North Korea suspended the issuance of public bonds in early September, Daily NK has learned. The country had begun issuing the bonds in April as part of efforts to bring in more foreign currency into state coffers.
While the halting of the scheme appears to signal its overall failure, some North Korean officials believe that the bonds helped to quickly bring in funds the state needed to continue building the Pyongyang General Hospital and prepare for the Party Foundation Day celebrations on Oct. 10.
A Pyongyang-based source told Daily NK yesterday that the Central Committee’s Economic Affairs Department issued an order early last month to the Cabinet and its subordinate agencies that concerned “suspending the issuance of the bonds.”
The order noted that the “distribution of the state agency public bonds and state trade public bonds” would “temporarily be suspended”; that there would be a review of the bonds that were sold and those in stock by the State Planning Committee’s Financial Affairs Board; and, that bonds allotted to “each agency” would be collected, then gathered and “frozen” at the Central Bank. In short, the order stated that all bonds – except for those already in distribution or sold – will no longer be considered valid.
The source, who spoke on condition of anonymity, told Daily NK that the order further stated that “in accordance with an order from the central [leadership], a review of the current financial status of agencies that have used the public bonds will be conducted and [their] planned quotas for this year may be adjusted.” This suggests that the leadership is willing to “eliminate difficulties” faced by “lower-ranking work units” that “loyally” took part in the bonds scheme and that they may receive unspecified “benefits.”
The Economic Affairs Department’s order was reportedly issued after North Korean leader Kim Jong Un acknowledged the failure of his country’s economic policies at a Workers’ Party plenary session in August.
“[The] economy was not improved in the face of the sustaining [sic] severe internal and external situations and unexpected manifold challenges,” Kim reportedly said during the plenary session. He also announced during the meeting that a new five-year economic development plan would be presented at the Eighth Party Congress next January.
It appears that after Kim acknowledged the failure of the country’s existing “five-year economic development strategy” and presented plans to establish new economic goals the Central Committee’s Economic Department discussed revising the scale of the public bonds scheme.
According to the source, the Economic Affairs Department order stated that it “permits the revision of tasks related to the five-year people’s economic plan of last year and this year due to the distribution of public bonds.”
As part of efforts to increase the country’s foreign currency stores, North Korean authorities gave members of the donju, North Korea’s wealthy entrepreneurial class, and private business people “business rights” in return for having them purchase the bonds in foreign currency. Now that the bonds are not longer being issued, it appears that the Economic Affairs Department has been forced to revise its plans.
Multiple sources have told Daily NK that the original scale of the bonds that were planned to be issued equaled just 0.6% of the state budget this year.
North Korea issued two types of bonds in April: “state agency public bonds” and “state trade public bonds.” Sixty-percent of all the public bonds issued were given to state-run businesses in need of funds, while the remaining 40% were purchased in foreign currency by donju running private businesses.
An internal investigation by the Central Committee in August found that less than 20% of the bonds earmarked for the donju (“state trade public bonds”) were sold off.
The authorities tried to woo the donju and private business people to buy the bonds by offering them “patriotism awards” and “business rights”; when that did not work, the authorities resorted to “forced allocations.” All of these efforts apparently had little effect in getting the bonds sold. The failure to sell the bonds seems to have been a major factor in the Economic Affairs Department suspending the sale of the bonds.
Within the Economic Affairs Department, however, some argue that the public bond scheme has not “completely failed” and that it “significantly helped” the country prepare for the Party Foundation Day celebrations despite facing unexpected obstacles such as the COVID-19 pandemic, typhoons, and floods. They also claim that the public bonds scheme was an “experimental yet daring attempt.”
In contrast to this assessment, the source argued that the “public bonds [scheme] was a measure that completely failed to consider the realities of the people’s economy [civilian economy].”
Nonetheless, he pointed out that the authorities “could begin issuing the bonds again if they face budget shortages given the assessment that [the scheme] helped the country gather funds it needed quickly, if only on a temporary basis.”
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