suspension, autonomy
FILE PHOTO: North Korean trucks can be seen heading to the Chinese side of the border on the Sino-North Korean Friendship Bridge. (Daily NK)

North Korean authorities are pushing the dissolution and merging of trading companies as the first stage of the restoration of the unitary state-led trading system. However, things are reportedly moving slowly due to debt problems with the trading companies. 

According to a high-ranking Daily NK source in North Korea on Thursday, North Korean authorities started dissolving and merging trading companies to build a state-led trading system in March, making the Cabinet responsible for managing all import and export breakdowns. They have yet to complete the process, however.

This is because financial surveys conducted to dissolve and merge the companies revealed that every firm carried significant debt.

Daily NK reported last month that North Korean authorities arrested managers of trading companies that took on excessive debt and confiscated their trading certificates, or waku.

At the time, North Korean authorities were considering a plan for high-level trade agencies to assume the debts of dissolved or merged small-and-medium-sized trading companies.

However, not only were trade agencies financially unable to assume all the debts, but assuming debts could impact successful, productive activities as well. Accordingly, the state and superordinate trading bodies are reportedly discussing a plan to split the debts according to a set ratio.

The source said the most likely plan is for the North Korean authorities and trading companies to split the debts 50/50.

The problem is that North Korean authorities lack the financial wherewithal to assume 50% of the debts. Another Daily NK source familiar with North Korea’s trade situation said no trading officials believe the authorities will take care of 50% of the debts, even if they say they will.

North Korean authorities currently set the official exchange rate at a very low KPW 150 to the dollar. Compared to the rate of KPW 6,500 to the dollar at a market in Pyongyang on May 1, the government currently sells the dollar at a price over 40 times lower than market value.

Because of this, if the North Korean authorities assume the debt using the official exchange rate, the high-level trade agencies will assume virtually all the debt.

This being the case, both the subordinate trading companies and the superordinate ones that will absorb them are complaining.

One cadre involved in state finances said every sector of the “people’s economy” suffers from shortages, but at least foreign exchange-earning companies at the provincial, city and county level have provided supplies and raw materials from overseas, adjusting their prices as needed. He worried that if the state were to look at and control every transaction, it would upset this balance.

That is to say, because trade has been ongoing through not only official state trade, but also smuggling and other means, authorities could flexibly deliver needed supplies, despite financial shortages.

The cadres said the people’s economy should enter a cycle as production is revived, but without resources and technological development, that cycle could stop. He said he worried that if that were to happen, the situation would become uncontrollable, regardless of what the state does.

Translated by David Black. Edited by Robert Lauler. 

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