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Russia forgives DPRK debt – transact in rubles (2006-present)

Thursday, March 20th, 2014

UPDATE 10 (2014-10-20): According to RIA Novosti, the Russians and North Koreans have conducted their first transaction in rubles:

The first transactions in rubles between Russia and North Korea were carried out in October, Russia’s Far East Development Ministry said in a statement Monday.

“Russia and the DPRK [Democratic People’s Republic of Korea] have begun carrying out transactions in rubles in the framework of agreements, reached during the 6th meeting of the intergovernmental committee on commercial-economic relations between the Russian Federation and the DPRK, headed by the Minister for the Development of the Russian Far East Alexander Galushka,” the statement posted on ministry’s website reads.

In May, Russian President Vladimir Putin signed a law ratifying an agreement on settlement of the DPRK’s debt to Russia. Russia agreed to write off 90 percent of the North Korea’s debt to the former Soviet Union, which amounted to $10.94 billion as of September 17, 2012. The remaining 10 percent ($1.09 billion) is to be paid off in 40 installments over the next 20 years.

No word yet on what was purchased.

Here is coverage in Xinhua:

Russia has started interbank transactions with the Democratic People’s Republic of Korea (DPRK) in the Russian ruble, the Ministry for Far East Development said Monday.

The business went ahead according to an agreement the two sides reached earlier this year. The ministry’s press service said in a statement that the first transactions have already been completed.

The move is part of the efforts aimed at the ambitious goal of boosting annual bilateral trade to 1 billion U.S. dollars by 2020, the Itar-Tass news agency quoted the ministry as saying.

“Moscow and Pyongyang signed a deal on May 5 about writing off all DPRK debts to Russia, which has facilitated the launch of ruble-based accounting between the two countries,” Far East Development Minister Alexander Galushka said.

Under the deal, Russia has written off 90 percent of the DPRK’s debt and restructured the remaining 1.09 billion dollars to be paid off in the next 20 years.

Amid worsening ties with the West, Russia has turned to Asian countries for more economic and political cooperation.

Prime Minister Dmitry Medvedev said in July that Russia should push for a breakthrough in economic relations with the Asia-Pacific region.

UPDATE 9 (2014-6-5): RIA Novosti reports that Russia and the DPRK will begin negotiating bilateral trade contracts in rubles rather than dollars. According to the article:

Russia and North Korea are preparing to launch bilateral transactions in the Russian ruble this month to boost trade turnover between the two nations to $1 billion by 2020, Russia’s Far East Development Minister said Thursday.

In May 2014, Moscow agreed to write off 10.94 billion of Pyongyang’s Soviet debt with the remaining 1.09 billion to be paid in installments over the next 20 years.

“The decision to write off DPRK’s debt to Russia has opened up the way to resolve a wide range of issues that was previously blocked by this debt load. Ruble transactions between Russia and DPRK will begin as early as this month, with first bank accounts to be set up in Russian banks,” Far East’s Development Minister Alexander Galushko said.

North Korea currently uses euros as the official currency in settling overseas trade deals.

The announcement came on the heels of a meeting in Russia’s far eastern city of Vladivostok where Galushko took part in the sixth annual session of the Russian-Korean standing commission, an intergovernmental agency on trade, economic and scientific cooperation.

The minister added that Russia hoped to ramp up its trade turnover with Korea to $1 billion, up from the current $112 million. “It is not much,” he pointed out, saying that a greater degree of Korea’s commitment to the existing bilateral projects could whip up sales to $400-500 million.

UPDATE 8 (2014-4-19): Russia has reportedly [formally] written of the DPRK’s debt. According to Reuters:

The State Duma lower house on Friday ratified a 2012 agreement to write off the bulk of North Korea’s debt. It said the total debt stood at $10.96 billion as of Sept. 17, 2012.

The rest of the debt, $1.09 billion, would be redeemed during the next 20 years, to be paid in equal instalments every six months. The outstanding debt owed by North Korea will be managed by Russia’s state development bank, Vnesheconombank.

Russia’s Deputy Finance Minister Sergei Storchak told Russian media that the money could be used to fund mutual projects in North Korea, including a proposed gas pipeline and a railway to South Korea.

More at the Voice of Russia.

UPDATE 7 (2014-3-20): Russian Duma committee recommends write off $10 b DPRK debt. According to Voice of Russia:

Committee of the State Duma for the budget and taxes has issued a recommendation to the MPs to ratify an agreement between the Russian government and the Democratic People’s Republic of Korea on settling the North Korea’s debt to Russia on the Soviet-era loans issued to that country.

The document that was submitted for ratification by the Russian government features the agreements reached at the negotiations that lasted almost twenty years and took account of the special features of financial, political and economic relations between Russia and North Korea.

Debt settlement embraces all the categories of reciprocal financial claims and obligations of the former USSR and the DPRK, with the precise parameters registered on the date when the agreement is signed.

Overall amount of the DPRK’s financial obligations to Russia stood at an equivalent of $ 10.96 billion as of September 17, 2012.

“This amount is rather conventional in many ways – not only because of the exchange rate but also due to the interest rates accumulated over a huge period or, in other words, a non-return of the loans because many of them were issued in the 1980’s,” Sergei Storchak, a deputy minister of finance said at the session.

“We applied a standard pattern in which we write off 90% of the debts amount and 10% is left over,” he said. “We agreed to utilize this 10% for financing the joint projects implemented on the North Korean territory.”

There projects are related to the energy sector, healthcare, and the country’s foodstuff security.

“Frankly speaking, we hope we’ll be able to attain agreement in the course of future joint work on allotting plots of land for construction of a gas pipeline on the DPRK territory,” Storchak said adding that Russia’s major producer and exporter of natural gas, OAO Gazprom, continues eyeing a possible integration in the Korean market of gas.

For this purpose, it will need some land acquisitions and “a part of the debt can be utilized for this purpose,” Storchak said.

Russian government officials say settlement of debts on the loans issued by the former USSR with the observance of conditions coordinated with Pyongyang pursues three objectives.

In the first place, it removes the problem of North Korea’s outstanding debt to the Russian Federation that was an irritating factor for bilateral relations for quite some time.

Secondly, the agreements that have been reached enable Russia to exert noticeable influence on the DPRK’s social and economic development through projects in healthcare, education, and the energy sector, since Russia will have a say in the decisions on their financing.

Thirdly, owing to the presence of big enough debt claims, Russia will have an opportunity to take part in multilateral talks on settling the North Korean debts in the format of the Paris Club of Sovereign Debtors and to influence the terms of debt repayments in Pyongyang’s interests.

UPDATE 6 (2012-9-18): RIA Novosti reports that the DPRK and Russia have signed a debt deal. According to the article:

Russia and North Korea have signed a deal on settlement of the DPRK’s $11 billion debts to Russia, Deputy Finance Minister Sergei Storchak told Prime news agency on Tuesday.

“It was signed yesterday,” Storchak said.

Russia and North Korea have been negotiating over the issue of Pyongyang’s debt to Russia, left over from the Soviet era, for the last four years without result. Russia did not rule out writing off part of the debt and either rescheduling the remainder or offsetting it against investment.

Storchak previously said it was understood a debt settlement would involve a conversion of the ruble debt into dollars, giving an initial discount of around 90 percent of the debt.

The remaining debt of over $1 billion would be used in a “debt for aid exchange” plan to assist with joint education, health and energy projects in North Korea.

Here is coverage of the deal in KCNA:

Agreement on Debt Settlement between DPRK, Russia Signed

Pyongyang, September 18 (KCNA) — An agreement on settling the debt incurred by the loan provided by the former Soviet Union which the DPRK owes to the Russian Federation was signed between the governments of the two countries in Moscow on Monday.

The agreement was inked by Vice-Minister of Finance Ki Kwang Ho from the DPRK side and Vice-Minister of Finance Sergey Storchak from the Russian side.

The conclusion of the agreement on the debt settlement would create fresh conditions for boosting the relations of economic cooperation between the two countries in the future.

The Wall Street Journal offers some additional details on the deal:

Deputy Finance Minister Sergei Storchak told Interfax that the “restructuring conditions are standard in connection with our membership in the Paris Club, with a conversion into U.S. dollars at an appropriate discounted rate with the balance of the debt to be used for a debt-for-aid program.”

The $11 billion figure was reached by using the Soviet conversion rate of 67 kopecks to the dollar, the ministry said, which at today’s exchange rate would make the debt just $238 million. Russia has reached similar agreements over the years with many former Soviet-clients in larger part because there was little chance the loans would ever be repaid.

Russian and North Korea had resumed negotiations over the decades-old debt in August 2011, following a meeting between former Russian President Dmitry Medvedev and the late-North Korean leader Kim Jong Il. During the meeting, the two sides agreed to pursue a pipeline project that would send Russian gas to South Korea via North Korea.

The following June, a preliminary agreement was reached and the finance ministry submitted a proposal to the Russian government for approval, Interfax reported.

Experts say the settlement of the long-stalled debt talks represented a change in political will on both sides and would help spur along the pipeline project as well as other railway and electricity deals.

“The decision on a settlement of debt is a significant step as it removes the obstacles for cooperation. Now credits can be granted,” said Alexander Vorontsov, an expert on North Korea at the Russian Academy of Sciences.

Bus transportation popular in DPRK

Thursday, March 13th, 2014

Pictured above (Google Earth): Phyongsong Bus Station (2013-5-3)

According to the Daily NK:

Not only are North Korean people able to buy and sell goods in markets using hard currency these days; US Dollars or Chinese Renminbi are also in use for the ubiquitous “servi-cha,” one of North Korea’s few reliable means of mass transit.

A source from North Hamkyung Province told Daily NK on the 11th, “Trains only run about once a week, and you’d be a fool if you believed that they would run on time. Demand has risen thanks to this state of affairs, so people are making good money from running servi-cha.”

“If you want to ride a servi-cha you can’t use Chosun currency, you have to use Chinese or American money,” the source went on to claim. “You can get anywhere in the country that you want for 200 Yuan.”

The source said that people in Hyesan opt to travel by servi-cha in part because the journey can take up to a week by train but only takes a day by servi-cha. The route from Pyongsung to Chongjin costs 100 Yuan, and a similar amount is required for the trip from the North Hamkyung Province county of Kilju to the border near Hyesan.

According to the source, the price of North Korean gasoline is currently 11 Yuan per kg, approximately two to three Yuan cheaper than the Chinese equivalent. Diesel trades at 6 Yuan. The source said, “There is no problem running a vehicle these days because there are fuel traders selling cheap North Korean gas alongside every road in the country that buses use.”

Many owners of servi-cha have purchased buses rather than utilizing trucks, as they used to do. Owners offer a portion of their income to local government agencies and enterprises, in effect forming the North Korean equivalent of a Chinese “red hat enterprise.”

These privately run buses are clean and popular, and the business itself is seen by operators as an easy way to earn good money. The servi-cha are mainly new vehicles from China or second-hand ones from Japan, and the average cost is in the vicinity of 12,000 USD (though size and type of vehicle both vary). A well run business can earn 3000 USD per month.

In theory, if a traveller wishes to visit a different region, prior to travel he or she must obtain a certificate authorizing the visit. The 2nd Department of his or her Provincial People’s Committee ordinarily issues these permits; however, corruption among Party officials means that these can also be bought illicitly.

According to the source, servi-cha owners deliver regular bribes to senior security service officials running No. 10 Checkpoints, which are in place on every major thoroughfare connecting regions for the purpose of checking transit papers. These payments ensure rapid transit for customers.

Read the full story here:
Servi-Cha Professionalizing for Kim Jong Eun Era
Daily NK
Seol Song Ah
2014-03-13

Posted in Automobiles, Black markets, Economic reform, Fiscal & monetary policy, Railways, Transportation | Comments Closed

Babson on post-Jang economic management

Monday, February 24th, 2014

Writing in 38 North, Bradley Babson comments on the effect Jang Song-thaek purge will have on North Korea’s economic management moving forward:

With Jang’s demise there is now a potential opportunity to make fundamental changes in the North Korean economic management and financial systems. Removing his influence over major foreign exchange earning enterprises operating outside any institutionalized supervision means that some other mechanisms must be put in place to manage these important national resources. Whether this will lead to a more rational system of cabinet-managed financial institutions serving an economic development strategy endorsed by Kim Jong Un is a basic question. Early indications are that the cabinet will be empowered to exercise more centralized control over the economy,[2] but how far this will extend into the fragmented financial system remains to be seen.

One indicator of possible significant change is whether the KPA will regain its former economic independence or become more closely integrated with national economic and financial management. This is important for improving efficiency in allocation of resources for economic development and having more control in balancing security expenditures with investments in the general economy.

Another indicator will be whether the existing system that provides funds for sustaining luxury goods patronage for the Pyongyang elite and for showcase projects like equipping the new Masik Pass ski resort, will be handed over to new more loyal technocrats to manage. Or will the Cabinet be given more latitude to shape the future political economy and distribution of wealth, given the reality that access to market power is becoming more valuable for the Pyongyang elite than receiving patronage? This would be a major change that could lead to new incentives for more rational economic management. Acknowledgment that markets are here to stay would open the possibility of addressing the need to build new financial institutional capabilities required for mobilizing and regulating private savings and economic activity. This would also help focus attention on ways to improve macroeconomic management of the mixed state-directed and market economy system.

Read the full story here:
The Demise of Jang Song Thaek and the Future of North Korea’s Financial System
38 North
Bradley Babson
2014-2-24

Posted in Banking, Central Bank, Debt, Economic reform, Finance, Fiscal & monetary policy, Foreign Trade Bank | Comments Closed

Dennis Rodman’s fourth trip to North Korea

Wednesday, January 8th, 2014

UPDATE 9 (2014-1-18): Joseph Terwilliger gives an interview here.

UPDATE 8 (2014-1-18): The AP reports that Rodman has checked into rehab:

Dennis Rodman has checked into an undisclosed alcohol rehabilitation center to treat his long-time struggle with alcoholism, his agent says.

Darren Prince declined on Saturday to say which facility will treat Rodman and how long he will be there. Rodman recently returned to the United States from his latest trip to North Korea.

He later apologized for comments he made in North Korea about a detained American missionary, saying he had been drinking and was under pressure as he organized an exhibition game there. He also sang “Happy Birthday” to North Korean leader Kim Jong Un at the start of the friendly game.

“What was potentially a historic and monumental event turned into a nightmare for everyone concerned,” Prince said. “Dennis Rodman came back from North Korea in pretty rough shape emotionally. The pressure that was put on him to be a combination `super human’ political figure and `fixer’ got the better of him.

“He is embarrassed, saddened and remorseful for the anger and hurt his words have caused.”

UPDATE 7 (2014-1-14): The apologies, via the Associated Press:

Former basketball star Dennis Rodman apologized on Monday for not being able to help an American missionary detained in North Korea while he played there to celebrate the birthday of his friend and leader Kim Jong Un.

“I’m sorry, I’m sorry I couldn’t do anything,” Rodman told media on his arrival at Beijing airport from a weeklong trip. “It’s not my fault. I’m sorry. I just want to do some good stuff, that’s all I want to do.”

He said he would return to North Korea next month, but gave no details.

…
Acknowledging the controversy surrounding the trip, one of the players, Charles D. Smith, said Rodman “opened the door and he did some missteps along the way.”

In an interview in Beijing, Smith said Rodman’s singing of “Happy Birthday” to Kim before the exhibition game at a Pyongyang stadium was something that he alone had decided to do. “I think that it might not have been the right thing to do, but he did it … if it was done in private it would be different, but when it’s done in the open like that, people are going to have opinions.”

During the trip, Rodman was also slammed for not using his influence with Kim to help free Kenneth Bae, the missionary in poor health who has been detained for more than a year for “anti-state crimes.” Rodman apologized last week for comments he made in a CNN interview implying Bae was at fault, saying he had been drinking and was upset because some of his teammates were under pressure to leave.

Smith said the controversy surrounding Bae was a “bad situation” that “overshadowed some of the things that we were doing.”

“Dennis is not a member of the State Department, he is not a member of the U.N.,” Smith said. “For them to put the flag in his hands and say go and negotiate and talk about it, he probably would have made it worse, you know.”

He said North Korean officials had invited the team back “at any given time.”

On Monday, Rodman reiterated that his trip was one of goodwill.

“This is not a bad deal,” he said. “I want to show people that no matter what’s going on in the world, for one day, just one day, no politics, not all that stuff.

“I’m sorry for all the people and what’s going on, I’m sorry,” he continued. “I’m not the president, I’m not an ambassador, I’m just an individual that wants to show the world the fact that we can actually get along and be happy for one day.”

Rodman and Kim struck up a friendship when the basketball-player-turned-celebrity first traveled to the secretive state last year.

UPDATE 6 (2014-1-9): KCTV footage of the visit has been made public. The fist video shows Rodman’s delegation meeting with Kim Jong-un, presenting him with customized vodka bottles, singing “Happy Birthday” to Kim Jong-un, then offers game highlights.

The second video shows the game itself.

UPDATE 5 (2014-1-8): Dennis Rodman sings “Happy Birthday” to Kim Jong-un. Here is Simon Cockerell talking about the game via Skype.

UPDATE 4 (2014-1-8): According to the Daily NK, the DPRK is using the Rodman game to treat Chinese investors.

A source in China informed Daily NK on the 8th, “Some Chinese traders who have given a great deal to projects in Pyongyang, including the construction of department stores, shops and restaurants, have been invited to go and celebrate Kim Jong Eun’s birthday. All accommodation, food and travel while in the country is being covered by the Chosun side, and all other expenses are to be borne by the invitee.”

“Chosun [North Korea] has only invited a select group, and there will only be two or three officials from the Chinese side, so the total number of people won’t have exceeded 30. Their schedules for today are to attend the friendly basketball game and then inspect Pyongyang [Munsu] Water Park. Later there will be a tour of Kaesong and Panmunjom, and I hear that a number of banquets have been prepared,” the source went on.

By hosting the group in this way, Kim Jong Eun is following in the footsteps of Kim Il Sung and Kim Jong Il, both of whom invited foreign business people and dignitaries to partake of their birthday celebrations. The only difference is the small number of invitees, the lack of publicity outside the country thus far, and the fact that today is not actually a North Korean public holiday.

“Kim Jong Eun has not done much in terms of showing himself off as yet,” the source posited, “and since he has a great many things to worry about at home right now, such as the execution of Jang Song Taek, he cannot host a large spectacle for this birthday this year. Nevertheless, it does appear that they want to convey their gratitude to foreign investors, so he’s invited them to help him celebrate.”

Furthermore, “These invitations have been extended because there is a sense of urgency about attracting investment for special economic zones and other projects that call for capital. After creating a genial atmosphere via the tourist activities, they will actively work to encourage the invitees to invest in things like the construction of water parks in each major city.”

Meanwhile, a second source has revealed that the North Korean authorities have also summoned a select group of provincial cadres to Pyongyang for the birthday celebrations. The source from North Hamkyung Province reported to Daily NK, “Some provincial cadres have gone up to Pyongyang for the Marshal’s (Kim Jong Eun’s) birthday celebrations on January 8th. This has not been officially reported to the people, and cadres are the only ones being quietly called up.”

UPDATE 3 (2014-1-7): Dennis Rodman completely lost it during this live interview on CNN. Here is Andray Abrahamian’s response.

UPDATE 2 (2014-1-7): A traveler visiting the DPRK to see the Dennis Rodman game has introduced Bitcoin to the DPRK. Here is an instagram photo of the first Bitcoin transaction in the DPRK.

UPDATE 1 (2014-1-6): Apparently Paddy Power is still funding this trip despite publicly bowing out during Rodman’s last visit. According to the Irish Times:

Just before Christmas, Paddy Power withdrew sponsorship of Rodman’s event, saying this was as a result of general condemnation of Pyongyang. This followed the rare public purge of leader Kim’s powerful uncle Jang Song-thaek, who was executed last month.

The company said it “took a back seat” after those events but would still “honour all of its contractual obligations”.

ORIGINAL POST (2014-1-4): Rodman has made three trips to the DPRK. Here are links to the first, second and third trips. In a gesture towards his fourth trip he has named a slate of basketball players that will be joining him for an exhibition match in honor of Kim Jong-un’s birthday.

According to Sports Illustrated:

Dennis Rodman has named a team of former NBA players to participate in an exhibition basketball game in Pyongyang, North Korea.

Rodman leads a team that includes former NBA All-Stars Kenny Anderson, Cliff Robinson, and Vin Baker. Craig Hodges, Doug Christie and Charles D. Smith are on the team, as well. They will play against a top North Korean Senior National team on Jan. 8, marking Kim Jong Un’s birthday.

and…

Rodman calls the game his version of “basketball diplomacy.”

“My previous travels have allowed me to feel the enthusiasm and warmth of fans,” Rodman said. “The positive memories and smiles on the faces of the children and families are a testament to the great efforts we have put into fulfilling our mission wherever we go voiding any politics. We are all looking forward to arriving in Pyongyang, meeting the citizens, visiting various charities and using the opportunity to develop new relationships that result in our annual return.”

Here is some more infor on the players.

Posted in 2014 DPRK engagement, Fiscal & monetary policy, Tourism, USA | Comments Closed

DPRK consolidates gold export revenues

Friday, December 27th, 2013

According to the Daily NK:

Approximately two months prior to the purge of Jang Sung Taek, the North Korean authorities halted exports of gold ore from the mines of Hwanghae Province in the southwest of the country, Daily NK has learned.

The step allegedly followed the discovery of improprieties in the operation of mining enterprises managed by persons linked with Jang, and formed part of measures designed to bring foreign currency-earning activities en masse under strict Central Party control.

“The order to halt exports was handed down in October, some months before the official news of the purge of Jang Sung Taek,” a source involved in the industry told Daily NK on the 27th. “It was even applied to foreign currency-earners affiliated with Central Party organs, as well as those from normal provincial-level agencies.”

“A directive ordering operations to cease from the second half of the year was issued to Holdong and Eunpa mines in Yeonsan County, North Hwanghae Province. These mines are shut now and their shafts are just filling up with water,” the source went on. “Mine officials have told me that this order came down stating that neither provincial nor Central Party managed-enterprises were allowed to mine for gold.”

“By doing this just a few months before the Jang Song Taek purge, the authorities moved to integrate foreign currency-earning activities and confiscate those enterprises and funds formerly managed by Jang prior to his purging,” he added. Explicating his view of the logic behind the step, he went on, “[The authorities] wish to greatly reinforce their control over these foreign-currency earning enterprises’ resources so as to bring together the management of Kim Jong Eun’s ruling funds.”

“I am told that they discovered that the enterprises Jang was managing had not been passing their profits to the state in the prescribed manner, so they halted the trade completely” the source alleged. “They controlled the mines, saying that the reason was because Jang was flogging off natural resources for a low price.”

“Previously, only ore with a purity of 20-30g of gold per ton could be exported, so any ore with a lower purity than this was not controlled. But now they are stopping all gold ore from exiting,” he went on to explain, adding that the ban is causing serious problems for the region’s miners, many of whom rely in large part on income from the mines for their survival.

“They used to share export licenses with other enterprises and export ore that way, too, but right now that is also totally prohibited,” he added.

Read the full story here:
Gold Mining Stopped to Unify Funds
Daily NK
Oh Se Hyeok
2013-12-27

Posted in Banking, Finance, Fiscal & monetary policy, Gold, International trade, Mining/Minerals | Comments Closed

DPRK’s “Economic Research” focuses on regional economic development zones

Sunday, November 10th, 2013

According to Yonhap:

North Korea is focusing more on diversified development of its economy and pushing regional industries to play a greater role in earning foreign capital, Pyongyang watchers said Sunday.

Observers in Seoul said that the Oct. 31 issue of “economic research” published in the North highlighted the need for regional governments to generate more revenue, bolster industrial output and earn more foreign capital.

According to papers in the research journal that offer a glimpse into how Pyongyang wants to run the country, factories in the provinces must strive to modernize and form close knit alliances with industries located in the capital city and with laboratories.

This call is similar to a speech given by Vice Premier Ro Du-chol on Wednesday at a ceremony marking the 40th anniversary of regional governments being given authority to generate profits and manage their respective budgets.

The senior official stressed that all cities and counties need to do their utmost to improve their economies and come up with necessary policy plans.

Such a move calls for redoubled efforts to attract overseas investments in mineral mines and other manufacturing facilities.

Ro’s remarks have been interpreted as Pyongyang paying more attention to regional economies and getting local authorities to take charge of providing for its citizens, instead of relying on the central government.

Related to such calls, the North recently announced that it will set up a total of 14 special economic zones across the country to pursue economic growth and bring in more investments. At present the communist country only has four such special zones, including those set up in Kaesong and the Mount Kumgang resort.

“There has been a trend coming into this year of the North paying closer attention to building up its regional economy,” said Cho Bong-hyun, an analyst at the IBK Economic Research Institute. The North Korean expert said that this may be a move by the North to bring about results on the economic front under the Kim Jong-un leadership.

Kim, who took over running the country following the sudden death of his father in late 2011, has called for the simultaneous development of the country’s nuclear capability and its economy.

This move is seen as a departure from the “songun,” or military-first politics, pursued by his late father, Kim Jong-il.

Read the full story here:
N. Korea focusing more on regional development: research journal
Yonhap
2013-11-10

Posted in Domestic publication, Economic Development Zones (2013), Economic reform, Economic Research Journal, Finance, Fiscal & monetary policy, Special Economic Zones | Comments Closed

New info on the DPRK’s exchange rates and Economic Development Zones

Sunday, November 3rd, 2013

James Pearson writing in Reuters updates us on the state of the DPRK’s domestic currency:

In a dimly-lit Pyongyang toy shop packed with Mickey Mouse picture frames and plastic handguns, a basketball sells for 46,000 Korean People’s Won – close to $500 at North Korea’s centrally planned exchange rate.

Luckily, for young North Koreans looking to shoot hoops with Dennis Rodman, the new friend of leader Kim Jong Un, the Chinese-made ball actually costs a little less than $6 based on black market rates.

Once reserved for official exchange only in zones aimed at attracting foreign investment, and in illegal underground market deals elsewhere, black market rates are being used more frequently and openly in North Korean cities.

Publicly advertised prices at rates close to the market rate – around 8,000 won to the dollar versus the official rate of 96 – could signal Pyongyang is trying to marketise its centrally planned economy and allow a burgeoning “grey market” to thrive. This could boost growth and capture more of the dollars and Chinese yuan circulating widely so that North Korea can pay for imports of oil and food.

Unofficial market rates could become more widespread following an announcement last month of 14 new special economic zones (SEZs) aimed at kickstarting a moribund economy where output is just one fortieth of wealthier South Korea’s. A spokesperson for the Korea Economic Development Association, a local organization tasked with communicating policy in the new SEZs, told Reuters that exchange rates in the new zones are to be “fixed according to (local) market rates.”

“The official rate for the won is like a placeholder,” said Matthew Reichel, director of the Pyongyang Project, a Canadian NGO that organizes academic exchanges with North Korea. “We all know that the value of the won is not this.”

UNDER STRAIN

An estimated 90 percent of economic transactions along North Korea’s border with China are in yuan, an embarrassment for a country whose policy stresses economic independence, and something that reduces the grip that authorities attempt to exercise over its people and economy.

Pyongyang does not publish economic data, but is believed to have run a sizeable current account deficit for years, straining its ability to pay for imports in hard currency.

An attempt in 2009 to revalue the won and confiscate private foreign currency savings prompted protests from market traders and forced a rare policy reversal and public apology from state officials.

“Due to its lack of foreign currency, the North Korean government will have to tolerate black market rates, even if it has difficulty in officially recognizing them,” said Cho Bong-hyun, a North Korea economics expert at the IBK Economic Research Institute in Seoul.

Read the full story here:
Insight: Won for the money: North Korea experiments with exchange rates
Reuters
2013-11-3

Posted in Banking, Black markets, Economic Development Zones (2013), Economic reform, Finance, Fiscal & monetary policy, Special Economic Zones, State Economic Development Commission (SEDC) | Comments Closed

DPRK Won exchange rate data

Friday, October 18th, 2013

According to the JoongAng Ilbo:

The value of the North Korean won has plummeted against the Chinese yuan in the last three years, hit by a continual series of crises, a South Korean ruling party lawmaker said.

Representative Yoon Sang-hyun of the Saenuri Party, a member of the National Assembly’s Foreign Affairs and Unification Committee, said at a parliamentary hearing Wednesday, “Through some sources in North Korea and from the government, we have analyzed the fluctuation of the North Korean currency for the last three years.

“The value of the Chinese yuan has surged in North Korean territory amidst a series of crises: military provocations, power succession and natural disasters,” Yoon said.

According to Yoon, the exchange rate of North Korean currency on the black market was around 400 won ($0.38) to the Chinese yuan between January and September 2011. But it rose to 560 won against the yuan in October 2011, 640 won in November and 850 won in December. That was a precarious time, Yoon says, with rumors that leader Kim Jong-il was sick. On Dec. 17, 2011, Kim died and was succeeded by his youngest son, Kim Jong-un.

In July and August 2012, when heavy rainfall battered North Korea, the won weakened more, reaching 1,000 won against the yuan. In December 2012, when North Korea successfully launched a long-range missile, its currency dipped to 1,350 won to the yuan from 1,250 won in November.

Ahead of its third underground nuclear weapons test on Feb. 12 of this year, the won fell close to 1,450 won against the yuan, the lowest level ever.

The currency became stronger when Pyongyang went off its highest level of military readiness last May, and its value returned to 1,200 won to the yuan. The won is currently trading at around 1,250 won against the yuan, Yoon said. The yuan has appreciated 171.7 percent against the won from two years ago.

“In 2009, when North Korean botched its currency renomination, anxiety spread that the local currency would become ‘paper money,’?” Cheong Seong-chang, a senior fellow at the Sejong Institute in South Korea, said. “Officials in North Korea prefer to receive bribes in yuan, not in won.

“When tensions escalate in North Korea, demand for the more stable yuan increases,” Cheong said. “And whenever North Korea makes an attack or other kind of provocation, the Chinese government tightens up procedures for visas and customs regulations on North Korean products.

That makes trade with China more difficult, resulting in a shrinkage in the supply of yuan into the country.”

Representative Yoon said the popularity of the yuan in North Korea also suggests more capitalist activity going on. “In a society that strictly bans the circulation of foreign currency, a wide range of individual transactions using a foreign currency is happening,” Yoon said.

“In some border regions with China, commercial transactions are increasing. The so-called Yuanization phenomenon – in which the yuan replaces a local currency – is happening in North Korea.”

Analysts in Seoul say the influence of China on the North Korean economy is ever expanding. “A strong yuan in North Korea indicates the regime is heavily dependent on the Chinese currency,” Kim Yong-hyun, a professor of North Korean affairs at Dongguk University, said. “That means that if China imposes economic sanctions on the regime, it would be a big blow to its economy.”

“As North Korea has no credit policies or system for financial transaction, residents are dependent on foreign currency for commercial activities,” Yoon said.

“As provocations by North Korea are putting its economy at risk, North Korea should stop all provocations, restore the value of its weak currency and stabilize its market.”

The Daily NK tracks the exchange rate of the DPRK won here.

Read the full story here:
North’s won tumbled against yuan, says Rep
JoongAng Ilbo
Kim Kyung-jin
2013-10-18

Posted in Banking, Black markets, Finance, Fiscal & monetary policy, International trade | Comments Closed

DPRK Money laundering in Guangdong

Wednesday, June 5th, 2013

According to to the Joongang Ilbo:

It was the end of March, about 20 days after the United Nations Security Council adopted resolution No. 2094 punishing North Korea for its third nuclear weapons test with new sanctions. At a newly built, modern-style train station in this southeastern Chinese city bordering Macau, three North Koreans in black suits with badges bearing the portrait of former leader Kim Jong-il appeared in the early evening. From the station they carried a large and obviously heavy gunny sack to a sedan parked about 30 meters (0.18 miles) away. They all got in and pulled away.

Two hours later, the sedan arrived at a high-rise building in Menggang district, Guangdong Province. Inside was an office of a private loan shark.

They entered the office on the seventh floor. One of the visitors, a middle-aged North Korean who spoke fluent Cantonese, greeted a Chinese man whom he called “Russelle.”

The North Korean dragged the sack to Russelle and opened it. Inside were bundles of U.S. banknotes. Russelle handed them to his underling and ordered him to count them with a banknote-counting machine.

After the total was confirmed, the North Korean withdrew a piece of paper with bank account numbers written on it. As in a thriller movie, Russelle began electronic banking transactions on a computer. He divvied up the total amount of cash among the accounts, sending set amounts to each. The total amount transferred: $2 million.

For helping in the money-laundering, Russelle was to receive 15 percent of the $2 million. In more urgent situations, his commission rises to 30 percent.

Several sources familiar with loan sharks in Guangzhou described these scenes to the JoongAng Sunday. The North Koreans were allegedly officials working for the Kwangson Banking Group, an affiliate of North Korea’s state-run Foreign Trade Bank, the country’s primary foreign exchange bank. The North Korean who led the shady business with Russelle was Kim Kwi-chol, head of the Kwangson branch in Zhuhai.

North Korea has, sources say, conducted illicit activities like money-laundering through Kwangson’s branches in Zhuhai and Dandong, and it is playing a role for Pyongyang similar to that of Macau’s Banco Delta Asia’s after 2005, when sanctions brought its business to a halt.

According to “Recent Financial Activities of North Korea,” a report by Kim Gwang-jin, a defector-turned-researcher at the Institute for National Security Strategy under the National Intelligence Service, Kwangson Bank is in charge of slush funds used by North Korean leader Kim Jong-un, money-laundering and remittances from banks sanctioned by the U.S. or UN Security Council.

The U.S. Treasury Department froze U.S. assets of the Kwangson Banking Corporation and prohibited U.S. citizens from doing business with the group in August 2009, accusing it of aiding the proliferation of weapons of mass destruction. Last March, it said the Foreign Trade Bank was covered by executive order No. 13382, freezing all of its U.S. assets and prohibiting U.S. financial institutions from doing business with it. In May, the Bank of China said it would stop all dealings with it.

But an expert in international finance told the JoongAng Sunday in April, “The sanctions taken by the U.S. Treasury Department against North Korea has no effect in regard to the Foreign Trade Bank.”

The head of the Zhuhai branch of Kwangson, Kim Kwi-chol, was allegedy born in Hoeyang, Kangwon Province in the North, on Nov. 19, 1955. In April 1984, he started work at the Foreign Trade Bank of North Korea and worked in a branch of the bank in China in the late 1990s, and in Libya during the mid-2000s. He moved to the branch in Zhuhai on April 13, 2003.

Sources said Kim is in charge of delivering slush funds to Kim Jong-un and other members of his elite inner circle. He’s also in charge of some large-scale money-laundering, taking advantage of Zhuhai bordering Macau. He is fluent in Cantonese and Mandarin with working experience in China for more than 10 years as a financial expert. He is allegedly living with his wife Pak Yong-hui, 57, in Zhuhai.

“He is a person who is always vigilant,” researcher Kim said.

An official investigating North Korea’s businesses in Zhuhai said, “We have recently confirmed that there are five workers and Kim Kwi-chol in the branch [in Zhuhai]. The amount of money the branch is dealing with is about $3 billion won a year, which is a bit less than that of the branch in Dandong in Liaoning Province.”

“Since Banco Delta Asia was frozen in 2005, North Korea’s funds are going through Guangzhou, Shenzhen and Zhuhai,” an official in Macau said on the condition of anonymity.

On April 30, a JoongAng Sunday reporter visited a residential complex in Zhuhai, where several sources alleged the Kwangson Banking Group’s Zhuhai branch was located. The complex was composed of three separate apartment buildings with a front gate that required a security code for entrance. The JoongAng Sunday reporter sneaked into the complex when some residents punched in their codes.

However, when the reporter reached the office of Kwangson, there was no sign on its door. Although the reporter pressed the doorbell, no one answered. A security guard at the building said: “I have not heard of Kwangson Banking Group.”

Sources said the office kept as low a profile as possible. A resident of the complex who has seen the office said, “It’s not that large with several workers at the desks looking at financial terminals. The atmosphere was bleak.”

“Recently, the Hong Kong financial authorities launched a probe into Kwangson bank’s branch in Zhuhai, on suspicion of starting a shell company in Hong Kong under a fake name and working on money-laundering,” an official at a corporate intelligence service in Hong Kong said.

The official said the company was registered to a woman who doesn’t live in Hong Kong but in mainland China. Starting several years ago, more than $100 billion has been remitted to her accounts, raising suspicions she could be connected to the Kwansgon branch in Zhuhai.

A similar front company, Leader (Hong Kong) International Trading Company, was sanctioned by the U.S. Treasury Department in January.

“Since the incident with Banco Delta Asia, most North Koreans staying in Macau left due to tightened supervision of money-laundering,” a source said. “However, they still had to keep in touch with their clients and partners in Macau, so they chose Zhuhai, bordering Macau, as an alternative.”

Currently, North Korea’s two major state-run banks are its Central Bank and the Foreign Trade Bank. The Foreign Trade Bank is in charge of foreign currency.

Although the Kwangson Banking Group officially belongs to the Foreign Trade Bank, in fact, it is a special organization that deals with foreign currency that is dubbed the “revolution fund.” The bank’s other name is Bureau 711.

“Kwangson Banking Group is a special financial organization in charge of slush funds of the Kim family under the direct control of Kim Kyung-hui, younger sister of the late leader Kim Jong-il,” Kim Gwang-jin said. “The group’s branch in Dandong was founded in September 2002 and another one in Macau was moved to Zhuhai after the problems with Banco Delta Asia starting in 2005.”

“After Banco Delta Asia, the foreign currency business of normal North Korean banks was paralyzed, but the Kwangson Banking Group has led the money-laundering business with the full support of the North Korean elite.”

Kim said there are three financial experts specializing in foreign currency in North Korea – Ri Tong-rim, president of the Kwangson Banking Group, Kim Kwi-chol, head of the Zhuhai branch and Ri Il-su, head of the Dandong branch.

Ri, the 57-year-old executive, was born in Songgan County, Chagang Province. He started as a manager at the Foreign Trade Bank in 1980 and became president of the 711 Bureau, the Kwangson bank, in 2004.

“When the Soviet Union collapsed, he collaborated with the Russian mafias and successfully withdrew $4.5 million from a bank in the USSR,” Kim said.

Ri Il-su, head of the bank’s Dandong branch, is assumed to be in his mid-50s. He was a vice president of the Foreign Trade Bank’s branch in Zhuhai and vice president of the 711 Bureau in the mid-1990s.

In June 2006, he signed an agreement with the China Construction Bank’s branch in Dandong over founding a joint bank in a border region between China and North Korea. The joint bank is in charge of foreign currency in three provinces in northeastern China.

“Under the agreement, if the Dandong branch remits money to a local bank in the three provinces first, then the Chinese bank resends the money to another bank in China or a third country for money-laundering,” Kim said. “Although the Bank of China or other major banks ban North Koreans opening accounts, other small-scale banks allow it.”

The Kwangson bank reportedly has a branch in Shenzhen, southern China, but its head is unknown.

“In the financial sector in Hong Kong, it’s said that Kwangson bank’s Zhuhai branch is earning big profits through gold investment, stock transactions and foreign exchange,” an official at a croporate intelligence service in Hong Kong, said. “A rumor says that when North Korea shelled the South Korean island of Yeonpyeong in November 2010, the branch bought a bunch of stocks of South Korean companies whose prices drastically dropped because of the shelling and made huge profits.”

“It is really urgent to stop the illicit activities of these North Koreans in China,” a South Korean government official said. “It is actually impossible to impose effective sanctions against North Korea without the full help of the Chinese government.”

Read the full story here:
North money laundering done in Guangdong
Joongang Ilbo
Ahn Sung-kyoo
2013-6-5

Posted in Banking, Finance, Fiscal & monetary policy, Foreign Trade Bank, Korea Kwangson Banking Corp., Korea Kwangsong Trading Corporation | Comments Closed

Kim Jong-un’s directions on improving economic management

Monday, May 20th, 2013

Institute for Far Eastern Studies (IFES)
2013-5-20

High ranking North Korean officials have relayed that, since last year, North Korea’s Kim Jong Un has on several occasions provided direction on improvements for economic management methods and that some new measures are being implemented on an experimental basis.

In a May 10, 2013 interview with the Choson Sinbo, North Korean Cabinet secretariat Kim Ki Chol and National Planning Committee director Ri Yong Min relayed that “Kim Jung Un spoke on several occasions, both this year and last, about the time to fix economic management practices and delegated related responsibilities to students and laborers.” The officials added, “We are holding rounds of consultation and discussion together with research institutes and representatives of several economic sectors.”

The officials further stated that “Out of these consultations have emerged a number of promising economic proposals which we are putting into practice on an experimental basis. In the case that they show positive results, we plan to introduce them across the country. Most remain in the research stage.” These remarks indicate that North Korea is embarking on some kind of economic reform measures.

These statements seem to confirm that North Korea’s economic measures are being driven by the direct orders of Kim Jung Un, such as the ‘June 28 Measure’ (i.e., policy on agriculture). They also suggest that once measures clear the testing stage, they will be implemented on a national scale.

They also explained that while additional new economic control measures are being adopted, these measures at the same time deal with issues related to production planning, price adjustment, and currency circulation. They added that new laws would have to be created, and explained that measures were being expanded that allow for the expansion of authority in the interest of reinvigorating production at factories and industrial sites.

Mention of price adjustment and currency circulation suggests that North Korea’s new economic reforms may not be limited to farms, factories, and industrial sites; rather, it hints at the possibility that North Korea will embark on much larger scale reform extending to the financial sector.

They explained that some farms which carried out the national plan last year implemented land distribution, and contributed to the right of factories and industrial sites to sell and trade freely. They added that such steps reflected the demands of workers.

The officials were reserved in their comments in regard to the timing of any future announcements related to North Korean economic measures: “If successes are consistent we can advance the reforms on a wide scale; but, for now, we need to keep an eye on progress.”

The officials added that they were being retrained in management at the University of the People’s Economy and taking classes about farm management and management at Kim Bo Hyun College.

North Korea emphasized the construction of an economic powerhouse at the beginning of May, and it is currently heating up in the fields of industry and farming by encouraging an increase in production. In relation to this, the Korean Workers’ Party is mobilizing media sources including the Rodong Sinmun, the Korean Central News Agency, and Korean Central Broadcasting.

Particularly, these media sources are emphasizing that obtaining a nuclear deterrent is the greatest asset on the road to economic construction. They are also claiming that increase in production is one means for the achievement of the new economic line of pursuing simultaneously economic construction and building of a nuclear force.

Now that the annual US-ROK joint unit tactical military field training drills, i.e., ‘Foal Eagle’, have concluded (as of April 30) and tensions on the Korean peninsula have subsided somewhat, North Korea’s new economic line is being assessed as one which is aimed at enhancing the economic livelihoods of North Koreans.

Posted in 6.28 Policy on Agriculture (June 28), Banking, Economic reform, Finance, Fiscal & monetary policy, General markets (FMR: Farmers Market) | Comments Closed

North Korean Economy Watch