from Japan and their families.  The DPRK government then extracted its share of these funds by offering western goods for sale in hard currency shops at inflated prices.

The DPRK could do worse at promoting its legitimacy than to adopt the same policy in regards to remittances from every other country.  If the DPRK allowed remittances to flow through official channels, the government could simply extract a service fee equal to or slightly below the black market rate.  That is a win-win (except for the smugglers).

UPDATE: Japanese goods were (are?) historically sold at the Ragwan Deaprtment Store next to the Changwang Hotel (North-West of the Central District).

Another point to consider is the unfortunate role of politics in preventing the adoption of efficiency-enhancing economic reforms.  In the case of remittances, the DPRK would certainly have political problems with letting defectors send money to their relatives back home.  Under this particular constraint smuggling might be the next best option.  Since the operation is clandestine, the government does not have to acknowledge it exists, yet at the same time people can receive their remittancs and (some part of) the governance structure collects “taxes”.  

What “taxes”? The few people who are carrying out the financial transactions will have pay decent protection money to a sponsor high in the food chain.  The work is risky for numerous reasons, but we know some important people are behind it becuase the operation requires managers to keep enough hard currency on hand to cover the monthy/anual remittance payments from 6,000+ defectors. 

Read the full article here:
Refugees’ Remittances to N.Korea ‘Growing’
Choson Ilbo


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