The economy was not on the agenda when North Korea’s dictator Kim Jong Un appeared at a party convention on May 23 after his second three-week absence from the public. According to the state media, the “Supreme Leader” promoted several military officials and put forward plans to increase the nuclear deterrence of the North, which is exactly the kind of measure Kim Jong Un should avoid, America’s National Security Advisor said if he wanted North Korea to be a “big economy.” ” have.
In the past few months, the north’s economy has looked less great than usual. The leadership’s decision in January to isolate the country from the world to prevent the spread of Covid-19 (which North Korea continues to claim has no cases) ) has resulted in the closure of the border into China, through which the country does almost all of its trade.
The self-imposed blockade has not only caused difficulties for ordinary people, the privileged population in the capital Pyongyang also seems to be affected. The government’s attempt to limit the impact on the state treasury through a mandatory bond purchase program seems to have exacerbated the problem. North Korea’s valued self-employment Juche ideology may have reached its limits.
Even before the pandemic broke out, the recent tightening of sanctions had restricted North Korea’s trade with China. According to Chinese customs data, exports to the north went from just under $ 350 million in the first two months of 2016 to less than $ 250 million in the same period of the year Year 2019 back. During this period, imports from North Korea dropped from $ 350 million to less than $ 50 million.
These figures do not yet give a complete picture because they exclude crude oil deliveries from China via pipelines. They also do not include smuggling by ordinary people or the regime’s illegal trading activities, such as Ship-to-ship oil transfers on the high seas.
Regional price differences indicate restrictions on domestic traffic
Still, the sanctions seemed painful. In his New Year’s address, Kim Jong Un warned his people about the lean times ahead and that the country needed to become even more independent – a break with the promises of growth and prosperity that had previously shaped his tenure.
The January decision to close the Chinese border exacerbated the problem, as official trade between the two countries has almost stalled. Imports from China fell below $ 200 million in January and February and below $ 20 million in March. Exports almost completely disappeared. The lockdown also appears to have ended the little private smuggling that had previously occurred; Traders in China reported almost insurmountable controls.
The impact of these developments on life in North Korea is even more difficult to assess than usual, as border restrictions have reduced the already scarce flow of information out of the country. There are no signs of an acute shortage of food and other essentials, but prices have fluctuated.
In the border town of Hyesan, the price of a kilo of rice rose more than 20 percent between January and April, according to Dailynk, a website that specializes in news from North Korea. Gasoline prices have skyrocketed, and the North Korean currency, the won, has fallen against the Chinese yuan and the US dollar, reports Dailynk. Large regional price differences indicate that there may have been restrictions on domestic traffic and border closures, Teodora Gyupchanova told the NKDP, a non-governmental organization in Seoul.
Firms have been forced to use foreign exchange reserves to purchase government debt
The impact on living conditions should be exacerbated by the fact that late spring in North Korea is traditionally the lean season – winter supplies are becoming scarce, but only a few crops are ready for harvest. In early April, Rodong Sinmun, the government’s mouthpiece that had printed many of his usual reports of overachievement in production plans, admitted that people were experiencing “difficulties.” He said the country “lagged” behind the others in economic development and would need an extra helping of “independence” to overcome this failure.
Reports of panic purchases of imported goods in Pyongyang’s glamorous department stores suggested bottlenecks or at least widespread rumors that such items could soon become scarce. There have also been reports of rising prices for goods made in China in other parts of the country. Factories that manufacture consumer goods such as clothing and shoes were encouraged to find alternatives to imported raw materials instead of waiting for the border to open again.
In the meantime, the apparent shortage of foreign exchange has likely hindered progress in implementing favorite projects, such as new resorts, that the regime’s bosom friends should like. The regime has responded by tapping companies’ reserves. It has launched an extensive bond purchase program to fund more than half of its annual budget, with some companies being forced to use their foreign exchange reserves to purchase government debt.
Given North Korea’s patchy debt repayment record and the ways in which people were persuaded to buy the bonds (a mining chief is said to have been executed for refusing to do so), the program appears to be a polite form of expropriation.
Complete isolation for Kim Jong Un unsustainable
Leiden University’s Chris Green believes it could be part of a longer-term strategy to restore state control over the economy. “There was a time at the beginning of the Kim Jong Un era that large companies were allowed to accumulate their own hard currency stocks, but that is apparently no longer desirable.” North Korea’s entrepreneurs, who have become accustomed to the regime’s regular attempts to seize their money, are adept at hiding it.
Regardless of whether the government was struggling to finance itself, or whether it was concerned that the regime’s foundation officials were upset about the lack of imported goods, Kim Jong Un seems to have decided that one total isolation is unsustainable.
Border restrictions are apparently being relaxed, and some goods have been said to come through again in recent weeks. The prices of rice and petrol have fallen. Of course, the relaxed restrictions could still lead to some less desirable imports, such as of Covid-19 cases.
This article appeared on May 28, 2020 in the Asia section of the Economist print under the heading “Standoffish North Korea discovers the limits of self-reliance” and was translated from English by Cornelia Zink.