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North Korean authorities avoid major market disruptions from sanctions

2017-09-10 12:53 | Kim Ga Young
One month after UN Security Council's passage of sanctions Resolution 2371, exchange rates and prices remain relatively stable in North Korea's marekts. Surprisingly, the prices of all staple items gathered weekly by the Daily NK - rice, corn, pork, gasoline, diesel - as well as the USD and RMB exchange rates, have actually gone down in Pyongyang, Hyesan, and Sinuiju compared to the previous month. 

While the North's markets have not suffered as a result of the latest round of UN sanctions, it is yet to be seen how they will be affected in the future as the UN prepares to take further measures in response to the regime's 6th nuclear test this week.

As it stands though, just a few weeks after the August 5th enactment of the UN sanctions, the final week of August saw the price of 1 kg of rice reduced from 5,770 KPW to 5,700 KPW in Pyongyang, from 5,740 KPW to 5,680 KPW in Sinuiju, and from 5,800 KPW to 5,640 KPW in Hyesan. 

The price of 1 kg of corn went down from 2,080 KPW to 2,000 KPW in Pyongyang, from 2,100 KPW to 1,910 KPW in Sinuiju, and from 2,150 KPW to 2,010 KPW in Hyesan. Rounding out the trend in foodstuff price reductions, 1 kg of pork is also down from 12,980 KPW to 12,000 KPW in Pyongyang, from 13,000 KPW to 12,400 KPW in Sinuiju, and from 13,100 KPW to 12,500 KPW in Hyesan. 

Fuel prices are showing the same trend as well, with 1 kg of gasoline coming down sharply from 15,100 KPW to 12,800 KPW in Pyongyang, from 15,060 KPW to 13,100 KPW in Sinuiju, and from 14,500 KPW to 12,050 KPW in Hyesan. The price of 1 kg of diesel is also down considerably, from 11,000 KPW to 10,100 KPW in Pyongyang, from 10,900 KPW to 8,500 KPW in Sinuiju, and from 11,040 KPW to 8,435 KPW in Hyesan.  

It is more difficult however to ascertain any resulting changes in the prices of industrial goods. The prices for the above daily-use items such as food and fuel naturally fluctuate on a shorter term basis, but for industrial items that will be used for years to come and which take longer to manufacture, we are unable to see any changes this soon after the latest sanctions. 

Looking towards past UN sanctions following the North's 4th and 5th nuclear tests last year though, despite claiming each time to be "the strongest ever" measures against the regime, the markets did not suffer any significant effects. Multiple sources throughout the country revealed to the Daily NK in many instances that merchants felt "immune" from such international sanctions and did not react with fear to new sanctions measures. 

A close inspection of the prices of various goods over the past year does not reveal any negative effects coinciding with sanctions resolutions, but rather the instances of greatest fluctuation occurred during the spring lean season in May, likely as a result of stockpiling or hoarding goods for profit. 

The "livelihood" exception, supply expansion, and price controls - the keys to the market's durability?

One reason for the durability of the market is that most of the items found therein constitute essential items to the livelihood of the North's citizens and have thus been exempted from UN sanctions through the so-called "livelihood exception," separating this kind of trade from its primary target - foreign currency earning operations by the regime. 

The effects of these sanctions can also be explained through basic market fundamentals at play in North Korea. With the measures hindering the flow of foreign currency into the country, liquid assets have also been reduced, thereby curtailing citizen demand for goods and leading to a drop in prices in the markets. 

As major exports become subject to each new round of sanctions, prices in the markets may continue to drop. With marine goods newly designated under UN Resolution 2371, it is possible that fish and other seafood will be sold at an extraordinarily low price in the jangmadang. 

The authorities have also instituted price controls in order to stave off any discontent that could result from large price fluctuations in the markets. Sources inside North Korea told the Daily NK earlier this year in February that when the price of rice began to skyrocket, the government stepped in to limit prices to 1,500 won for 1 kg of corn and 4,200 won for 1 kg of rice, threatening to confiscate products from merchants who tried to sell above that price. 

The government has also been able to keep prices down by importing non-sanctioned items in large quantities and allaying fears of item shortages among the public. This can be interpreted as an attempt to mollify the public in the face of potential unrest, making sure to keep imports of staples flowing and prices low so that the people do not have a reason to rise up. 

Evidence for this was presented recently in a Voice of America (VOA) report, which found that this July, North Korea imported 21,000 tons of corn from China. The report describes findings from Kwon Tae Jin from the GSnJ Institute, who discovered through analyzing Chinese customs documents that recent numbers amount to a 420-fold increase in corn imports this July compared to last year.

This report also provided the volume of other imports from China, placing rice at 10,500 tons, flour at 2,400 tons, and starch at 1,250 tons. However, Mr. Kwon told the VOA that regardless of such measures to keep the market stable, he concludes through his analysis that restrictions placed on mineral exports and the like have led to a significant disruption in the flow of money into the North and therefore has hurt the overall standard of living of the average citizen. 

Unrest still a possibility after sanctions even with price stability

Even though prices have remained stable and the authorities have avoided any major disruption in the market sphere, we may see further consequences if international sanctions continue to expand their scope. But as markets are the gathering place and primary vehicle for the newfound free spread of information, it will be difficult for the authorities to use propaganda to convince merchants of their hand in protecting them from sanctions and stabilizing the markets.  

Multiple sources within North Korea informed the Daily NK recently that as news spread that sanctions were now targeting fishing products as well as mineral goods, merchants in the markets began discussing among themselves the need to stock up on foreign currency. This is reminiscent of the reaction to last year's UN sanctions Resolution 2270, when we received information that residents in Hyesan, Musan, and other areas in Kwangsan began trying to sell their houses to accumulate currency in case of any problem. 

Meanwhile, the authorities are keeping a close eye on the circulation of money in the markets, hoping to prevent foreign currency hoarding among the citizens - a measure which could lead to discontent. They are perhaps sowing popular disaffection with the system through such measures as raising stall rental fees in the markets and increasing scrutiny of the donju (newly-affluent middle class) through more asset confiscations. Nevertheless, international efforts will likely continue to have both economic and other consequences as the regime continues to respond by wringing the pockets of the people while outwardly claiming the inefficacy of the sanctions.