North Korea’s Failed Currency Reform

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:

noland-rice-corn-2008.JPG

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. 

noland-dollar-2008.JPG

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.

Share

State Prices Finally Unveiled

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:

dprk-prices-feb-2010.jpg

Click image for larger version

Share

DailyNK series on Chongryon

February 7th, 2010

The Daily NK did a series of articles on the General Association of Korean Residents in Japan (Chongryon or Chosen Soren).  Below are links to all seven parts:

Part 1: Chongryon feels the pinch

Part 2: Debts, Mergers, Collapses and Foreclosures

Part 3: Homecoming Project Speeds Chongryon Demise

Part 4: South Korea Visits Weakened Chongryon

Part 5: Chongryon Remittances and Investments

Part 6: “Study Group,” the Core of Chongryon

Part 7: Study Group Money Laundering Machine

Share

Friday Fun

February 4th, 2010

1. Alejandro Cao de Benos, head of the Korean Friendship Association,  did an interview for an Italian publication (Page 1, Page 2).  Josh is posting a translation: part 1, part 2, part 3, part 4.

2. Flower of Reunification: North Korean propaganda film about Im Suk Yong.  Lots of great footage of the 1989 World Festival of Youth and Students in Pyongyang.  Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7.

3. North Korea has launched a new propaganda campaign aiming to increase living standards.  See the new paintings in the Choson Ilbo here.

 4. Ice skating: Pyongyang might have the DPRK’s only indoor ice skating rink (as far as I know), but ice skating–particularly on frozen rivers and lakes–seems to be pretty popular in the DPRK.  Scenes like the one below (Hyangsan) can be easily found in North Korea on Google Earth:

hyangsan-ice-skating.JPG

5. Reunification fruit.

6. According to Google’s international dailing chart, North Korea and Cuba are the most expensive places to call!

7. North East Asia Matters posts interview with former member of KJI pleasure squad.

Share

Head of Office 39 replaced

February 4th, 2010

According to the Guardian:

It is the nerve centre of North Korea’s money-making operations, the department dedicated to raising hard currency for Kim Jong-il while his country teeters on the brink of collapse.

Room 39 is responsible for some legal ventures, such as the country’s limited exports of ginseng and other items. But according to defectors, most of its energy goes into drug-trafficking, sales of weapons and missile technology, and the production of counterfeit US dollar bills.

Today, it was reported the department’s head – Kim Jong-il’s personal finance manager – has been sacked, possibly in response to international action against the alleged illegal moneymaking. South Korea’s Yonhap news agency said Kim Dong-un was dismissed because he had been blacklisted by so many foreign governments, including the EU in December, leaving him unable to travel on behalf of Room 39’s legal companies. He has been replaced by his deputy, Jon Il-chun, Yonhap said, citing an unidentified source.

Housed in an unremarkable government compound in Pyongyang, Room 39 oversees 120 companies and mines, accounting for a quarter of all North Korean trade and employing 50,000 people, according to Lim Soo-ho, a research fellow at the Samsung Economic Research Institute. He said Kim’s dismissal may be part of attempts to get around international sanctions.

While its inner workings remain a mystery to all but its occupants and the family they serve, Room 39’s role in enabling the regime to survive even in times of widespread famine and international pressure, has come under greater scrutiny since the imposition last year of tough UN sanctions over its nuclear programme.

Some of the money generated by Room 39 is used to buy the loyalty of senior party officials, a role that may take on greater prominence as Kim Jong-il, who suffered a stroke in 2008, prepares to hand over power to his third son, Kim Jong-un. Analysts have estimated that illegal activities account for up to 40% of all North Korean trade and an even higher share of total cash earnings.

Additional information: 

1. More on the EU travel ban is here.

2. Office 39 is reportedly located here.  Kim Jong Il’s office is reportedly nearby here.

3. This week the KWP’s finance director, Pak Nam-gi, was also let go.

4. Mike Madden notes the new director’s  appearance with KJI at an “On the Spot Guidance” visit this week.  Mike also points to a possible appearance the Korea Taepung International Investment Group meeting.

Share

DPRK remains off US terror list

February 4th, 2010

According to Bloomberg

President Barack Obama said he’ll keep North Korea off the U.S. government’s list of states that sponsor terrorism.

North Korea “does not meet the statutory criteria” for inclusion on the list, that automatically imposes sanctions, Obama wrote in a letter to congressional leaders yesterday.

Former President George W. Bush removed North Korea in 2008 after the communist state agreed to inspections of sites suspected of being part of the regime’s nuclear program. It had been designated as a state sponsor of terrorism since 1988.

Last June, Secretary of State Hillary Clinton said the administration was considering re-designating North Korea after it conducted nuclear and missile tests earlier in the year.

Cuba, Iran, Sudan and Syria are classified as state sponsors of terrorism, according to the State Department.

Read the full story here:
Obama Keeps North Korea Off U.S. List of Terrorism Sponsors
Bloomberg
Hans Nichols
2/4/2010

Share

Canada admits 66 DPRK defectors in 2009

February 3rd, 2010

According to the Korea Times:

Canada granted 66 North Korean defectors refugee status in 2009, which is almost 10 times higher than in 2008, a report said Saturday.

Radio Free Asia, quoting a report from the Canadian Immigration and Refugee Board of Canada, said that more North Koreans are expected to receive the status as there are 59 defectors currently under review.

The North American country’s first case of granting refugee status to a North Korean was in 2000. In 2008, there were seven more cases.

According to the radio, a total of 93 North Koreans had also settled down in the United States as of last December.

Read the full article here:
66 North Koreans Given Refugee Status in Canada
Korea Times
Kim Sue-young
1/31/2010

Share

DPRK launches all-out offensive to meet 2010 economic goals

February 3rd, 2010

Institute for Far Eastern Studies (IFES)
NK Brief No.10-02-03-1
2/3/2010

In order to meet this year’s economic goals, North Korean authorities are calling on the people to launch an “all-out offensive”. Day after day, North Korea media outlets are calling for “continuing reform” and “continuing improvements,” even introducing a new motivational song titled, “It’s a war of attack.”

The slogan “all-out offensive” is designed to encourage the people of North Korea to pour all efforts into attaining the best results in each area of the economy. It is not uncommon for the North to use military terms such as this to motivate its citizens for non-military mobilization drives.

According to the (North) Korean Central News Agency (KCNA), the front page of the January 29 issue of the Rodong Sinmun carried an editorial titled, “Raise the fighting spirit of 10 million soldiers, and advance the all-out fighting spirit of this year,” while the second page of the same paper carried a political commentary titled, “Let’s practically demonstrate.”

The editorial called on citizens of the North to work toward improving the standard of living and improving the lives of the people, and stressed, “The on-going ideological campaign is an all-out offensive for remarkably increasing the speed of the advance for effecting a great surge with the might of the perfect unity of the leader and all the service personnel and people and a charge for giving fullest play to their mental power so that events adding luster to the era of Songun may take place one after another,” and, “The on-going general offensive is sure to triumph when all the people live and struggle as the brave, staunch and devoted vanguard in the advance for effecting a great surge.” On January 20 and 22, the same paper had run similar articles, calling for the “spirit of victors” and “marching forward as quickly as possible.”

That North Korean authorities have gone so far as to launch the song “It’s a war of attack” gives the impression that there is an air of urgency surrounding these ongoing efforts to mobilize the people. Also reflecting this urgency is the fact that this year, Kim Jong Il has carried out more public activities than during January 2009. As of January 26, Kim Jong Il had made 14 public appearances. This was 56% more than the first month of last year, during which Kim had made the most visits since launching the 1st Kim Jong Il regime in 1998.

Of those 14 appearances, 7 were on-site inspections of enterprises and other economic sites, while only 6 visits were military-related. The remaining visit was to the central court; There were no meetings with foreign dignitaries or other foreign diplomacy-related activities. One military-related visit of interest was to a self-sufficient pig farm run by the army. January’s visit was Kim’s third to the farm, where he advised managers to “raise more pigs and provide more pork and pork products to the soldiers,” an indirect reference to the seriousness of food shortages among the North’s military.

Share

Koryolink reaches 100,000 subscribers

February 3rd, 2010

According to the Financial Times:

Orascom Telecom, the Egypt-based mobile network operator, says its subsidiary in North Korea, Koryolink, has acquired 100,000 subscribers in its first year and expects to add millions more in the next five years.

The expansion plans come as the isolated country of 24m, which says it wants to be considered a “mighty and prosperous nation” by 2012, steps up efforts to attract foreign investment.

Pyongyang’s economic ambitions come in the face of tough international sanctions on its nuclear arms programme.

“We see that there is a very big plan for an economic boom,” said Khaled Bichara, chief executive of Orascom. “They are really looking to have, by 2012, a much stronger economy. We believe that mobiles and eventually international communication will definitely be part of this.”

Koryolink, a pre-pay system, has been available in Pyongyang and Nampo, the capital’s port, since December 2008. To help expand the network from there, Mr Bichara said North Korea was laying fibre-optic cables in the provinces.

Orascom was installing its most technologically advanced 3G network in North Korea, he said. The 2010 target for user numbers was ambitious but Mr Bichara declined to put a figure on it.

“I think if we achieve the target of this year, that will be a big milestone,” he said. “The number will be big enough to make Koryolink look like a significant company for us because the revenues per customer are interesting and we believe that this business will have customers in the millions within the next four or five years.”

Mr Bichara said the subscription figures showed that mobile phones were not limited to elite members of the military and communist party, as many observers had speculated.

However, the handset price of €140 ($195) put a mobile phone out of most people’s grasp.

So far, Koryolink offers only a basic voice and text messaging service. International calls and roaming services are not provided but Mr Bichara said starting them would be simple given the sophistication of the network being installed.

Koryolink is a joint venture in which Orascom has a 75 per cent stake. The rest is owned by Korea Post & Telecommunications Corp, the state fixed-line provider.

Thanks to a reader for sending this to me. 

Read the full article here:
N Korea operator looks to millions of 3G users
Financial Times
Christian Oliver and Heba Saleh
2/3/2010

Share

Daily NK reports market regulations easing

February 3rd, 2010

The particular regulations that seem to have been eased: the 10-day rule and price controls on rice.  No word on whether this easing is short-term or long-term in nature. 

From the Daily NK:

In an attempt to avert a food crisis and stem popular discontent, the North Korean authorities have reportedly bowed to pressure and started lifting market regulations across the country.

The decision, which apparently came into force at the start of February, may seem to be an abrupt one, yet it is largely inevitable. A food crisis has seemed to be on the cards for a while, while acts of violence against security officials have been occurring with increasing frequency and discontent among the people has been rising rapidly since the currency redenomination at the end of November.

An inside source reported the news to The Daily NK on Tuesday, saying, “Since February 1st, in Yangkang and Hamkyung Provinces, jangmadang regulations have been completely lifted. The price of rice, which had been more than 400 won, has now stabilized at between 250 and 300 won.”

The source added, “It is a good thing that the jangmadang is open. We were worried about a coming crisis as the rice price has been soaring and we have not been given any wages. That said, the people are watching the authorities’ next move, so they are still reticent to trade.”

Some foresee that, since the authorities have still not released state-designated price for rice in the jangmadang, they may be planning to allow it to just float with the market.

It is still unclear if the February 1st decree completely opened the market as it used to be or is just a temporary solution to avert a possible food crisis. Inside sources say they plan to wait and see.

Regardless, now that the jangmadang is open, exchange rates seem to be stabilizing as well. The dollar exchange rate, which was around 400 won, has fallen back to nearer 300 won in just two days.

Read the full story here:
Ban on Markets lifted
Daily NK
Jung Kwon Ho
2/3/2010

Share