North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-03-12-1
3/12/2010

As the spring lean season approaches, the black market exchange rate for North Korean Won continues to grow, while the prices of rice and other necessities are increasing proportionately. Immediately following last year’s currency reform (November 30), rice was sold at 20 Won per Kg, while it cost 400~600 Won at the end of January and has grown to as much as 1000 Won per Kg in early March. In other words, the cost of rice has jumped 50-fold since the currency reform, negating most effects of the ‘100 to 1’ devaluation reform in just a few months.

The online magazine Daily NK reported, “In the North Pyongan Province area of Sinuiju, a kilogram of rice, which cost 400 Won at the end of last month, cost 800 Won on the 2nd, and 1000 Won on the 3rd. It is being said that the in the end, the price of rice will rise to pre-reform prices (of 2,500 Won per Kg).” The shortwave radio broadcaster Open Radio for North Korea reported similarly, stating, “North Korea’s rice prices, which were around 400 Won per kilogram at the end of February, shot up to 1000 Won on the 3rd of this month.”

More than anything, the reason North Korea’s rice price is doubling weekly is the plummeting value of its currency in relation to the PRC Yuan and U.S. dollar. In January, the (North) Korean Trade Bank set the official exchange rate for Yuan at 14.19 Won and for USD at 30 Won. However, according to Daily NK, the black market exchange rate for U.S. currency jumped from 1200 Won per USD at the end of February to 2100~2500 Won by March 3. Open Radio for North Korea reported that in Hyeryong, North Hamgyong Province, one Yuan traded from 80 Won on the black market February 25, jumped to 120~150 Won by the 28th, and traded for 270 Won at the beginning of March, tripling in just three days. It appears that the skyrocketing prices of food and goods in North Korean markets is directly related to North Korean authorities’ measures to control foreign currency, and Chinese Yuan, in particular.

Confidence in the value of North Korean currency has plummeted, and North Koreans are scrambling to grab up foreign capital as rumors circulate of further currency reform. Residents are trying to get their hands on Chinese Yuan, but North Korean authorities are working to prevent it due to concerns of Chinese dominance over the North’s economy. In order to block Chinese inroads into the North Korean economy, the government has banned the import of Chinese currency, and this is a major factor driving North Korean inflation today.

UPDATE 1 (2011-12-21): The Wall Street Journal (Dow Jones Newswire) points out movement on North Korean debt following the death of Kim Jong-il:

Saturday’s death of North Korean leader Kim Jong Il has given a lift to that country’s only openly traded securities, a batch of bonds that haven’t received a payment in almost three decades.

The defaulted bonds, which were created in 1997 when French bank BNP repackaged a series of non-performing syndicated bank loans that were granted to North Korea in the seventies, have suddenly sparked interest among speculators. The sporadically traded bonds, which trade at a deep discount to their face value, saw a tick up this week and were recently quoted at between 14 and 18 cents on the dollar, compared with 13 to 15 cents, according to London-based sales and brokerage house Exotix.

Those who have bought the bonds are making nothing less than a bet that the transfer of power to Kim’s son Kim Jong Eun will usher in a moment akin to that of the Berlin Wall’s collapse for the tightly controlled communist country.

“Investors are looking at this as an unlimited option trade with enormous potential gains,” said Andrew Chappell, head of European, African and Middle Eastern fixed income trading and sales at brokerage house Exotix in London, who says that inquiries into the bonds have increased in recent days.

According to Chappell’s calculations, investors’ claims extend to the principal and interest accrued from 1984 when the original loans defaulted. That amounts to anywhere between 300% to 600% in unpaid interest.

The premise that’s attracted hedge funds and pension funds is that North Korea can’t exist in isolation forever, and like other former communist countries will find a need to tap the international markets for funds.

That’s why the death of Kim Jong Il has opened a rare opportunity that bets on these bond could pay off. Although there’s no indication of what the structure of the government will look like under Kim Jong Eun, or of the direction it will take, some observers expect the U.S. and other western powers to use this opportunity to bring North Korea into the international fold.

By all accounts, North Korea is in very poor shape financially. A significant segment of the population is said to be dying of starvation. The country’s economy pulls in a meager $29 billion in annual gross domestic product, compared with $1.117 trillion in South Korea, according to IHS Global Insight estimates for 2011. That gaping shortfall in material well-being, the optimists reckon, will eventually drive North Korea to make good with the international community and seek foreign investment. But first it will have to clear its unpaid debts.

In fact, it was a similarly desperate need for funds that initially drove North Korea to borrow a total of 680 million Deutsche Marks and 455 million Swiss francs in syndicated loans from nearly 100 foreign banks in the late 1970s. By 1984, the country had defaulted on these loans and they were left dormant for more than a decade. But in the late 1990s, some of the banks wanted to capitalize on hopes at that time for a reunification between North Korea and South Korea, so they parceled some of the nonperforming loans into two tranches of DEM293 million and CHF217 million.

BNP, now called BNP Paribas, was the manager on the deal. It created a special purpose vehicle called NK Debt Corp., incorporated in the British Virgin Islands, to hold the loans and then sold rights to them to investors.

Over the years, even as North Korea has again distanced itself from the international community and toyed with nuclear ambitions, interest in the zero-coupon no-income bond has waxed and waned among a select few buyers interested in frontier markets or risky bets. As if passing the hot potato, fund managers have been buying and holding these bonds for a few years and then exchanging them for something else, Chappell said.

The holdings are now concentrated among a dozen or so blue-chip pension fund managers and hedge funds, he said, but declined to name them.

Franklin Templeton Emerging Market Debt Opportunities Fund, which is allowed to invest in defaulted debt, confirmed that it holds about $4.25 million in nominal value of the Deutsche mark-denominated bonds. It declined to comment further.

“These investors are not saying the bond has to pay off to make money,” said Tim Slaughter, head of fixed income at Auerbach Grayson, an agency brokerage in New York. “For them, if the price goes up from 14 cents to 16 cents it’s a good return on a $5 million investment. Investors are not necessarily looking for North Korea to reconcile with South Korea.”

But others say this speculative game is simply not worth the risk.

“The price on North Korean debt is too high in the sense there are so many alternatives in frontier debt that are actually paying coupons and redemptions that are trading at attractive levels,” said Morten Bugge, chief investment officer at Global Evolution A/S, a Denmark-based hedge fund that had held these North Korean bonds in the early years.

Read the full story here:
North Korea’s Leadership Transition Draws Brave Debt Buyers
Dow Jones Newswire
Prabha Natarajan and Erin McCarthy
2011-12-22

ORIGINAL POST (2010-3-11): According to Businessweek:

BNP Paribas SA, France’s biggest bank, in 1997 created bonds denominated in Deutsche marks and Swiss francs secured on non-performing loans owed by the Foreign Trade Bank of the Democratic People’s Republic of Korea. The notes mature today, and Exotix plans to issue new ones with about a 10-year tenor.

“There are very few investments left in the world like this,” Andrew Chappell, head of London emerging market fixed- income for Exotix, a broker specializing in distressed securities, said in a telephone interview. “The North Korean bonds are very cheap,” they may rise on signs of improved international relations and they are easier to trade than the underlying loans, he said.

President Kim Il Sung drove North Korea to become the first communist nation to default 34 years ago by spending almost a third of gross domestic product on its military. The United Nations toughened sanctions on son Kim Jong Il’s government after it detonated a second nuclear device in May, deepening an economic crisis that forced North Korea to revalue its currency in November by removing two zeros from the face value of the won.
…
“Investors have good reason to hold the notes even by extending them,” said Dong Yong Sueng, a senior fellow in the economic security team at the Samsung Economic Research Institute in Seoul. “They hope that the South Korean government may take over North Korean debts and repay them if the communist state collapses or the regime changes.”

About 320 million marks and 240 million francs ($225 million) of the zero-coupon 1997 bonds are outstanding, according to data compiled by Bloomberg. Exotix last quoted them at 12.75 percent of par value as of March 8 from 11.5 percent a month earlier and 33 percent in December 2007.

While prices that low may be attractive to investors willing to take a five- or 10-year bet, “there are just so many better opportunities for investing in high-risk assets,” Richard Segal, director of emerging markets fixed-income at Knight Libertas Ltd., said in a phone interview from London.

“I don’t see much value in the notes even at 10 or 11 percent of par because I see no willingness of North Korea to reschedule the underlying loans and no willingness of South Korea to pay them off short of unification,” he said. That’s “unlikely for a long time.”
…
North Korea is overhauling its legal system in a bid to attract as much as $400 billion in foreign investment over the next decade, almost 20 times current GDP, South Korea’s MBC television reported on March 4.

Read the full story here:
North Korea bonds due today spur exotix bet on political change
Businessweek
Jungmin Hong
2010-3-11

According to the Choson Ilbo:

“Wealthy people in Pyongyang prefer goods to cash as they have lost confidence in the North Korean currency since the reform,” it said. “Demand for South Korean goods, which are considered best quality, has more than doubled.”

The broadcaster quoted a Korean-Chinese trader dealing with the North as saying, “Growing numbers of people want to smuggle South Korean products and sell them in the North despite a crackdown by North Korean customs.” It said the widespread perception among North Koreans is that South Korean goods are of much better quality than Japanese or Chinese products.

Sinuiju Customs Office lets small quantities of South Korean goods that do not seem to be for sale pass through on condition that they do not carry “Made in Korea” labels, but is strict about seizing larger quantities.

Favorite products include luxury goods like necklaces and earrings, electronic home appliances such as TV sets, DVD players, digital cameras, and notebook computers, toiletries, air fresheners, and clothing.   

Pyongyang is believed to be home to an estimated 1,000 dollar millionaires, the radio station said. 

I am a bit skeptical about this story.  Given the DPRK’s monetary history, I understand the need of North Koreans to “get out of cash,” but the number of individuals hoarding South Korean goods has to be small.  Jewelry aside, manufactured goods are not a reliable store of value.  They are hard to hide, difficult to transport, they break down, and require electricity.  As for televisions, South Korean TVs operate on NTSC (like the US) and North Korea uses PAL (presumably the “South Korean” TVs are made for the Chinese market and operate on PAL–thanks Gag).  

Why not stick with Yuan?

Also, Japanese goods have been considered the paragon of quality in the DPRK for decades.  Is it realistic to assume that attitudes towards South Korean goods have changed so much so quickly? 

UPDATE: A strong counterpoint to my intuition comes from Dr. Lankov.  He notes:

Well, in the USSR of my youth many people did just that. They hoarded industrial goods, in spite of all above mentioned shortcomings. TV sets, VCRs, furniture, glassware, even books. There was a major difference, though: in the the USSR it was strictly illegal and, indeed, risky, to be possession of foreign currency.

Also see this IFES report. 

Read the full story here:
Wealthy N.Koreans Hoard S.Korean Goods
Choson Ilbo
3/11/2010

According to the AFP:

Sanctions-hit North Korea on Wednesday formally launched a development bank aimed at attracting foreign funds to revive its economy, state media reported.

Directors of the State Development Bank held their first meeting to elect officers and decide on a management structure and annual budget, the Korean Central News Agency said.

The bank, set up on the orders of leader Kim Jong-Il, will have “advanced banking rules and system for transactions with international monetary organisations and commercial banks,” the agency said.

It would invest in major projects and act as a commercial bank.

The bank is the latest move by the North to revive its ailing economy and rebuild crumbling infrastructure. In January it upgraded the status of Rason, a free trade zone near the border with China and Russia, to boost foreign trade.

…

Analysts have said the decision to found the development bank shows leader Kim is confident the six-party talks will eventually produce a settlement.

The board is made up of members of the National Defence Commission (NDC), the nation’s top ruling body; the Korea Asia-Pacific Peace Committee, a state agency in charge of exchanges with South Korea; the finance ministry; the Korea Taepung International Investment Group and two independent directors.

NDC representative Jon Il-Chun was elected director-general and Pak Chol-Su, described as a Korean resident in China, as his deputy.

Previous State Development Bank posts here.

The KCNA story is here.

North Korean leadership Watch has more, including a picture of Jon Il-chun.

Read the full story here:
N.Korea launches bank to woo foreign capital
AFP
3/17/2010

Daily NK
Jin Hyuk Su
3/8/2010

Rice price inflation, a key indicator of the spiraling inflation which has beset the North Korean economy as a whole since the November, 2009 redenomination, shows no signs of slowing down, with the price in North Hamkyung Province reaching 1,500 won per kilo as of the 7th.

A source from North Hamkyung Province told The Daily NK the news by phone yesterday, saying, “In the Nammun jangmadang, in Hoiryeong, at around 2PM this afternoon, the rice price per kilogram was more than 1,500 won.”

He also reported, “I called a friend of mine who lives in the Songpyung-district of Chongjin, and he said that the rice price per kilogram in the Sabong jangmadang there had gone over 1,450 won.”

The source added, “Although the Hoiryeong food distribution situation is actually better than elsewhere because this is Kim Jong Suk’s home town, since the value of the new money is continuously deteriorating and the exchange rate has skyrocketed, the prices of all products, as well as rice, have continued to soar.”

The source also noted that promised food distribution had failed to materialize. According to his friend, when Kim Jong Il went to Kim Chaek Steel Mill in Chongjin on the 5th, he told them that food distribution would soon be released. But, that has yet to happen; “just words,” as the source put it.

He went on, “The value of the dollar is rising uncontrollably. Since the economy is in such a mess, the dollar’s value cannot stabilize, only fluctuate.”

“Residents in Hoiryeong and Chongjin expected that when Kim Jong Il came to their Province, maybe to the steel mills, food distribution would be released, but there have been no practical moves on that.”

Exchange rates have also been soaring erratically, the source reported; as of today one dollar is being traded for 1,750 won and one Yuan for 250 won.

With a kilo of rice now costing an unaffordable 1,500 won, residents are growing more and more incredulous, not to mention pessimistic, about the future; “Suicides are increasing,” the source asserted.

“Last year, elderly people committed suicide because they were pessimistic about their lives, but these days, more than a few young people are doing it too.”

Ruediger Frank, “Money in Socialist Economies: The Case of North Korea,” The Asia Pacific Journal, 8-2-10, February 22, 2010.

Introduction
Dated January 29, 2010, the Foreign Trade Bank of the DPRK (North Korea) issued document No. DC033 10-004 to diplomatic missions and international organizations present in North Korea. They were informed that the use of foreign currency was to be stopped, payments were to be made in the form of non-cash cheques, and that the official exchange rate of the Euro to the North Korean Won was changed from 188.2 KPW to 140 KPW, effective January 2, 2010.

Foreign institutions and organizations now have to obtain non-cash cheques from the Foreign Trade Bank, denominated in KPW, in order to pay for accommodations, meals and service fees in hotels, fares for transport services like railways and airlines, communication charges, inspection fees, registration fees and commissions paid to institutions and enterprises in the DPRK, fuel, office materials, spare parts for vehicles, electricity, water, heating charges and rent. Bank transfers are now mandatory for any transfers between international organizations and all money paid to institutions and organizations of the DPRK (including the salary of DPRK citizens working in embassies or international organizations).

A recent visitor to Pyongyang confirmed in a talk with the author that individuals are subject to a cumbersome process if they wish to purchase anything. Rather than using a standard hard currency or exchanging it into the new Won, they now have to obtain a receipt stating the price of the good they want to buy, then present this at a desk where they exchange their money into exactly the needed amount of North Korean money, and finally return to the shop assistant, hand over the exact amount, and receive the product.

In the preceding weeks, North Korea had made international headlines related to what seems to be a concerted economic policy initiative. The domestic currency was reformed in a way that obviously aimed at reducing the amount of money in circulation (link). A few weeks later news emerged that the use of foreign currencies was banned (link).

This is no doubt a dramatic move with far-reaching consequences. Money matters for personal lives and for society, so when a country initiates a currency reform, it has significant repercussions.

But what are these consequences for the specific case of North Korea in early 2010? Are people in various sectors of society better off now, or worse? Will the economy benefit or suffer? Do the reforms promote or impede foreign trade and investment? Will the domestic political situation become more stable, or will it deteriorate? Are the economic reforms of 2002 reversed, or were they intended to be a temporary measure from the outset? Should we even interpret the currency reforms as part of the process of power succession?

(more…)

Daily NK
Jung Kwon Ho
2/22/2010

In late January, Kim Jong Il held a meeting of his highest officials, including Jang Sung Taek, Director of the Ministry of Administration of the Party, aiming to find ways to alleviate the negative side effects of November’s currency redenomination. In the meeting, the group apparently agreed to release emergency supplies of rice to those on the brink of starvation.

According to a Daily NK source, “Following the meeting, which he chaired, Kim Jong Il handed down a handwritten decree to the chief secretaries of all provinces on January 20 in which it was stated, ‘Preventing anyone from starving to death is your obligation.’”

Chief Secretaries of Provincial Committees of the Party, the recipients of the decree, handed on the threat to their subordinates, warning provincial cadres, “You will resign if anyone starves to death, because this was a direct instruction from the General.”

In the decree, the three most vulnerable provinces were named as Yangkang, South Hamkyung, and Kangwon Provinces, so the officials governing those provinces are understandably nervous. They are the provinces where most casualties occurred during the March of Tribulation, and they remain the most food insecure.

Under the decree, the Ministry of Procurement and Food Policy makes daily deliveries of 5kg of relief rice to each people’s unit and 5-15kg to each factory and enterprise. Chairpersons of people’s units and managers of factories are required to observe the circumstances of the people under their control and provide those in the greatest danger of starvation with relief rice first.

In late January, quite a number of households were reportedly facing starvation due to the aftermath of the currency redenomination; notably sky high prices coupled to strict market regulations. However, there have been no reports of starvation since relief rice deliveries began on February 1.

Alongside the chairpersons of People’s Units, cadres working for local government offices are required to cross-check whether or not starvation is occurring. In theory, they are reprimanded if they do not report the situation truthfully.

Upon hearing the news, a defector in Seoul commented, “It seems that the people will not lie still and suffer that dire situation. Kim Jong Il may have done this because he senses a crisis situation this time.”

According to the Chosun Ilbo:

A North Korean source has shed more light on an apology by Premier Kim Yong-il on Feb. 5 which apparently acknowledged that the currency reform in late December went disastrously wrong.

The source said Kim, not to be confused with leader Kim Jong-il, read out an hour-long statement before village chiefs and other party officials at the People’s Palace of Culture in Pyongyang on Monday morning. “I sincerely apologize for having caused great pain to the people by recklessly enforcing the latest currency reform without making sufficient preparations or considering the circumstances,” the source quoted him as saying.

Kim also pledged to rectify the mistakes, saying he would do “my best” to stabilize people’s financial circumstances. The revaluation of the won, instead of curbing inflation, led to skyrocketing prices of daily necessities.

He indicated that the regime will allow people to use foreign currency, which has been banned since the reform, and permit open-air markets to return to normal after a crackdown that seemed aimed at strangling a nascent market economy.

But Kim at the same time stressed the need to stick to state-set prices, adding that the government will strictly crack down on the hoarding of goods.

Some experts say the situation in the North has returned to almost the state before the currency reform. A South Korean official said North Korean authorities loosened their control of the markets since there has been unprecedented resistance from ordinary people. This seems to have forced Kim’s hand.

After Kim’s apology, most money changers and illegal traders who had been arrested were reportedly freed. The number of people leaving for China has grown noticeably as offices of state agencies or state-run corporations involved in earning dollars, which suspended business due to the ban on use of foreign currency, have resumed business.

The apology apparently quenched a lot of the simmering public anger.

“Premier Kim Yong-il’s direct apology to village chiefs, who are representatives of the people of each region, is tantamount to an apology to the people themselves. It’s a big event in the history of North Korea,” a former senior North Korean official who defected to the South said. “Authorities have never apologized to the people for wrong policies before.”

He believes the apology came “because discontent with the currency reform had spread widely even among core supporters of the regime,” he added.

Residents in Hwanghae Province are in some cases said to have beaten security officers who were cracking down on the use of dollars.

Since the climbdown, there have reportedly been calls to return the money the authorities confiscated. The won was revalued at a rate of 100:1, but the new won immediately plummeted in value, and those who saw their savings disappear into thin air have been demanding compensation.

The source said the apology may encourage North Koreans to become more assertive in the future.

The AP (Via Washington Post) adds:

South Korea’s National Intelligence Service and the Unification Ministry said they couldn’t confirm the Chosun Ilbo report. But Unification Ministry spokeswoman Lee Jong-joo said it would be “very rare” for a top North Korean official to issue a public apology.

Kim is believed to be the North’s No. 3 man in the country’s power hierarchy after autocratic leader Kim Jong Il and Kim Yong Nam, president of the Presidium of the Supreme People’s Assembly, according to South Korean media reports.

Last week, South Korean media reported that leader Kim Jong Il sacked a senior communist party official who spearheaded the currency reform, following arguments within the country’s elite over who should take responsibility for the fiasco.

Wow.

UPDATE: Good Friends reports that DPRK authorities are repealing market regulations.  According to the AFP:

Communist North Korea has allowed private markets to reopen nationwide after a bungled currency revaluation worsened food shortages and fuelled anger at the regime, a Seoul welfare group said Thursday.

“All the markets across the country should be reopened — without exceptions — as before,” Good Friends said in a newsletter, citing what it said was a special order from the central committee of the ruling Workers’ Party.

It said security organisations across the nation were also ordered to launch “absolutely no crackdowns on trading in food” at the markets.

…

The official policy turnaround came last week, “based on assessments that the currency reform has caused enormous pain to people by paralysing distribution networks”, group director Lee Seung-Yong told AFP.

“I believe North Korea will not clamp down on market activities for a considerable period, or at least until its state distribution system is back to normal.”

The South’s unification ministry, which handles cross-border relations, could not confirm the welfare group’s report.

“We’ve heard the North gradually easing curbs on the markets but it is difficult to verify the full-scale reopening,” said spokeswoman Lee Jong-Joo.

…

Good Friends said this week that about 2,000 people had starved to death across the nation this winter.

Read the full article here:
N.Korea eases curbs on markets nationwide: group
AFP
Jun Kwanwoo
2/18/2010

The Economist
2/10/2010

However loathsome his neighbours find Kim Jong Il, the nuclear-armed North Korean dictator, there are few who do not also admit that beneath the big hair lurks a tactical genius with a flair for survival. At home, North Koreans are smothered by his ruthless personality cult. With the outside world, he is an adept blackmailer: act mad enough to be dangerous; then be conciliatory in exchange for cash.

Recently, however, on both counts he has made tactical mistakes. None of these are serious enough to endanger his regime, diplomats say. But they are encouraging to those who believe they can eventually push North Korea back to talks about dismantling its nuclear arsenal. And they reaffirm the benefits of what the Americans call “strategic patience”: waiting until North Korea is desperate enough to offer concessions.

Even the regime appears, in its oddball way, to have acknowledged the most recent blunder. News reports this month suggest that North Korea has reversed some elements of a crackdown on private enterprise that it unleashed with a cack-handed redenomination of the won on November 30th.

In the interim, the currency collapsed, the price of rice surged by as much as 50 times, and much of traders’ working capital for buying and selling goods was wiped out. Amid a seizing up of food distribution, there were some rare grumbles of protest.

But since early February, regulations on trading in the jangmadang, or markets, across North Korea appear to have been lifted, according to news reports. Official prices (which are not necessarily what are paid) have been posted. A kilo of rice costs 240 won ($1.80) (a bit less than a pair of socks), a toothbrush is 25 won.

Meanwhile, the Dear Leader has made what some observers believe to be an unprecedented apology to his people for feeding them “broken rice” and not providing enough white rice, bread and noodles. He was, he said, “heartbroken”, and implicitly acknowledged he had violated an oath to his godlike father, Kim Il Sung, to feed the people rice and meat soup.

Adding to the poignancy, experts say the bungled reforms were done in the name of Kim Jong Un, the dictator’s third son and potential heir. The young man’s involvement may have been part of a strategy to reassert Stalinist-style state control of the enfeebled economy ahead of 2012, the 100th anniversary of grandfather Kim’s birth.

People knowledgeable on North Korea are loth to believe that such a plan has been abandoned, not least because the small markets that have flourished since the famine of the 1990s represent such a challenge to the state’s authority. But they say the ineptitude must have been glaringly obvious, even in the hermetic state.

“The government has never said sorry to the people, especially on a topic as sensitive as rice,” says Andrei Lankov of Kookmin University in Seoul, who has written a lot on North Korea and has described its leaders as brilliant Machiavellians. “Because of Kim Jong Il’s age and the age of those around him, it looks like he may be losing touch with reality.”

Mr Lankov believes there may have been a similar miscalculation in North Korea’s recent behaviour towards America, China, South Korea, Japan and Russia, the countries with whom in 2003 it started on-again, off-again denuclearisation negotiations, known as the six-party talks. Its firing of a long-range missile and explosion of a nuclear bomb in quick succession last year hardened the resolve of the five to strengthen United Nations sanctions against Pyongyang and maintain them until it gives ground on its nukes. However much Mr Kim has cajoled and coaxed in the months since, he has not yet managed to divide them.

What’s more, diplomats say he appears to be increasingly open to discussing a return to the six-party talks, something which last year he vowed “never” to do. China, which is closest to North Korea and chairs the six-party forum, sent Wang Jiarui, a senior Communist Party official, to meet Mr Kim this week and invite him to Beijing. Mr Kim made no public commitment regarding the six-party talks. But his nuclear negotiator returned with Mr Wang to the Chinese capital.

Lee Myung-bak, South Korea’s president, surprised his countrymen by saying that he, too, hoped to meet Mr Kim “within this year”. The timing was odd. His statement came at about the time North Korea was lobbing artillery shells threateningly into the Yellow Sea. But it revealed what officials say is a twin-track process in Seoul to engage North Korea: bilaterally and via the six-party framework. “My impression is that the North Koreans are moving in the direction of talks,” says Wi Sung-lac, South Korea’s special representative for peace on the peninsula.

Both North Korea and its six-party counterparts have set such tough conditions on coming together that it would be foolhardy to be optimistic. North Korea wants a lifting of the UN sanctions and a peace treaty with America to out a formal end to the 1950-53 Korean War before restarting talks. Washington has resisted both. An East Asian diplomat said the other five countries are demanding that North Korea take “concrete measures” towards denuclearisation as a pre-condition for talks and the lifting of sanctions. “We’re not giving any carrots.”

Underscoring the resolve, humanitarian assistance to North Korea has slowed to a trickle. South Korea sent only $37m of public aid north last year, compared with $209m in 2007. Officials say Mr Lee is adamant no money will go to North Korea to coax it into agreeing to a summit. Talks on cross-border tourism and factories, another means for Pyongyang to extort hard currency from the south, have made no progress.

Mr Kim still has some good cards up his sleeve. Tensions between China and America over Taiwan and Tibet provide a thread of disharmony that he can tug upon. And China has a strategic eye on North Korea’s ports and minerals, which may encourage it to be overly generous to the regime.

But the mere hint of economic and diplomatic fallibility in a regime that demands almost religious devotion from its subjects may be significant. It comes at a time when North Koreans, via smuggled DVDs and telephones, have a greater idea than ever before of how far their living conditions fall short of their neighbours’. That is a rare point of vulnerability for Mr Kim’s interlocutors to exploit.

Daily NK
Jung Kwon Ho
2/5/2010

The North Korean authorities finally released fixed prices for 100 items across the country at 3 P.M. on Thursday.

A Daily NK source inside North Korea revealed the news today in a telephone conversation, saying, “The authorities announced state-designated prices for 100 items in a notice posted at the entrance to markets on Thursday afternoon.

Alongside the message came a warning, “If traders fail to sell goods at the stated prices, goods will be confiscated.”

The price list includes those for rice and corn. By implication, the selling of food has now been officially sanctioned in the market.

If the listed prices are enforced, however, confusion and anger are absolutely inevitable, because the gap between the newly-posted prices and real jangmadang prices is enormous.

For example, the latest real rice price in the jangmadang is 350 won per kilo, while corn is selling for 180 won; however the state-designated prices are 240 won and 130 won respectively. The jangmadang price of pork is around 300 won more expensive than its state-designated price.

Inevitably, therefore, traders’ increasingly wily attempts to circumvent the unrealistic demands of the state are continuing apace, “For now,” the source explained, “traders are pretending to sell for the released prices, but in reality they are selling for the existing jangmadang prices.”

According to the state price list, rice is 240 won per kilo; corn is 130 won; pork is 700 won; soy beans are 160 won; oil is 600 won; a kilogram of apples is 250 won; and a single egg is 21 won.

Meanwhile, a toothbrush is 25 won; bars of soap, tubes of toothpaste and laundry soap are all 50 won; sneakers are 500 won; toilet paper is 50 won; a notebook comes in various sizes between 25 and 55 won; lighters are 70 won; shoes are 1,300 won; a flashlight is 500 won and a single battery 100 won.

Children’s clothes are 1,500 won; children’s winter clothes are 5,000 won; and finally socks are listed as 350 won a pair.

UPDATE: Below is a table of prices from the Daily NK:

Click image for larger version