GoodFriends: Research Institute For North Korean Society

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North Korea Today No. 356 July 2010

[“Good Friends” aims to help the North Korean people from a humanistic point of view and publishes “North Korea Today” describing the way the North Korean people live as accurately as possible. We at Good Friends also hope to be a bridge between the North Korean people and the world.]
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Market Prices are Soaring due to Steep Rise in Currency Exchange Rates
[Table] The Exchange Rate and Food Price, July 15-19, Chungjin
Anxiety Spread among Residents over Skyrocketing Price
Currency Exchange Savings of 500,000 won, Finally Issued in New Currency
Officials of Public Enterprises Secretly Hoarding and Embezzling Operating Funds Provided by Banks
People in N. Hwanghae Province Doubly Suffer due to “Price Bomb” and “Water Bomb”

[Editorial]
To Revitalize Markets, First Allow for Necessary Conditions
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Market Prices are Soaring due to Steep Rise in Currency Exchange Rates
Since July, currency exchange rates are skyrocketing. In Chungjin city, North Hamgyong province, the Dollar-to-Won exchange rate is 1,600 won as of 19th, rising from 1,100 won on 15th, and the Yuan-to-Won exchange rate jumps to 220 won now. Market prices such as food are soaring because of the sudden rise in currency exchange rates. The price of rice in Chungjin city was 800 won per kg, but it is now 1,200 won per kg on 19th, a 400 won increase. The price of corn jumps to the 700 won range from the 400 won range. Soaring prices disturb the entire market. Merchants are mulling over how to price their goods. Goods priced at 1,500 won when the Yuan-to-Won exchange rate was 140 won jump to 2,800 won when the Yuan-to-Won exchange rate rose to 220 won. Some merchants even stock their goods expecting that currency exchange rates will continue to rise and the prices will soar as the amount of goods in the market decrease. Stocking the goods is a problem but no trade is a bigger problem. People cannot afford to buy goods as the prices soar. Given that domestic goods are virtually not available, some state-run stores that sell goods consigned from private individuals close their shops and no trades are occurring even though they open the stores.








Anxiety Spread among Residents over Skyrocketing Price

There are increasing level of anxiety spreading among residents with soaring foreign exchange rate and rapidly increasing price. It is already hard enough for people to make living and now it is more difficult to buy food and daily necessities. Business owners themselves are complaining that their products are not selling. Residents and some rural officials are angry at worsen economy and complain, “What is wrong with this? Is everyone at higher authority stupid and brainless?” Businessmen at Chungjin sighed and commented, “People with no money cannot survive because they can’t afford to buy anything. Businesses are doing badly after the currency exchange and nobody buys food anymore. Only officials can manage to live with increasing price now. I don’t know how many people can survive this. How do you expect residents to survive when businessmen are doing this badly”? Some businessmen are hopeless because it would be difficult to afford soup at this rate. City officials are closely watching the food price and foreign exchange rate because Chungjin City will have increasing number of starving population at current pace. Half of population currently eat corn prridge but the numbers are increasing recently in Ranam District and Songpyung District at Chungjin City. With worsening food situation, smile on residents’ faces vanished.

Currency Exchange Savings of 500,000 won, Finally Issued in New Currency
The old currency of 500,000 won people were forced to deposit at the bank during the currency exchange is finally started to be distributed in new currency. The currency exchange measure allowed up to 100,000 won to be exchanged at 100:1 ratio and issued a certificate of deposit for the old currency in excess of 100,000 won up to 500,000 won. Because there was no announcement about the exchange date at the time, people had doubts and suspicions. Finally, the payment of 5,000 won in new currency for the old currency of 500,000 won has been issued. A Central Party Official explained that the reasoning behind the distribution is due to “fear of increasing number of deaths from starvation and the government storage with no food left”. The government lost popularity with increasing deaths from starvation since last January so they began to pay overdue and ordered on 5.26 measures to all regions and organization to save the residents as much as they could with their own creative way of management skills. Subsequently they gave out new 5,000 won to residents who had doubts in their mind on when they would receive it. These are some of the solutions by the government regarding the situation. However, concerns are arising that these actions might do more harm than good because the current price hike is caused by the government’s releasing of currency and this may further aggravate inflation with more influx of money.

Officials of Public Enterprises Secretly Hoarding and Embezzling Operating Funds Provided by Banks
It turned out that the officials of the public enterprises secretly hoard and divide the operating funds provided by the banks among themselves. The Central Party, after the Supreme People’s Assembly is over on June 7th, provided each public enterprise with operating funds ranging from 50 million won to 100 million won through the city and county banks nationwide. Operating funds were provided to pay the wages of laborers first and to pay other operating costs. However, some public enterprises did not pay the wages of their laborers despite the fact that they received the operating funds from the banks. Upon hearing that news, an executive of the Central Party was not surprised because he was expecting such kind of outcome, but he expressed anger toward the corrupted officials proclaiming that they should be all caught and be severely punished. He also commented that the government distributing money through various means – albeit some expected corruptions like this – indicate the severity of our food and economic crisis, and we have to wait and see how and to what extent we can resolve the crises at issue. On the other hand, the Central Party is preparing to pay back the government bonds issued on August of 2002. They decided to pay back the bonds at face value, but it may take more time to properly implement it because the value of money has been changed due to the currency exchange measure.

People in N. Hwanghae Province Doubly Suffer due to “Price Bomb” and “Water Bomb”
Damages are escalating because of the 5-day heavy rain during the third week of last July with the loss of the crops and the inundation of the farmlands. In Seohung county and Bongsan county in North Huanghae province, vehicle and pedestrian traffic are limited because of the severe damages on the concrete bridges that were newly constructed in June of last year. At the collective farms in Bongsan village, 20 acres of corn fields became useless because they were submerged in water for three days. Many granaries in North Hwanghae Province were completely ruined owing to the “water bomb” (i.e., heavy rain) in the midsummer. Moreover, people’s living conditions are further deteriorated due to soaring prices and currency exchange rates as well as the shortage of goods. It is getting more difficult to find goods because many state-run stores closed their shops. People’s sentiments go out of control into chaos with concerns that the situation may lead them to real big troubles.

[Editorial]
To Revitalize Markets, First Allow for Necessary Conditions
Through the 5.26 declaration, the North Korean authorities decided to get rid of the various restrictions on the markets and allow them to operate freely. Operating hours and age restrictions were lifted, as well as ban on selling manufactured goods. All goods can now be traded. Although it’s been a long time coming, it’s nevertheless a welcome decision needed to overcome the difficult economic and food crisis. However, it’s not enough. To truly revitalize the markets, the authorities have to allow for the necessary conditions.

First and foremost, restrictions on movement must be lifted. One of the key reasons that the people could live through even the Arduous March was their ability to trade on the road. They would buy goods from a cheaper region and sell them at a profit in a higher-priced region. For example, a trader in Hoeryong City in North Hamgyong Province would diligently wake up at dawn to buy goods in Chungjin to make an extra 10 won. This was the genesis of “middle-man” trading. As some people accumulated capital through such middle-man trading, they would use cars and trucks to move more merchandise, thereby creating the so-called “trading-on-wheels” or “race trading.” Eventually, these people would separate into wholesalers and retailers, with some fulfilling the role of the moneylender.

To revitalize the markets, you need the movement of both people and goods. However, the North Korean authorities, fearful of information outflow, are increasing their watch over the cities, counties, and provinces. In the case of North Hamgyong Province, they set up extra checkpoints along the roads connecting Hoeryong and other points, especially in the interior locations, to Chungjin. It takes an average of 30 minutes to an hour for a typical bus operating the Chungjin-Hoeryong-Onsung route to pass through a checkpoint, since the guards examine not only the documents (travel permits, resident proofs) but also search carry-on bags and other goods, even doing pat downs of the passengers. There are three checkpoints along Chungjin-Hoeryong route, with three more along the Hoeryong-Onsung road. The goods piled on top of the buses are unloaded and examined; even women’s underwear is searched. Although people desperately want to trade, they are reluctant because they fear the crackdown along the checkpoints. So they are forced to trade within their local area only. A region with an abundant harvest of potatoes only has potatoes to sell. With such limit on merchandise variety, markets do not spring forth. Only when goods can be traded across local regions will money circulate and markets form.

Especially now in the aftermath of the failed currency reform, all the market capital have turned to waste and merchants bankrupted. Add the rising prices and movement restrictions, you are left with very few who are willing to even move around. Before the currency reform, there were 8 buses plying the daily route between Chungjin-Hoeryong-Onsung, but today, there are only 2 that are having difficulties in getting enough passengers to fill their seats. The same goes for railroads. The station porters who used to earn an average of 8,000 won per day up to a maximum of 20,000 won are lucky to earn 300 won these days, which is not enough to buy even 1kg of corn. The situation has gotten so bad that even the cell secretary of Hoeryong Railroad Drivers - who actually was getting some rations - starved to death. This was the result of the steep decline in the number of traders traveling between different regions.
The general chaos that occurred post currency reform showed incontrovertibly that North Korea can no longer do without markets. If that is the case, then the authorities should not only stop their crackdown on the markets but develop a strategy to revitalize the markets to improve the nation’s economy. It’s time to allow markets by law and look for ways to manage and boost the markets.

The first should be to guarantee the trader’s freedom of movement so that they could move merchandise. Second should be to allow profits to be made through market activities. A market is a place where consumers choose the best products that are in competition to one another. Get rid of the policy to allow only the state-owned stores to sell manufactured goods – allow all manners of trading from street vendors to grasshopper merchants, taxing them appropriately to maintain a certain order in the market system. Since people who engage in these unorthodox way of trading are those too poor to even pay for market space, they should also be allowed to trade as long as they are managed so as to maintain some order along the streets. The manufacture and distribution of general consumer goods that are in high demand should especially be ensured. But extra care should be taken to prevent a monopoly or speculation over essential goods, including rice.

Additionally, residents who work as daily laborers to survive should be protected in a specific and systemic way, especially in the absence of regular rationing and salaries. Only when profit-making through markets is protected will the quality of people’s lives improve. The only way to stabilize people’s lives is to allow trade and profits. If profits are allowed and accumulation of wealth protected, then people will begin to bank their money. Only then will the state will be able to use the capital for public good. Until now, it has been the case of the state disallowing any profits made through trading, confiscating merchandise, and forcing bankruptcies through audits on wealth. The most recent currency reform, especially, had the effect of disallowing individual wealth wholesale, resulting in both the individuals and nation becoming poorer.

While it’s fortunate that the authorities have allowed markets again, it’s more important to allow the necessary conditions for the markets to reemerge. While it’s understandable for the authorities to strengthen inspection regime for fear of information leaks to the outside, it’s like burning down a house to kill a flea. Once the necessary foundation for markets is ensured and legal oversight of trading activities are managed, illegal activities will naturally decrease. We urge the North Korean authorities to enact wise policies for the good of the people.

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