How sanctions affected North Korea's economy in 2016

[As Heard in North Korea]
Kang Mi Jin  |  2016-12-26 15:07

"As Heard in North Korea" articles contain the content of Unification Media Group [UMG] radio broadcasts into North Korea. UMG is a consortium created by Radio Free Chosun [RFC] and Open Radio for North Korea [ONK], shortwave radio stations targeting North Korea; The Daily NK, an internet periodical reporting on all aspects of North Korea; and OTV, an NGO-based internet television channel.

Kim Jong Un has been emphasizing the need to improve the people's economy since the beginning of his rule, and believes that the pathway toward economic power is through the spirit of 'self-reliance.' These statements seem to be aimed at breaking away from the international sanctions triggered by the 4th and 5th nuclear tests conducted this year. However, it is suspected that without internal reform and stronger international cooperation, the creation of an economic powerhouse is likely to be difficult. Here, we reflect on North Korea's economic situation as it enters further sanctions and look at its future prospects in the 5th year of Kim Jong Un's rule.

In regards to North Korea's economic situation this year, the sanctions for the 4th and 5th nuclear tests were a significant issue. How did the people react to the sanctions?

For the people of North Korea, economic blockade is a more familiar term than sanctions. Residents who heard the news of sanctions from their relatives or acquaintances in overseas countries (Korea and China) were initially calm overall. But as the state's oppression and crackdowns strengthened, they began to realize that unprecedented sanctions were being implemented. Because of this, there were reports of some temporary panic buying in the markets. However, most people are said to be responding that economic blockades have happened before, and are therefore indifferent.

The regime, aware of people's criticisms toward it in border regions, have made orders to strengthen control and surveillance. As a result of this, residents are said to be responding that the sanctions seem comparatively severe this time.

How do you think the UNSC sanctions have affected the North Korean people so far?

North Koreans became insulated against the effects of sanctions after going through the food crisis in the 1990s. Now there are few who die of starvation, as was common during that period. Residents learned how to secure food their own way during the period of mass starvation when the state distribution system failed, and now they are not easily affected by external changes. However, the sanctions have increased people's discontent with the authorities. There are a growing number of residents who think they are paying the price for nuclear tests that benefit them in no way.

The North Korean authorities, aware of the fact that the sanctions will foster agitation and distrust among the population, have strengthened their control and surveillance while emphasizing ideological armament. In particular, the regime has been focusing on fearpolitik via executions and purges of high-ranking officials, which only highlight Kim Jong Un's instability. These measures have led to the defections of high-ranking officials working overseas including Thae Yong Ho, former deputy ambassador to the North Korean Embassy in London, and have also induced group defections of dispatched workers abroad. This shows that the residents fully understand that international sanctions are the consequences for Kim Jong Un's pursuit of nuclear weapons.

Let's check the aftermath of sanctions through objective indicators. Has the price of rice and corn changed much? Can you give us information on the periodic price changes and general prices in North Korea in 2016 after the sanctions were imposed?

According to Daily NK analysis, prior to the sanctions, the rice price (1 kg) as sold in some domestic markets was 5019 KPW in Pyongyang, 4970 KPW in Sinuiju, and 4980 KPW in Hyesan. The price did not changed much even after UNSC Resolution 2270, which imposed unprecedented sanctions on North Korea, was adopted in March.

At the end of March after the resolution was implemented, the rice price (1 kg) was confirmed to be 5160 KPW in Pyongyang, 5090 KPW in Sinuiju and 5080 KPW in Hyesan, and continuously remained stable. The current rice price is 5400 KPW in Pyongyang, 5180 KPW in Sinuiju, and 5400 KPW in Hyesan.

"Prices for some goods have slightly risen as the review period at the end of the year approaches. For example, the price of pork has risen by 1000 KPW because it is being provided to the People's Army. But this is only expected to be temporary during the period of year-end ceremonies," a source in Ryanggang Province told Daily NK.

In 2016, Kim Jong Un has focused on overcoming the economic crisis caused by external 'isolation' through internal 'marketization.' Can there be a correlation between sanctions and the progress of marketization?

Since Kim Jong Un came to power, competition amongst the North Korean people for survival has become much fiercer as market controls have loosened and the number of stalls in the markets has increased. People became able to make a more stable living for themselves compared to the Kim Jong Il era. Kim Jong Un seems to be trying to resolve the difficulties brought by sanctions by allowing relatively free market activities, because by doing so, the regime can collect taxes from business and people are also more likely to contribute to the ruling funds when they are well off. 

However, the progress of marketization can also lead to increased distrust toward the authorities because an increasing number of residents are surviving without help from the regime. 

Regarding this, one resident in the border region recently told Daily NK, "If the regime had enacted market control in the current phase of economic blockade as in Kim Jong Il's time, there would have been a second 'Arduous March (widespread famine of the mid 1990s). I was planning to defect to China if such a situation occurred, but market control was not strengthened, almost as if the regime read my intentions."

The Kim Jong Un regime seems to be seeking a strategy of loosening border control at a time when sanctions are strengthened and intensifying it when the sanctions are weakened in order to stabilize its power.

On implementing sanctions against North Korea, the role of China cannot be ignored. Do you believe that China is cooperating to induce change in North Korea as the international community expects? Also, please give us your analysis on the recent state of official trade and smuggling in the border regions. 

North Korean people, as well as the state, basically regard China as a 'brother nation.' China also cannot completely turn its back on North Korea. Many experts say that China and North Korea have been making a close relationship and have shared interests on the basis of the 'friendship between China and North Korea' slogan established during Kim Il Sung's time. Therefore, even if China participates in sanctions against the North, it is expected to have little impact on trade between the two countries. 

In regards to this, the amount of trade between China and North Korea this year has been on an increasing trend for three years despite the sanctions. According to the Korea International Trade Association (KITA), North Korea's exports to China from January to October this year amounted to 2,087 million USD, which is similar to last year, but North Korea's imports from China amounted to 2.55 billion USD, an increase of 6.4% over last year. After UNSC Resolution 2270, perceived to be the most powerful one, was adopted, the amount of trade between the two countries from April to October was 3.420 billion USD, showing a 2.7% increase over last year.

A large proportion of the trade money goes to Kim Jong Un's ruling funds. Residents need to make their living through selling goods and/or smuggling. Some people in the border region work as full-time smugglers. One smuggler can provide goods to dozens of vendors, and a numerous number of people benefit from their activities. As of 2016, the number of smugglers in Ryanggang Province was estimated to be approximately 2,100. Smugglers are believed to be helping to revitalize the markets and diversifying business operations.

Let's focus on the internal politics of North Korea this year. During the 7th Congress of the Workers' Party held in May (the first one in 36 years), Kim Jong Un announced a new five-year economic plan, revealing the regime's goal to improve the economy in macroscopic terms. What do you think was the actual intention of the regime? Also, can you tell us about the people's reaction to this?

The plan seems to portray to the people that the regime is doing something to improve their lives. Kim Jong Un, who may be feeling insecure from the growing discontent and defection attempts, is trying to strengthen control by giving everyone a glimmer of hope.

However, the residents are not particularly interested in this economic plan. After watching the 7th Congress of the Workers' Party in May, Daily NK's sources conveyed that sentiment on the ground was largely that "the regime once lied to us that by 2012 (the 100th anniversary of Kim Il Sung's birthday), we would become a great power. We will not be fooled by another impractical economic plan which was only made to heighten our anticipation."

Many point out that the regime's five-year economic plan is not in accordance with the current economic situation of North Korea which is mostly being developed through marketization. What is your opinion on this?

It is true that North Koreans are supporting themselves through the market. However, the regime's economic plan does not match with the economic situation. Residents are complaining that the regime's economic measures so far have nothing to do with improving people's livelihoods but is rather focused on strengthening its policy of simultaneously pursuing economic and nuclear development. Of course it is true that developing basic industrial sectors such as (electric) power, coal, metal and railway transport is generally beneficial for the people. But they are not welcoming this policy because they are forcibly mobilized for state projects while being restricted in their market activities. 

There have been many political events held this year, including the 7th Congress of the Workers' Party, the 70-Day Battle, and the 200-Day Battle. Naturally, residents were frequently mobilized for such events. How have these mobilizations have affected the nation's economy?

The North Korean people were mobilized and given assignments for 70 days from February 23 to May 2 in preparation for the Party Congress, which was also referred to as the 70-Day Battle. People are forced into hard labor in these various 'battles' regardless of their age or gender. Residents, who were mobilized for state projects including the construction of various nurseries, orphanages, and idolization figures in order to promote Kim Jong Un's 'love for the people,' have had hard times, as they need to make their own living while mobilized for the governments work at the same time.

Furthermore, people were immediately put to work for the 200-Day Battle after the 70-Day Battle was finished. As a result, many were sapped of their vitality, visible from their expression and demeanor. 

North Korean enterprises had to increase their daily production plans in order to keep up with the various state projects. The annual production plans are fixed, so they cannot help but increase their daily production to fill the shortages incurred due to the mobilizations. Some enterprises even became stagnant due to insufficient production. This shows that Kim Jong Un is only interested in regime security and neglects the livelihoods of the people. 

In the past, when the state mobilizations increased, the market price fluctuated along with it. However, this has not happened this year. Why is that?

The previous regimes strictly controlled the market during state projects, so the vendors and shopkeepers used to raise prices at random. But the Kim Jong Un regime did not strengthen its market controls, even though it mobilized people for various projects. So the prices remained relatively stable. In addition, residents say that the large-scale construction projects also contributed to stable market prices as grains and building materials were continuously circulated between the construction sites and the market. So the current price stability can be assumed to be a result of market activities which became possible due to loosened market control. Furthermore, many residents now use mobile phones to immediately check market information, such as prices in other regions, adding to the stabilization of prices.

On November 10, the Chinese Ministry of Commerce announced on its website that it would suspend coal imports from North Korea from November 11 to the end of December in order to implement UNSC Resolution 2321 (November 30). This can viewed as an intention by the Chinese government to become active in imposing sanctions against North Korea. It seems inevitable that the coal industry of North Korea, one of the nation's major foreign currency-earning sectors, will be greatly affected by this measure. Can you share your opinion on the effect of the UNSC Resolution, which stipulates a 'restriction on North Korea's coal exports,' on the economy of North Korea?

North Korea's annual coal export to China is known to be amounting to approximately 1.1 billion USD. The North Korean regime has been able to secure its ruling funds as well as most of the materials needed for construction projects through coal trade. If coal exports are prohibited, the regime is expected to face a lack of materials for the construction of various idolization buildings, which will put the regime in difficulty as it cannot promote the idea of a 'people-loving leader' anymore. On the other hand, the livelihood of the people is expected be improved because if the coal produced for export instead ends up in the markets, it would lower the domestic coal price while increasing the production of electricity in thermoelectric power plants.

Many predict that the North Korean economy in 2017 will not improve unless its international standing is addressed. Can you give us a prediction for North Korea's economy?

Despite the continued strengthening of sanctions on North Korea, the livelihood of the people and the market prices have largely remain the same. But if the sanctions are maintained in the long term, it will eventually affect people's lives. 

Another source in Ryanggang Province reported that many residents spent all their savings due to the successive mobilizations, which greatly eroded their time to do business. Its expected that there will also be a number of state projects next year, so people's lives will become significantly unstable if the sanctions continue. This will only increase people's discontent toward the regime, she said.

Heading into 2017, we must double down on efforts to develop measures to improve the lives of the North Korean people by reaching out to them.

*Translated by Yejie Kim
*Edited by Lee Farrand

 
Advertisements, links with an http address and inappropriate language will be deleted.

2017.11.06
Won Pyongyang Sinuiju Hyesan
Exchange Rate 8,005 8,050 8,110
Rice Price 5,810 5,760 5,600