Archive for the ‘Fiscal & monetary policy’ Category

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High rice prices and foreign exchange rates continue in North Korea

Thursday, February 7th, 2013

Institute for Far Eastern studies (IFES)
2012-2-7

A year has passed since Kim Jong Un took power, yet that has not prevented instability to continue in the price of rice and foreign exchange rates in North Korea, having doubled in some cases compared to last year.

According to “North Korean Market Trends,” published by the online newspaper Daily NK, the price of rice per kg from January 2 to 9, 2013 in Pyongyang, Sinuiju, and Haesan was 6,700 KPW, 7,000 KPW, and 6,600 KPW, respectively. This was a rise of 300 KPW, 200 KPW, and 100 KPW in just two weeks.

During the same period, the foreign exchange rates in Pyongyang, Sinuiju, and Haesan also escalated to 9,100 KPW, 8,950KPW, and 8,750 KPW, a rise of 1,300 KPW, 950KPW, and 300 KPW, respectively.

This is the highest recorded price for rice and exchange rates. Last year from January 15 to 21, the price of rice in Pyongyang was 3,200 KPW and the exchange rate was 4,400 KPW. Compared to current prices, the price has more than doubled.

Prices began to escalate drastically from April 2012. Recorded highs were recorded from September 24 to 27 (at 6,800 KPW). Since then they have continued to remain high.

The Daily NK interpreted the increase in rice prices and exchange rates to be consequential of the political events that resulted in a decrease in food transactions and North Korean residents’ preference for US dollars.

Instability in rice prices and exchange rates are expected to continue as the international community adopted a new resolution to impose sanctions against North Korea in response to North Korea’s “long-range rocket launch” (December 2012) and recent announcement that it is preparing to conduct another nuclear test.

*(NKeconWatch) Another cause of the price increases is inflationary public finance in the DPRK.

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Posted in Fiscal & monetary policy, Food | Comments Closed

Food prices continue to climb

Thursday, January 31st, 2013

According to Yonhap:

The Daily NK, a Web site run by opponents of the North Korean government which provides detailed coverage of the communist nation, claimed the price of rice, a key staple, has risen steadily over the last year.

It added that despite efforts to control prices, a kilogram of rice purchased in Pyongyang and Sinuiju from Jan. 2 through Jan. 9, rose by 300 won and 200 won, respectively, compared to just two weeks prior.

A kilogram of rice in Pyongyang cost 6,700 (North Korean) won, while in Sinuiju, just across the Amnok river from the Chinese city of Dandong, it reached 7,000 won.

The media outlet, which claims it uses a secret network of sources in the communist country, said the latest price of rice represents a more than two-fold increase from the year before, right after Kim took control of the country. In the first month of last year, a kilogram sack of rise cost 3,200 won in Pyongyang.

The North Korean leader took power following the sudden death of his father Kim Jong-il on Dec. 17, 2011.

On changes in foreign exchange rates, Daily NK said a U.S. dollar was worth around 9,100 North Korean won this month, which is a depreciation of more than 100 percent from an year earlier. In January 2011, a one dollar bill was worth just 4,400 won.

Read the full article here:
N. Korea’s rice prices, foreign exchange rates remain unstable: report
Yonhap
2012-1-31

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Posted in Fiscal & monetary policy, Food | Comments Closed

Won continues to fall in value

Tuesday, January 1st, 2013

According to the Daily NK:

A source from Pyongyang told Daily NK about the current situation on the 4th, explaining, “The price of rice is 6,700 won now, 300 won more than it was two weeks ago. The markets weren’t able to operate properly while the people were being made to attend events for the mourning [of Kim Jong-il’s death], and that lasted until the 18th. But even now there are people who are still hoarding food, so the situation is not getting any better.”

According to the source, there was word that rice would arrive in bulk from China after the Kim Jong Il mourning period, but supplies to markets barely changed despite evidence that some rice did arrive. Not only that, “Even though prices went on rising, the upper (the authorities) still tried to control areas of market operation during the mourning period, so there were traders selling rice secretly, and some alley traders (those operating beyond the market walls) asking for more than 8,000 won a kilo.”

“Municipal Party cadres kept telling us to try and wait because the Marshal (Kim Jong Eun) had issued an order to ‘ensure rice for the people,’” she mused. “But nobody believes that kind of talk anymore. Rice will be in short supply during January, and this is likely to go on into February given study sessions for the New Year’s Address and then preparation for Kim Jong Il’s birthday.”

“The U.S. Dollar exchange rate here is out of control, and has reached 9,100 won per dollar. Speculation has it that they will try yet again to control exchange rates this month, and this is making the exchange rate problem even worse,” she concluded. “In just Pyongyang’s markets, about 50% of the money in circulation is U.S. Dollars, 25% is Yuan and 25% is from here. I guess people want to have foreign currency more and more because they cannot foresee what will happen next.”

“People from this city can easily distinguish a real dollar from a counterfeit one, and people soon learn about traders who dare to deal in fakes,” she added.

Read the full story here:
Markets Mired in Mournful Turmoil
Daily NK
Lee Sang Yong
2012-1-4

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Posted in 2012 food shortage, Fiscal & monetary policy, Food | Comments Closed

Prices and exchange rates soaring in North Korea

Thursday, December 27th, 2012

Institute for Far Eastern Studies (IFES)
2012-12-27

The price of rice in North Korea along with the exchange rate declined slightly in October 2012 but began to rise sharply this month, near the one-year anniversary of Kim Jong Il’s death on December 17.

According to “North Korean Market Trends,” published by the online newspaper Daily NK, the price of rice on December 10 in Pyongyang, Sinuiju, and Hyesan, were reported to be 6,400 KPW, 6,800 KPW, and 6,500 KPW, respectively. This is a 300-700 KPW/kg increase from the previous month.

Even the exchange rate against the US dollar increased dramatically in these three cities: 7,800 KPW in Pyongyang, 8,000 KPW in Sinuiju, and 8,450 KPW in Hyesan. This was a jump of 1,500 KPW, 1,300 KPW, and 2,000 KPW in the respective cities against last month.

This is the highest recorded exchange rate, beating the September rate of 6,370 KPW in Pyongyang.

The Daily NK quoted an unnamed North Korean source, explaining the reason for such jump in prices and exchange rate is due to blockage of trade with China during the mourning period for Kim Jong Il and merchants began to withhold rice and dollars from the market.

The North Korean authorities announced to its people on December 5 that the mourning period for Kim Jong Il would run from December 7 to 18, and that manufactured goods from China would not be permitted to enter the country. Immediately following this decision, the exchange rate and prices began to skyrocket. Residents’ complaints escalated, forcing North Korean authorities to re-open the border to allow goods from China to enter the country again.

The North Korean source explained the unannounced decision to halt trade with China angered the North Korean residents as most goods in the market are from China and it resulted in soaring prices and withholding of US dollars as people’s sense of insecurity began to rise.

Some believe the ban on Chinese imports was reversed quickly as negative sentiments among the North Korean people began to escalate. North Korean authorities established market control policy during the mourning period to maintain order but this ended shortly for the fear of adverse effects from the new policy.

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Posted in 2012 food shortage, Fiscal & monetary policy, Food | Comments Closed

Inflation in the DPRK

Friday, December 7th, 2012

Using the data published by the Daily NK, Dr. Hanke has constructed this graph of food prices in the DPRK:

NK-RICE-Hanke

According to Dr. Hanke:

“From what little data are available, it would appear that, in the span of six months, the price of rice has increased by nearly 130%. This is par for the course in North Korea, where the price of rice has increased by roughly 28,500% over the last three years.”

Here is the source.

Here is a previous post on Dr. Hanke’s DPRK inflation research.

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Posted in 2012 food shortage, Fiscal & monetary policy, Food | Comments Closed

Coal expensive this winter

Wednesday, December 5th, 2012

The Daily NK reports that coal prices in the DPRK have surged this winter (150,000w/ton in 2011 vs. 300,000w/ton in 2012) . They also report the price in hard currency:

At the time of writing, this coal can be bought at source for $150-$200 per ton. Wholesalers then sell it on in regional centers like Chongjin for up to $300. However, according to Daily NK’s source, “They even say that $300 leaves them with little profit, given the cost of transportation.”

This implies the exchange rate is approaching 10,000 w / 1US$. Exchange rate data shows this trend as well.

The Daily NK gives the following reasons for the price increase:

1. Inflation (2011-11 exchange rate with USD was between 2,9oow – 5,000w. 2012-11 exchange rate 4,000-8,000w)

2. Decreased supply from exhausted mines

3. Exports to China (According to statistics published by the Korean Trade Association in late 2011, coal exports from North Korea to China in the nine months to September that year were worth USD$830 million, double the 2010)

If we had the economic data it would be a fairly straightforward regression to determine the contributions of each of these variables on the price of coal. But we do not have the data.

Read the full article here:
Coal Prices Fuelling Chilly Times
Daily NK
Choi Song Min
2012-12-5

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Posted in Coal, Energy, Fiscal & monetary policy, Mining/Minerals | Comments Closed

Stall-sharing returns to Hyesan

Saturday, December 1st, 2012

Pictured Above (Google Earth): The Hyesan Market (L) and a street market (R).

According to the Daily NK:

The authorities in Hyesan have embarked on an experiment that permits multiple traders to utilize each stall in the city jangmadang (market).

A source from the Yankang Province city told Daily NK on the 30th, “Hyesan Municipal People’s Committee has been struggling for a while to decide what to do with all these traders in the streets outside the market. So, they’ve decided to try and co-opt them by restarting stall-sharing arrangements. Any trader, even ones who used to trade in the streets, can now operate inside the market as long as they are ready to pay.”

“The traders rotate six days a week, and on Sundays the original stallholder gets to decide who trades there,” the source went on.

However, many of the original stallholders are reportedly angry at the move, according to the source, with many asking why they are being stopped from trading for almost half the week.

“But,” she said, “the Market Management Office is having none of it, so they have little choice but to oblige.”

The idea of stall-sharing has been tried before in Hyesan, but with little success. “Just last year they ordered the same thing to happen,” the source recalled, “but it wasn’t long before things went back to normal.”

That being said, she went on, “Now because the order has come from the Upper (Central Party), they are really trying to do it.”

Defectors from the city and others with experience of trading directly in the market say the measure has far more to do with controlling traders working illegally on the city streets than improving the efficiency of the market itself. In fact, they say the measure is likely to have a deleterious effect on market operations.

Seo Ok Ran, a 42-year old defector now living in the Dongdaemun area of Seoul pointed out, “Last year when they did this I had a hard time finding the right stallholders for the items I needed. At the end of the day, it just reduces trade.”

It is unclear whether the new rules are being applied nationwide, or are restricted to the area under the remit of Hyesan Municipal People’s Committee.

Read the full story here:
Stall-Sharing Returns to Hyesan
Daily NK
Kang Mi Jin
2012-12-1

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

Inflationary coping mechanisms…

Tuesday, November 6th, 2012

The Korea Times (Yonhap) reports the following:

The official North Korean won is increasingly giving way to the U.S. dollar and the Chinese yuan in asset holdings of North Koreans, as well as in North Korean markets, South Korean experts said Tuesday.

Circulation of foreign currencies is on the increase and a vast number of North Koreans are holding their assets, including banknotes, in foreign bills, University of North Korean Studies professor Yang Moon-soo and Kim Seok-jin, an analyst at the Korea Institute for Industrial Economics & Trade, said in a joint paper released at a conference in central Seoul.

Giving the reported simultaneous use of the major world currencies their own term of “dollarization,” Yang said, “It is almost becoming abnormal in the North to hold more than a certain amount of bank notes in North Korean won.”

High-value assets such as houses are being increasingly valued and traded in dollar terms while in the North Korean market, dealers are increasingly relying on dollar-based prices, the professor said.

Devaluation of their own currency due to steep inflation, coupled with fears of a potential government decision to confiscate won notes mainly fueled the “dollarization,” he said.

Read the full story here:
NK sees jump in dollar, yuan-denominated sales goods, assets: experts
Korea Times (Yonhap)
2012-11-6

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Companies in Kaesong Industrial Complex receive unannounced tax notices

Thursday, October 25th, 2012

Institute for Far Eastern Studies
2012-10-25

Recently, eight companies in the Kaesong Industrial Complex (KIC) informed that they received tax collection notices, a unilateral decision made by the North Koreans.

The Ministry of Unification and KIC reported that out of the 123 companies, 8 companies were informed by the North Korean authorities to pay about 160,000 USD in total in taxes.

Two companies out of the eight notified companies already paid close to 20,000 USD to the North Korean tax authorities.

On top of taxation, 21 companies were notified to submit additional tax documents. This may be to collect additional information for future tax collection purposes.

The tax authorities are also requiring companies to submit documents related to show proof of purchase of raw materials, and submit cost analysis documents and a copy of bank statements showing the history transactions.

Last August, the Central Special Direct General Bureau (CSDGB) notified the Kaesong Industrial District Management Committee of new tax bylaws, which enforces a fine up to 200 times the amount of accounting manipulation and abolish the retroactive taxation system while increasing the number of documents for submission. Furthermore, the North is threatening to restrict access to the KIC, if companies fail to pay owed taxes or do not submit requested documents.

In addition to imposing fines for tax frauds, new tax bylaws demanded by the CSDGB included enforcement of additional taxes in the name of corporate income tax, sales tax, and other taxes.

The unilateral decision by the CSDGB to amend bylaws is a violation of Kaesong Industrial District Law, which requires any revision of the laws must be negotiated between the North and the South. Another problematic issue is that tax imposed on the companies is based on North Korea’s own estimation rather than tax reports submitted by the companies of the KIC.

For the first time last year, tenant companies in the KIC recorded an average operating profit of 56 million KRW, finally operating in the black after years in deficit.

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Posted in Finance, Fiscal & monetary policy, Foreign direct investment, Institute for Far Eastern Studies, International trade, Kaesong Industrial Complex (KIC), South Korea, Special Economic Zones (Established before 2013) | Comments Closed

Pyongyang targets Kaesong Zone for more revenues

Thursday, October 18th, 2012

UPDATE 2 (2012-10-18): Yonhap and the Korean Times pass along details of the tax increases in the Kaesong Zone:

North Korea has unilaterally imposed hefty taxes on South Korean firms operating in the joint Gaeseong inter-Korean industrial complex in the North while employees there are demanding the firms provide more severance pay, a Seoul government official said Thursday.

“The North imposed the taxes including corporate income and business taxes on some of the companies operating in the Gaeseong complex in accordance with a new tax enforcement regulation (enacted) and delivered by the North last August,” the official said.

The imposed taxes were unilaterally drawn based on the North’s estimation of business activities by the South Korean firms, according to the official. About 10-20 firms out of the total 123 South Korean firms operating in the complex located in the North Korean border city of Gaeseong were reportedly slapped with the heavy taxes.

The amount of taxes imposed and whether the firms paid them are not clearly known, but some of the companies are said to have paid the taxes amid increasing pressure from the North.

The North unilaterally issued the new tax regulations in August, which also allow the country to levy heavy fines if a South Korean firm is found to have accounting irregularities. The regulations allow fines as heavy as 200 times the amount involved in potential accounting fraud by South Korean firms.

As part of efforts to extract taxes, the North is reportedly threatening a ban on the movement of goods and people in and out of the complex if the taxes are not paid, other sources said.

South Korean firms there are protesting the levies, saying “they may thwart normal corporate activities,” but the North may not budge on the decision, they said.

In addition, North Korean employees at the Gaeseong complex are demanding that South Korean firms provide severance pay even if employees voluntarily quit.

Under the current labor terms in Kaesong, South Korean firms are required to offer severance pay only when North Korean employees are involuntarily laid off after at least one full year of employment.

As of end-August, a total of 52,881 North Korean workers were employed by South Korean firms operating in the Gaeseong complex. About 500 to 1,000 employees leave South Korean employers every year, citing health reasons or marriage.

Meanwhile, the South Korean firms continued to register an annual net loss from their operations in the Kaesong complex, the Unification Ministry handling inter-Korean issues said. The combined net loss of 119 firms out of the total 123 stood at 14 million won ($12,681) in 2011, decreasing from net losses of 134 million won and 272 million recorded in 2010 and 2009, respectively, according to the ministry.

Nearly 37 percent of the 119 firms surveyed by the ministry said they feel the North’s interference with their corporate activities is severe, the ministry said. Inability in hiring or firing North Korean workers is the most frequently cited complaint among the 119 firms polled, followed by difficulties in Internet connection and a shortage of North Korean labor.

Read previous posts on this topic below.

(more…)

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Posted in Economic reform, Finance, Fiscal & monetary policy, Foreign direct investment, Institute for Far Eastern Studies, Kaesong Industrial Complex (KIC), Special Economic Zones (Established before 2013) | 1 Comment »

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