Barbara Demick wrote an interesting piece in the New Yorker this week which captures first-hand stories about how the DPRK’s currency reform affected local families (not well).
Here is her article in PDF format.
Archive for the ‘Finance’ Category
Demick’s “Nothing Left”
Thursday, July 15th, 2010DPRK leases squid rights to Chinese
Thursday, July 15th, 2010According to the Joong Ang Ilbo:
North Korea is allowing Chinese fishermen into its territorial waters on the East Sea in exchange for cash, according to Seoul government officials.
The North Korean and Chinese governments recently agreed to allow squid boats from China to fish in North Korea’s waters, said a Seoul official who declined to be named.
About 250 Chinese boats are operating near Najin [Rajin/Rason] and Chongjin, two port cities in North Hamgyong Province, a northeast coastal area. It is the first time such a large number of Chinese crafts have been allowed to operate in North Korea’s seas, he said.
North Korea is collecting about 250,000 yuan ($36,913) for each boat for 2010, meaning the impoverished country is expected to earn about 62.5 million yuan in the deal.
“Many of the North’s fishing boats are extremely outdated and are experiencing intense fuel oil shortages, while squid prices in China have gone up due to supply shortages,” the official said. “So each side’s interests have been satisfied.”
North Korea has been hungry for more cash to finance state projects, including a so-called Pyongyang modernization project that involves paving major roads, upgrading railway networks and refurbishing urban streets.
“They are trying to secure more foreign currency through a commercial deal that is not subject to UN Security Council Resolution 1874,” said the official, referring to the UN economic sanctions adopted in June 2009 that involve trade restrictions, cargo inspections and other limits on financial transactions.
The Chinese fishing boats operating in the North’s sea mostly come from Dalian and Dandong, two ports in China’s northeastern coastal region.
“The fishing rights the Chinese boats have secured cover most of the North’s territorial waters on the East Sea,” said another Seoul official. The official expressed concern about possible overfishing by the Chinese, which may affect South Korean fishermen as well.
“Once squid start moving to the south, the Chinese fishing boats will travel farther south, possibly all the way down to Heungnam, Sinpo and Wonsan,” said another South Korean government official, referring to the North’s port cities in South Hamgyong Province.
Read the full article below:
North Korea leases out its squid beds to China
Joong Ang Ilbo
Chung Yong-soo
7/15/2010
Rice Prices on the Rise
Tuesday, July 13th, 2010According to the Daily NK:
The price of rice in the three northern provinces of North Korea (Yangkang, North and South Hamkyung) has risen above 750 won for the first time in four months.
A source from Yangkang Province told The Daily NK yesterday, “Chosun rice prices have reached a high of 750 won in the Hyesan jangmadang,” and added, “Rice prices in Hyesan, Wiyeon and Chundong in Yangkang Province are at a similar level.”
In Chongjin, North Hamkyung Province, on around the 5th of this month the price of a kilo of rice hit 700 won. If the inflationary trend were to continue, by late July or early in August, it could have surpassed 1,000 won.
That said, the future is hard to predict. Rice immediately after the redenomination could nominally be bought for 20 won per kilo, but by mid-March this year was setting people back more than 1,000 won. However, the next month, prices had dropped back to around 500 won.
The source explained that the reason for the current situation may be the rising exchange rate. One Yuan was 110 won until last month, but is currently worth more than 150 won. North Korean exchange rates tend not to go down without intervention, so without any decisive measures by the authorities to stabilize rice prices, the result will be a rise in prices overall.
Hyesan in Yangkang Province is one of the comparatively free places where traders can visit China once every two weeks or so; therefore, rice prices were quite fluid. However, the reason why rice prices even in this city continue to rise is that there is not enough rice being imported, while exchange rates are rising inexorably.
The North Korean authorities once tried to lower prices by releasing rice from military stores. However, the effect was fleeting.
According to the source, the Hyesan jangmadang currently opens at 3PM and closes at 7PM due to agricultural activities, but trading is unrestricted. No regulations on price or usage of foreign currency are in place, but trade in industrial products remains slow due to the dire economic status of the majority of residents.
The authorities are trying to emphasize economic achievements in order to promote Kim Jong Eun’s succession, but the economic situation people are facing is far from satisfactory.
Read the full story here:
Rice Prices on the Rise
Daily NK
Shin Joo Hyun
7/13/2010
Bigwigs in North vie for power over investments
Monday, July 5th, 2010According to the Joong Ang Daily:
Two men near the top of the North Korean power structure are competing against each other to become foreign investment czar for the cash-strapped country, according to sources with knowledge of North Korea.
North Korea experts say the contest could influence who eventually succeeds Kim Jong-il.
The sources told JoongAng Ilbo yesterday that Jang Song-thaek and O Kuk-ryol, both vice chiefs of North Korea’s National Defense Commission, are competing over who can attract more foreign investment to the North. The National Defense Commission, the country’s top state organization, is chaired by Kim.
“O Kuk-ryol dominated the foreign investment coming into the North because of his military power,” said one of the sources, “but he is in a hegemony struggle in that area with Jang Song-thaek, who thrust himself into foreign investment promotion later than [O Kuk-ryol].”
Jang is the husband of Kim Kyong-hui, Kim’s younger sister, and is one of Kim’s close confidants. Jang was also promoted to vice chairman of the National Defense Commission on June 7 at the Supreme People’s Assembly.
The sources said O, since being appointed a vice chairman of the National Defense Committee in February 2009, has capitalized on his position to expand his influence in attracting foreign investment.
O and his aides established Choson Kukje Sanghoe (Korean International Trading Company) as the organization solely responsible for foreign investment promotion and received approval for the organization from the presidium of the Supreme People’s Assembly on July 1, 2009.
Meanwhile, Jang named Park Chol-su, a Korean-Chinese businessman, president of Korea Taepung International Investment Group, which he re-purposed to attract foreign investment.
The company initially belonged to the cabinet, but Jang absorbed it into the National Defense Commission and announced the establishment of the re-purposed company in a January 20 report from the official Korea Central News Agency. The news report said Kim Jong-il issued an “order” that the state guarantee that Taepung be able to attract foreign investment.
“O Kuk-ryol is very displeased that Jang jumped into the foreign investment business that he led,” said the sources. “Currently, Choson Kukje Sanghoe and Korea Taepung International Investment Group are vying against one another.”
The sources said that the power struggle is already being watched with concern by the State Security Department, the North’s supreme intelligence agency.
The agency, the sources said, suspects that China is behind Taepung and is trying to control the North Korean economy by injecting capital through Park and the group. The sources said the agency is hesitant to report its suspicions to Kim, given his close relationship to Jang.
Jang has cultivated power through economic projects Kim has entrusted him with, such as a project to build 100,000 houses in Pyongyang. Since he was promoted to vice chairman last month by Kim, he is thought to have increased his political clout as well.
Ri Je-kang, a rival with Jang, also died in a mysterious, recent traffic accident.
“If a rivalry between Jang Song-thaek and O Kuk-ryol, both key axes of North Korean power, becomes a full-fledged power struggle, it could have a subtle effect on a North Korean succession scenario,” said Kim Yong-hyeon, professor of North Korean Studies at Dongguk University.
Read the full story here:
Bigwigs in North vie for power over investments
Joong Ang Daily
7/5/2001
North Koreans hoarding Yuan
Thursday, June 24th, 2010According to Radio Free Asia:
North Koreans who can afford to save their money are ignoring a new currency brought in by the ruling Workers’ Party in the isolated Stalinist state in favor of the more trusted renminbi yuan from China.
“Our [North Korean] money is now called ‘the commoners’ currency,’ used only as a means of exchange when goods are purchased, but not as a means of saving,” a resident of Chungjin city in the northern province of Hamgyeong said.
“North Koreans [still] hold their savings in Chinese money,” the resident said.
On the country’s black markets—the chief source of essential goods for many under a planned economy in which products are scarce and often monopolized by the country’s elite—any buyer offering to pay in yuan can expect a large discount, residents say.
“Nowadays even children look for Chinese money, knowing that a hefty discount may be available if Chinese money is used in an exchange,” another source said, speaking during a visit to relatives in the northeastern Chinese city of Dandong, which borders North Korea.
The renminbi—known in North Korea simply as “B”—is strongly preferred to the local currency, as it can buy anything, the second source added.
Purported crackdown
North Korean authorities including the state security department claim to be cracking down on the use of the yuan for transactions, he said.
“But because high-ranking officials are the first to hold their savings in Chinese money, the implementation of such crackdowns is half-hearted at best, and mostly ineffective,” the source said.
“North Korean officials won’t even touch the domestic currency.”
Other sources said they fully expect the North Korean currency to collapse once enough yuan are in circulation to fuel the country’s black markets.
“It is obvious that the North Korean currency will collapse once more money enters circulation,” a third North Korean said.
That source, who like the others spoke on condition of anonymity, said the apparent stability in the North Korean currency is an illusion caused by the fact that not enough money is in circulation for it to devalue domestically.
The tight money supply partly results from nonpayment of salaries by the government, the country’s only official employer.
“In Sinuiju, only 25 percent of the people have received their salaries,” the third source said.
“Workers and those employed at manufacturing facilities received the appropriate pay only during the month after the currency reform was implemented, and then started missing paychecks,” the third source said.
Devaluation crisis
The South Korea-based Web site “Daily NK,” which publishes North Korean news, said North Koreans who use domestic currency, rather than Chinese yuan or U.S. dollars, have to pay about 10 percent more for their purchases in open markets.
North Korea issued its revalued won last December, dropping two zeroes off the old won.
At the time, the North Korean central bank put strict limits on the amount of old money that could be exchanged for the new won.
At the old rate, U.S. $1 was equal to 135 North Korean won.
The move sent shockwaves through North Korea, with reports of citizens rushing to black-market moneychangers to cash in their won for more stable U.S. dollars and Chinese yuan.
North Korean citizens were threatened with “merciless punishment” for defiance of the new currency rules and were told they had only a week to exchange a maximum of 100,000 won (U.S. $690 at the official rate, but less than U.S. $40 according to black market rates) per person of the old currency for new bills.
NGOs in Seoul reported that in response to widespread anger, those limits were raised to 150,000 won in cash and 500,000 won in bank notes.
A leading expert on the North Korean economy has said that the economic system is split between the concerns and needs of ordinary North Koreans and the country’s political elite, which runs a “royal palace economy.”
Kim Kwang Jin, visiting researcher with the U.S. Committee for Human Rights in North Korea, said the scale of Kim Jong Il’s “royal palace economy” is in the hundreds of millions of dollars a year, while the much less significant “people’s economy” doesn’t exceed a few million dollars a year.
Read the full story here:
North Koreans Shun New Won
Radio Free Asia
Sung Hwi Moon
6/23/2010
Mansudae Overseas Development Group Projects
Wednesday, June 23rd, 2010According to the Daily NK:
North Korea has earned more than $160 million in the last ten years thanks to the construction of sculptures and other edifices in countries across Africa.
A Daily NK source in China revealed on the 18th, “Since 2000, North Korea has been earning colossal quantities of dollars through contracts for the Mansudae Overseas Project Group of Companies under the Mansudae Art Institute to construct sculptures.”
Mansudae Art Institute is an organization primarily dedicated to the idolization of Kim Il Sung and Kim Jong Il through public works, one whose construction of edifices such as the Juche Tower and Arch of Triumph in Pyongyang has added to the status of the country.
It has also been building revolutionary monuments in African countries such as Ethiopia since the 1970s in order to maintain cordial relations with socialist states, but in the early 2000s started doing work in African countries to earn foreign currency as well.
According to the source, North Korea has earned $66.03 million from Namibia alone thanks to the construction of the Presidential Palace ($49 million); the Cemetery of National Heroes ($5.23 million); a military museum ($1.8 million); and Independence Hall ($10 million).
It has also earned almost $55 million from Angola via the António Agostinho Neto culture center ($40 million); Cabinda Park ($13 million); and the Peace Monument ($1.5 million).
Additionally, the North has constructed a basketball stadium ($14.4 million) and an athlete academic center ($4.8 million) in the Congo, earning almost $20 million dollars in total.
Thanks to the Monument to the African Renaissance in Senegal, the North has made another $12 million dollars.
There are around 19.8㎢ set aside for a vacation spot for the president of Equatorial Guinea, which is supposed to earn Mansudae around $800,000, not to mention a government office building ($1.5 million), Luba Stadium ($6.74 million) and conference halls ($3.5 million).
The source also reported, “The money earned from these construction projects is managed by the No. 39 Department. Some of these dollars are used for domestic governance, while the rest go to secret accounts in Switzerland or Macau to become Kim Jong Il’s secret funds.”
Here are the images from the story including a table of financial data (which I would take with a grain of salt):
Additional Information:
1. I blogged here about the Derg Monument in Ethiopia.
2. I have located some of the Mansudae Overseas projects mentioned in this story (as well as numerous other places not menioned in this story: Egypt and Syria, Zimbabwe, DR Congo). However, here are GeoEye satellite images of some of the Namibia and Angola projects mentioned above courtesy of Google Earth:
Namibia National Heroes Acre (22°39’46.02″S, 17° 4’41.06″E):
Namibia State House (22°35’28.83″S, 17° 6’2.76″E)
Cultural Center of António Agostinho Neto (Mausoleum) (8°49’24.73″S, 13°13’8.52″E)
Room (Bureau) 38 allegedly restored
Wednesday, June 23rd, 2010According ot the Choson Ilbo:
North Korea in March restored a special department in the Workers Party codenamed Room 38 which manages leader Kim Jong-il’s coffers and personal slush funds, it emerged Monday. The North last fall merged Room 38 with Room 39, which manages party slush funds.
“Rooms 38 and 39 were merged to simplify Kim Jong-il’s slush funds,” said a North Korean source. “But when it became difficult to secure hard currency due to international sanctions, Room 38 seems to have been restored because there was a feeling that Room 39 alone can’t meet the need.”
Room 38 is reportedly led by Kim Tong-il, who heads three regional departments in charge of earning hard currency.
Room 39 tries to maximize earnings from gold and zinc mining and farming and fisheries. It also manages stores and hotels exclusively for foreigners in Pyongyang. Room 39 seems to have suffered badly due to the recent suspension of inter-Korean trade. “Taesong Bank and Zokwang Trading, which received remittances from Mt. Kumgang tourism, are both controlled by Room 39, and is also in charge of the exports of agricultural and fisheries products,” said a government source.
Kim Jong-il needs dollars to maintain the party elite’s loyalty to him and his heir presumptive. He is said to have told party bigwigs in February, “From now on I will judge your loyalty based on the amount you contribute to the fund.” His son Jong-un is also said to be amassing separate slush funds for his own use.
But international sanctions on exports of weapons, counterfeit dollars, fake cigarettes and drugs remain in place, and the United States is pushing ahead with additional financial sanctions over the North’s sinking of the South Korean Navy corvette Cheonan in March. Pyongyang was dealt a heavy blow in 2005 when the U.S. froze US$25 million in the Banco Delta Asia in Macao which was apparently for Kim’s personal use.
Kim earlier this year appointed his high school friend Jon Il-chun head of Room 39. Jon was also named chairman of the National Development Bank, established early this year with a view to conducting normal international financial transactions to induce foreign investment. “North Korea seems to be planning to divert part of foreign investment to Kim’s slush fund,” said a government official.
Read the full story here:
Kim Jong-il Restores Special Department to Swell Coffers
Choson Ilbo
6/24/2010
DPRK earns $10m at 2010 World Cup
Monday, June 21st, 2010According to the Choson Ilbo:
North Korea will receive at least US$10 million from FIFA for fielding its national team in the World Cup. The figure amounts to three month’s wages for the over 43,000 North Koreans working in the joint Kaesong Industrial Complex.
FIFA gives the 32 teams playing in the World Cup $1 million each for preparation costs. After playing three matches in the first round, each team is given an additional $8 million no matter if it advances to the next round or not. From this year, every club that has a player in the World Cup receives $1,600 per day, per player. The paid period begins two weeks before the opening of the tournament and ends a day after the final match of each contending team.
For North Korea, the period lasts until this Saturday as it plays its final first-round match against Cote d’Ivoire on Friday. Less the three players who play for foreign football clubs — Jong Tae-se, An Yong-hak and Hong Yong-jo — the North will be given a combined $960,000 for the remaining 20 players on its team. Mostly soldiers, they are affiliated with six domestic clubs. FIFA’s payment is made to each club, but as the North’s are all state-run clubs, Pyongyang has secured at least $9.96 million so far.
If North Korea makes it into the qualifying round it will be awarded an additional $9 million. The teams playing in the quarter-final receive $14 million each and those in the semi-final $18 million each, while the winner takes home $30 million.
With its national team playing in this year’s World Cup, North Korea has also signed a $4.9 million deal under which Italy-based sports apparel maker LEGEA will provide the North with jerseys and training gear for four years.
Read the full article here:
N.Korea to Earn $10 Million for World Cup
Choson Ilbo
6/21/2010
DPRK abandons food rations, orders self-sufficiency
Thursday, June 17th, 2010Institute for Far Eastern Studies (IFES)
NK Brief No. 10-06-17-1
6/17/2010
As North Korea’s food shortages worsen and reports of starvation continue to grow, the Workers’ Party of Korea have acknowledged the failure of the central food ration program. Since the end of May, the Party has permitted the operation of 24-hour markets, and the regime has ordered the people of the North to provide for themselves.
The human rights organization Good Friends reported this move on June 14. According to Good Friends, the Workers’ Party organization and guidance bureau handed down an order on May 26 titled ‘Relating to Korea’s Current Food Situation’ that allowed markets to stay open and ordered North Koreans to purchase their own food. This order, recognizing that the food shortages in the North have continued to worsen over the last six months, since the failed attempts at currency reform, acknowledged the difficulty of providing government food rations. It calls on those who were receiving rations to now feed themselves, while also calling on the Party, Cabinet, security forces and other relevant government agencies to come up with necessary countermeasures. Now, authorities officially allow the 24-hour operation of markets, something that most had already tacitly permitted, and encourage individuals, even those not working in trading companies, to actively import goods from China.
It has been reported that government food rations to all regions and all classes of society, even to those in Pyongyang, were suspended in April. The last distribution of food was a 20-day supply provided to each North Korean on April 15, the anniversary of the birth of Kim Il Sung. Because of the difficulty of travelling to markets, the suspension of rations caused many in farming communities to starve to death. When Kim Jong Il’s recent visit to China failed to secure expected food aid, the Workers’ Party had no choice but to hand down the ‘May 26 Party Decree’. While the suspension of rations has considerably extended the economic independence of North Korean people, the regime has significantly stepped up other forms of control over society. Public security officers have begun confiscating knives, saws and other potential weapons over 9 centimeters long in an effort to stem murder and other violent crimes. Additionally, state security officials are cracking down on forcefully resettling some residents of the age most likely to defect, while sending to prison those thought to have contacted relatives in South Korea.
According to Daily NK, North Korean security officials are pushing trading companies to continue trading with China, while calling on Chinese businesses to provide food aid. It also appears that North Korean customs inspections along the Tumen River have been considerably eased, and there is no real attempt to identify the origin or intended use of food imported from China. Sinheung Trading Company has asked Chinese partners investing in the North to send flour, corn and other foodstuffs. The Sinheung Trading Company is operated by the Ministry of State Security, and is responsible for earning the ministry foreign capital. It appears that food acquisition is now a matter of national security, as North Korea is expecting South Korea and the rest of the international community to economically isolate the country.
Japan, USA extend DPRK sanctions
Thursday, June 17th, 2010According to Business Week:
Japan will tighten controls on sending money to North Korea next month as part of additional sanctions in response to a suspected sinking of a South Korean warship.
The cap on undeclared cash transfers will be lowered to 3 million yen ($32,800) from 10 million yen, according to a statement released by the Ministry of Finance.
The ministry also will reduce the amount of money an individual can take into North Korea to 100,000 yen from 300,000 yen. The change will take effect on July 6, the statement said.
Read the full story here:
Japan to Tighten Control on Sending Cash to North Korea
Business Week
Kyoko Shimodoi and Keiko Ujikane
6/15/2010
According to the White House web page:
TO THE CONGRESS OF THE UNITED STATES:
Section 202(d) of the National Emergencies Act (50 U.S.C. 1622(d)) provides for the automatic termination of a national emergency unless, prior to the anniversary date of its declaration, the President publishes in the Federal Register and transmits to the Congress a notice stating that the emergency is to continue in effect beyond the anniversary date. In accordance with this provision, I have sent to the Federal Register for publication the enclosed notice stating that the national emergency declared in Executive Order 13466 of June 26, 2008, is to continue in effect beyond June 26, 2010.
The existence and the risk of proliferation of weapons-usable fissile material on the Korean Peninsula constitute a continuing unusual and extraordinary threat to the national security and foreign policy of the United States. For this reason, I have determined that it is necessary to continue the national emergency and maintain certain restrictions with respect to North Korea and North Korean nationals.
BARACK OBAMA
THE WHITE HOUSE,
June 14, 2010.
