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Rice Price and Suicide Rate Rising

Monday, March 8th, 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.”

Posted in Agriculture, Agriculture statistics, Finance, Fiscal & monetary policy, Food, Price liberalization | Comments Closed

Is the Dear Leader losing his grip?

Thursday, March 4th, 2010

Andrei Lankov offers some thoughtful analysis on recent North Korea developments in the Asia Times:

Contrary to oft-stated accusations, Pyongyang leaders are neither irrational nor ideology-driven; they are a bunch of brilliant Machiavellians, very apt at exploiting the fears and controversies of their enemies and their partners alike.

Their country’s economy is in a sorry state, to be sure, but survival of the population has never been a major item on their agenda. They just want to stay in control and not be overthrown by popular insurrection or by a coup – they are very good at this game.

…

However, over the past year or so, something strange has begun to happen in Pyongyang. The North Korean leadership has taken some actions that have clearly damaged the interests of the ruling clique. It seems that the once formidable manipulators have for some reason lost their ability to judge and plan.

The recent currency reform is the best example of such weird and self-defeating policy decisions. For years, the Pyongyang government has waged campaigns against the unofficial and semi-official markets that have played a decisive role in North Korea’s economic life since the collapse of the state-run economy in the 1990s. As another move in this ongoing (and, perhaps, unwinnable) struggle, last November the government initiated currency reform that was meant to undermine the power of black-market merchants.

The reform was modeled on confiscation-oriented currency reforms once used in the Soviet Union and other communist countries. One morning, the populace suddenly learned that old bank notes were null and void and had to be changed for new ones within a week. The exchange rate was set as 1:100, so, for example, 1,000 “old” won should be exchanged for 10 “new” won.

Accordingly, all retail prices and fees were also reduced one hundred times. Harsh exchange limits were introduced: only the equivalent of US$30 in cash could be changed by one person. The use of foreign currency, which had become very common in North Korea’s retail economy, was banned.

The measures are standard for communist-style currency reform, since such reform usually pursues the double goal of fighting inflation and reducing the power and influence of the unofficial black economy.

However, North Korea’s planners also did something unexpected: they claimed that nominal wages and salaries would not change. In other words, a person who prior to the reform received a monthly salary of 3,000 won, would still receive 3,000 won, but paid in the new currency. Effectively, it meant that all wages in the country suddenly increased 100 times. To assure consumers, the government issued stern warnings against profiteers who dared to raise prices of goods and services.

For a brief while in December and early January, North Korean customers felt rich and consumers expected that even such luxuries as, say, Chinese bikes (a North Korean equivalent to a Porsche) were now within their reach.

The actual result was less impressive. The dramatic increase in salaries launched an equally dramatic round of inflation, so in the past three months the price of rice (and the black market exchange rate) has increased 50 times, from the official required 20 “new” won per kilogram to 1,000 “new” won. The government’s “stern warnings” were ignored. In the near future, prices are likely to return to pre-reform levels. The reform has failed completely and it only succeeded in making people irritated and in demonstrating the government’s inability to control a situation.

The unprecedented decision to raise wages doomed the entire affair from the start. But why was it done? Why was an otherwise standard package of well-tested measures saddled with this self-defeating (and, frankly, stupid) addition?

In the realm of diplomacy, North Korea is not faring much better. For decades, Pyongyang has demonstrated uncanny skills in manipulating its neighbors from whom it squeezed unconditional aid and unilateral concessions. The usual tactics consisted of three stages. In the first stage, the North Koreans raise tensions. Secondly, they launch missiles, test nuclear devices and make threatening statements. Finally, once tensions are sufficiently high for the world to feel uneasy, there are negotiations in which Pyongyang extracts aid that is essentially a reward for calming a crisis the North itself manufactured.

This time, both stage one and stage two were seriously mishandled. First, the North Koreans used both their trump blackmail cards – a nuclear test and a missile launch – almost simultaneously (analysts expected space of at least a few months before these two events). They also showered Washington with especially bellicose rhetoric, even though the Barack Obama administration was initially relatively soft on the North Korean issue.

As a result, the excessive activity of the North Koreans backfired: the US foreign policy establishment finally realized that North Korea would not surrender its nuclear program under whatever circumstances. This reassessment of the situation (or belated realization) meant that the US was now far less willing to shower Pyongyang with concessions. In the past, gifts were presented as incentives to surrender nuclear weapons, and since such surrender is now seen as unlikely, such generosity is not necessary. (See US finally wise to Pyongyang’s ways, Asia Times Online, November 12, 2009)

The North Koreans are now beginning to realize that the old trick is not working. They have only themselves to blame. Had they been slightly more careful last year, a significant part of the US establishment would still nurture the illusionary dream of “denuclearization through negotiations”.

The third stage of asking for aid was also handled badly. The unnecessarily aggressive rhetoric of the past was replaced by unusual softness in a short time – previously, the switch took months. Since August, North Korea has essentially begged to restart negotiations with the US and, especially, South Korea.

Pyongyang is demanding to restart cooperation projects. It is quite remarkable, since two of the three major projects – tours of Keumgang Mountain and Kaesong city tours – were abruptly stopped by North Korean authorities a year ago. Needless to say, the South Korean government is not too eager to restart negotiations. After all, so-called intra-Korean cooperation is essentially unilateral South Korean aid in disguise and Seoul sees no reason why it should hurry with the resumption of money transfers to Pyongyang. North Korean softness is (wrongly) seen by Seoul hardliners as a victory of the hard line they are advocating, so they say that an even harder approach will probably bring greater success.

Meanwhile, the North Korean government also did something it has never done before: it said “sorry” to the people. In January, Nodong Sinmun, a government mouthpiece, reported that Dear Leader Kim Jong-il felt bad for being unable to provide his subjects with the level of material affluence they were once promised.

The promise was moderate, to be sure. In the 1960s, Kim Il-sung, the founding father of the country and also father of the current dictator, promised that eventually all Koreans would eat rice (not corn or barley) and meat soup, live in houses with tiled roofs (not thatched), and wear silk clothes.

Every North Korean knows that even this moderate paradise has failed to materialize. However, the fact has never been admitted openly. In the past, economic difficulties and hardships, if mentioned at all, were always explained as they should be explained in a solid dictatorship, that is, by references to scheming enemies, above all US imperialists.

This time, Kim’s remark indicated that the system itself might bear some responsibility for economic problems.

In accordance with the new mood, a high-level official allegedly expressed his regret about the chaos created by the currency reform while addressing a large group of the party faithful. This might appear like normal behavior, but in a dictatorship that claims the possession of absolute truth and an infallible leader, such statements are very unusual – and, indeed, dangerous. They are likely to be seen as signs of fallibility and weakness, and every dictator knows that such signs should not be shown.

In other words, something has changed in Pyongyang recently – seemingly, after Kim’s illness in late 2008, when he reportedly suffered a stroke. The most likely explanation seems to be biological: the increasing inability of the ailing dictator to pass reasonable judgments and control people around him.

One can easily imagine how the Dear Leader (perhaps even driven by genuine sympathy to his long-suffering people) would look through a currency reform plan and say: “And what about poor wage-earners? Should we not reward the people who remained loyal to the socialist industry and did not go for black markets? Why not increase their salaries, so they will become affluent, more affluent than those anti-socialist profiteers of the black market?” Few, if any, officials would dare to explain the dire economic consequences of such generosity.

It is also possible that the deteriorating health condition of Kim has led to growing rivalry between factions so the North Korean leadership is now increasingly disunited, with rival groups pushing through their own agendas.

At any rate, something unusual seems to be happening in Pyongyang and it’s probably the time to think about the future a bit more seriously. We are heading towards serious changes, and unfortunately nobody seems prepared.

Read the full story here:
Is the Dear Leader losing his grip?
Asia Times
Andrei Lankov
3/5/2010

Posted in Fiscal & monetary policy, Food, Labor conditions/wages, Political economy | 8 Comments »

North Korea: It’s the Economy, Stupid

Thursday, March 4th, 2010

Nautilus Institute Policy Forum Online 10-015A
Aiden Foster-Carter
3/4/2010

Too many Kim Yong-ils

Korean names can set traps for the unwary. Amid a multitude of Kims, almost all unrelated, North Korea adds an extra twist. German speakers, and some others, tend to mispronounce the J in Kim Jong-il as a Y. Not only is this incorrect, but currently it can confuse; for North Korea’s Premier – head of the civilian Cabinet, as distinct from the Dear Leader who chairs the more powerful National Defence Commission (NDC) – is named Kim Yong-il.

To add to the confusion, another Kim Yong-il was until recently vice foreign minister (one of several), but in January became director of the ruling Workers’ Party of Korea (WPK)’s international department: a post apparently vacant since 2007. As such, this Kim Yong-il met his Chinese counterpart Wang Jiarui, head of the Chinese Communist Party (CCP)’s international liaison department, when Wang visited Pyongyang in early February. Since his promotion, Kim Yong-il 2 (as it may be best to call him) has been reported as frequently at Kim Jong-il’s side. This suggests he may see far more of the Dear Leader than does anyone else involved in DPRK foreign policy, including the man hitherto thought to be the eminence grise on that front: first vice foreign minister Kang Sok-ju, who negotiated the 1994 Agreed Framework with the US. It was Kang whom the current US special envoy on North Korea, Stephen Bosworth, demanded to meet when he visited Pyongyang in December, rather than the North’s main nuclear negotiator Kim Kye-gwan: a more junior deputy foreign minister.

Or is Washington behind the curve? That Kim Yong-il 2 is the DPRK’s new foreign affairs head honcho seemed confirmed on February 23, when he turned up in Beijing and went right to the top: going straight into talks with President Hu Jintao and separately with Wang Jiarui. This flurry of activity suggests two possibilities. Either Kim Jong-il will soon visit China, as he is overdue to do; or North Korea may return to the nuclear Six Party Talks (6PT), which have not met in over a year. Or perhaps both, if we are especially fortunate.

If both Kim Yong-ils are now leading players, perhaps one of them could change his name? That is not a frivolous suggestion. Some DPRK officials do this, for no clear reason. Often the change is small, so this is not a case of deception. Thus Paek Nam-sun, DPRK foreign minister – meaning chief meeter and greeter rather than top negotiator – from 1998 until his death in 2007, was originally Paek Nam-jun. Ri Jong-hyok, who as vice-chairman of the Asia-Pacific Peace Committee (APPC) now handles relations with the South, was Ri Dong-hyok in the 1980s when this writer knew him as head of North Korea’s mission in Paris.

(For completeness, yet another Kim Yong-il was Kim Jong-il’s late half-brother. He died of liver cirrhosis in 2000 aged only 45 in Berlin, where he had a diplomatic posting tantamount to exile – as his elder brother Kim Pyong-il, the DPRK ambassador to Poland, still does.)

Jong and Yong both say sorry

The past month saw both Chairman and Premier Kim doing something almost unheard of in Pyongyang. Apparently they both said sorry, although some reports got the two muddled up.

On February 1 Rodong Sinmun, daily paper of the ruling Workers’ Party of Korea (WPK), reported Kim Jong-il as lamenting his failure to fulfil his late father Kim Il-sung’s pledge, to which he had also alluded shortly before on January 9, that all North Koreans would eat rice and meat soup (everyday fare for even the poorest South Korean, be it noted). This time Kim said: “What I should do now is feed the world’s greatest people with rice and let them eat their fill of bread and noodles. Let us all honour the oath we made before the Leader and help our people feed themselves without having to know broken rice [an inferior version]”.

Given Kim Jong-il’s own notoriety as gourmet and gourmand, his professed “compassion” for his less fortunate subjects’ deprivation may induce queasiness. Yet even this not-quite-apology glosses over the truth. Broken rice? They should be so lucky. As readers of Barbara Demick’s excellent and heartbreaking new book Nothing to Envy will know, rice of any kind – whole or broken – is a rare luxury for most North Koreans. In the late 1990s a million or so starved to death; even today most remain malnourished. One refugee who fled to China saw her first rice in years in the first house she came to – in a dog’s bowl. That is the true reality.

Worse, all this was and is avoidable: the result of stupid and vicious policies, not the natural disasters that the regime blames. The real cause was the government’s failure to adapt in the 1990s after Moscow abruptly pulled the plug on aid. This hurt other ex-Soviet client states too. Cuba went for tourism; Vietnam tried cautious reform; Mongolia sold minerals. North Korea, bizarrely, did nothing – except watch its old system break down and growth plunge.

In a speech at Kim Il-sung University in December 1996, when famine was seriously biting, Kim Jong-il lashed out at the WPK and uttered this petulant but very revealing whinge:

In this complex situation, I cannot solve all the problems while I have the duty of being in charge of practical economic projects as well as the overall economy, since I have to control important sectors such as the military and the party as well. If I concentrated only on the economy there would be irrecoverable damage to the revolution. The great leader told me when he was alive never to be involved in economic projects, just concentrate on the military and the party and leave economics to party functionaries. If I do delve into economics then I cannot run the party and the military effectively.

Evidently Bill Clinton’s famously apt watchword, which helped him win the presidency in 1992, had not breached North Korea’s thick walls and heads. It’s the economy, stupid! The paternal advice was dead wrong. (The full speech can be read on the much-missed Kimsoft website. Unsurprisingly it is not part of the DPRK’s official canon of the dear leader’s works, but the scholarly consensus is that it is genuine. A slightly different version appears here.)

Redenomination disaster

Mass starvation, you might hope, would prompt some soul-searching and fresh thinking. From mid-2002 North Korea did essay cautious market reforms, but recently it has tried to squash Pandora back in her box. The latest such crass effort, a currency redenomination that deliberately wiped out most people’s meagre savings, was discussed in December’s Update.

By all accounts this has backfired badly, sparking runaway inflation (which it was supposed to stanch) and even riots. Forced on the defensive, the regime has issued an unprecedented apology. This being North Korea, it has not done so publicly; there are limits. Nor, in 2010 as in 1996, is Kim Jong-il about to take the rap, despite some newswires confusing J with Y.

But reliable intelligence claims that on February 5 Premier Kim Yong-il called all leaders of neigbourhood groups (inminban) to Pyongyang. The lowest unit in the DPRK’s still tight system of socio-political control, each comprises 20-40 households. This suggests that over 10,000 people heard the premier say what no leader had ever said to them before: sorry. In his words: “I offer a sincere apology about the currency reform, as we pushed ahead with it without sufficient preparation and it caused a great pain to the people… We will do our best to stabilize people’s lives.” The audience’s reaction is not recorded.

The situation on the ground remains confused, but markets appear to be functioning again unhindered. Good Friends, a seemingly well-informed South Korean Buddhist NGO, said on February 18 that after examining a report on food shortages and conditions nationwide by the Office of Economic Policy Review, the WPK Central Committee issued an ‘Order for Absolutely No Regulation Regarding Foodstuffs’. All markets are to reopen as they were before recent government crackdowns, and under no circumstances must local authorities try to regulate food sales – “until central distribution is running smoothly.” There may be a sting in that tail, but for now this is a complete, humiliating government U-turn and climbdown.

This is an astonishing episode, which history may record as pivotal. If the leadership learns its lesson and finally accepts that the market economy is as ineluctable as gravity, then the DPRK might conceivably survive on a reconstituted economic base and social contract, like today’s China or Vietnam. But if Kim Jong-il (or whoever) keeps trying to square the circle, under the delusion that correct politics is a substitute for sound economics, there is no hope.

Sea shells

Relations with South Korea remain an odd blend of sabre-rattling and dialogue. Four times in the past month, starting on January 25 and most recently on February 19, the North has declared a series of no-sail zones for varied time periods. Some of these adjoin two ROK-held islands close to the Northern coast, Baengnyong and Daechong. For three days (January 27-29) the Korean People’s Army (KPA) fired volleys of artillery shells near the Northern Limit Line (NLL): the de facto western sea border since 1953, which the North rejects.

Though no shells actually crossed the NLL, on the first day the South called this provocative and fired back – but again only within its own waters south of the line. By late February, a Southern defence spokesman called the latest shelling “a routine situation that is part of the North’s winter military exercise”, adding that this may go on till the end of March. Routine or not, a report submitted to the ROK National Assembly’s Defence Committee on February 19 said Pyongyang has reinforced its military along the west coast of the peninsula and has strengthened military drills.

Kaesong and Kumgang remain unsettled

The shelling did not stop the Koreas talking about their two joint venture zones just north of the Demilitarised Zone (DMZ). But they got nowhere, beiing far apart on the agenda, format and venue for talks. On the Kaesong Industrial Complex (KIC) – see last month’s Update for more details – the North suggested that the South’s issues – it wants smoother cross-border passage – were best left to military-level talks, which in the past have handled issues relating to the border and security. The South agreed, proposing February 23 at the border village of Panmunjom: the venue for all military meetings hitherto. The North then counter-proposed March 2, at Kaesong; but on February 22 the South said it will insist on Panmunjom, rather than set the precedent of holding a military meeting inside North Korea. With both venue and agenda still in dispute, the chances of progress on the substantive issues looks remote.

Mount Kumgang tours remain suspended

Separately, South Korea with some misgivings accepted the North’s request for talks on resuming tours to the Mount Kumgang resort, suspended since a Southern tourist was shot dead there in July 2008. At the talks held in Kaesong on February 8, North Korea asked for tours to restart from April 1. It breezily declared that the South’s three conditions – a probe into the shooting, efforts to ensure no repetition, and a cast-iron safety guarantee – had been met. But as the North well knows, the South’s key demand is to send in its own investigating team – which the North resolutely refuses. The Northern side proposed continuing the talks on February 12, but the South declined unless the North accepts their three conditions first.

More arms are interdicted

UN sanctions imposed last June after North Korea’s second nuclear test seem to be biting. In February South Africa told the Security Council that in November it inspected a ship headed for the Congo Republic (Congo-Brazzaville). The French owners reported suspicions about cargo they took on in Malaysia from a Chinese vessel. Seizing the containers, South Africa found that what the manifest called “spare parts of bulldozer” were in fact tank components. The shipping agent, and likely origin, is North Korean. China said it will investigate its own vessel’s role in the affair. UN resolution 1874 bans almost all DPRK weapons exports.

More ambiguously, on February 11 Thailand dropped charges against the crew of a plane seized in December and found to contain 35 tonnes of weapons from North Korea, including five crates of Manpads (man-portable air defence systems) which terrorists can use to shoot down aircraft. Next day all five were put on a flight to Almaty. Four are Kazakhs, and their government had asked that they be sent home to be tried. It will be dismaying if they are not.

Posted in 2002 Economic reforms, Arms shipment, Cabinet, Fiscal & monetary policy, Food, General markets (FMR: Farmers Market), Illicit activities, International Department (KWP), Kaesong Industrial Complex (KIC), Military, Mt. Kumgang Tourist Special Zone, Special Economic Zones (Established before 2013), Worker's Party | Comments Closed

Money in Socialist Economies: The Case of North Korea

Sunday, February 28th, 2010

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…)

Posted in 2002 Economic reforms, Banking, Economic reform, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market) | 1 Comment »

DPRK government delivering rice to high risk areas

Tuesday, February 23rd, 2010

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.”

Posted in Agriculture, Agriculture statistics, Banking, Finance, Fiscal & monetary policy, Food, Ministry of Administration, Ministry of Procurement and Food Policy, Political economy | Comments Closed

DPRK premier apologizes over currency revamp

Thursday, February 11th, 2010

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

Posted in Banking, Black markets, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market), Political economy | Comments Closed

North Korea’s regime stumbles

Wednesday, February 10th, 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.

Posted in Black markets, Economic reform, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market), Kim Jong Un, Political economy | Comments Closed

North Korea dictates new prices on February 4

Tuesday, February 9th, 2010

Institute for Far Eastern Studies (IFES)
NK Brief No.10-02-09-1
2/9/2010

According to a report from the webzine Daily NK, authorities in the North posted notices at the entrances of all markets across the country in the afternoon of February 4, setting state-wide standard prices for 100 different goods. The prices went into effect the next day. The notice reportedly stated, “In the case of foods not being sold at state-set prices, the state will confiscate all goods.”

The list of 100 items for which prices were set includes rice and corn, indicating that the government is allowing the sale of food items in markets (some of the prices can be seen in the table below). It appears, however, that the state-set prices are causing disruptions in the markets due to the significant difference between Pyongyang’s pricing and the actual prices for which goods in the markets are being sold.

Currently, rice is selling for 350 won/Kg, more than 100 won more than state prices. Corn, costing 180 won/Kg, is trading at 50 won more than the government is demanding. In addition, cooking oil and pork are selling for 1,000 won, 300-400 won more than state-mandated prices. Sources in the North report that, while market traders put on the appearance of adhering to the state’s regulation, many continue to trade at prices dictated by the markets.

Most previous attempts by North Korean authorities to clamp down on markets have failed, making it unlikely that this attempt to mandate prices will have any real impact. Actually, authorities have mandated ‘market price caps’ and regulated prices since the North’s economic adjustment measures taken on July 1, 2002. The government has also banned the sale of grains and other food, but this has not helped the North reach its policy goals and, in fact, has done little but stimulate black market activities. Furthermore, one reason for the recent and significant rise in inflation is the lack of policy for improving the supply sector at a time when currency reforms led to a sudden jump in the purchasing power of farmers and laborers. This adds weight to the argument that these latest price controls will not be maintained with any consistency.

GOODS PRICE (DPRK Won)
Rice (kg) 240
Corn (kg) 130
Pork (kg) 700
Beans (kg) 160
Cooking Oil (bottle) 600
Toothbrush 25
Toothpaste 50
Soap 50
Laundry Detergent 25
Athletic Shoes 500
Toilet Paper 50
Workbook 25-55
Lighter 70
Dress Shoes 1,300
Flashlight 500
Battery 100
Children’s Clothes 1,500
Children’s Padded Clothing 5,000
Socks 350
Apples (kg) 250
Egg 21

Posted in Agriculture, Fiscal & monetary policy, Food, General markets (FMR: Farmers Market), Price liberalization | Comments Closed

North Korea’s Failed Currency Reform

Sunday, February 7th, 2010

Marcus Noland wrote an op-ed for the BBC which is posted on the Peterson Institute web page. There are some differences in the two (the BBC piece is shorter), so you can read whichever you prefer. Below, however, I have posted the graphs from the Peterson Institute web page with some commentary:

This chart indicates the market for rice was surprisingly efficient before the currency conversion. Over a two year window, the observed price seems remarkably stable (although the scale of the graph makes it hard to see the the actual level of price volatility). Still, it seems fair to say that North Korean rice producers, vendors, and smugglers are quick to spot and eliminate regional price differentials through arbitrage. The supply of rice must also be highly highly elastic. If the North Korean economy was experiencing inflationary pressures in this time, productivity gains and competition would have to have kept the nominal price essentially flat and caused the real price of rice to fall!

The price of corn is somewhat more volatile and I would be interested in hearing theories as to why this is.

This chart is surprising as well. We see a highly stable US Dollar/DPRK won black market exchange rate (though again, the scale of the graph makes it difficult to determine just how stable). Although the DPRK has not published its monetary policy goals (as far as I am aware), I think it is fair to say that the North Koreans practice exchange rate targeting. Most likely the target is not the US dollar, but the Chinese yuan–which trades at a nearly constant level with the US dollar. Since China is the DPRK’s largest trading partner, it would make sense that the authorities would aim for exchange rate stability. This would suggest, however, that the DPRK’s monetary authorities are well aware of the black market value of their currency and have the tools to affect the exchange rate (i.e. lots of RMB reserves to sell on the black market). I am not sure how plausible this is, but I am not sure how else we can explain this level of exchange rate stability.

Posted in Agriculture, Agriculture statistics, Fiscal & monetary policy, Food, Peterson Institute | 5 Comments »

State Prices Finally Unveiled

Sunday, February 7th, 2010

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

Posted in Economic reform, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market), Price liberalization, Public Distribiution System (PDS) | 1 Comment »

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