Sanctions drive trading companies to default on payments

A number of North Korean companies are
reportedly failing to meet payment deadlines in their trade agreements with
China, causing negative repercussions for all cross-border deals involving
credit transactions. Companies under the control of
Office No. 39, which is tasked with managing Kim Jong Un’s leadership funds,
are reported to be particularly struggling to secure foreign currency.

Although market prices in the North have
remained stable, active trade directly tied to the leadership’s funds has
plummeted, suggesting international sanctions targeting the regime may be
proving effective.

“Companies under the Ministry of External
Economic Affairs and other trade agencies have recently been experiencing a
severe foreign currency crisis,” a source from South Pyongan Province told
Daily NK on Wednesday. “Even those under the Central Party’s Office No. 39 have
insufficient liquidity (in foreign currency), and this is creating obstacles
for trade with China,” he added.

Additional sources in South Pyongan Province as well as North Pyongan Province verified this development.

Cross-border transactions had been
proceeding relatively unhindered until just a few months ago. However, an
increasing number of conflicts have been arising with Chinese trade companies
over payments, reported the source. “A lot of trade companies in Pyongyang and
provincial areas have not been able to pay on time after bringing in goods from
their Chinese counterparts,” he explained.

“In the past, the principal at least was
always paid on time for goods that had been brought in past customs. But
foreign currency is drying up, so the settlement dates are being dragged out,”
the source said. “Up until early May, payments normally wouldn’t be any later
than 15 days, but now there are a lot of cases where companies have been unable
to pay even half the amount owed over a month past the due date.”

Clear signs of payment difficulties started
to become noticeable in mid-April. The North Korean leadership had
traditionally secured funds through arms and other illicit trade, but sanctions
have made that increasingly difficult, leading to a shortage in money to pay
for transactions.

As previously reported by Daily NK, the “70-Day Battle” and “200-Day Battle” are thought to have exacerbated
the problems, with the state mounting pressure on trade companies in a bid to
create tangible accomplishments.

In response, workers within the industry
have been forced to place a greater emphasis on fulfilling the regime’s demands
at the expense of international business transactions and meeting state quotas,
putting the stability of future trade transactions on a precarious footing.

“Having faced this situation for two
months, Chinese companies are now asking for cash payments only and have become
extremely reluctant to allow deferred payments,” the source said. “If this
lasts for a few more months, all of the previously amicable Chinese traders
will start to avoid further business with the North,” he speculated.

Trade banks in Pyongyang have seen their
foreign currency supplies dry up, making it particularly challenging for even
official trading firms to obtain credit. Trade company heads have been
overheard remarking that borrowing from banks is even harder than borrowing
money from individuals at exorbitantly high interest rates (loan sharks), said
the source.

“Not so long ago, the Cabinet Premier Pak
Pong Ju failed to make a payment of 30,000 USD for a Chinese vessel that
arrived at Nampo Port with some 1,000 flat screen televisions, thereby forcing
him to return to Pyongyang empty-handed,” the source said, explaining that
rumors of the incident quickly made the rounds, igniting concerns about the
implications for the economy if even the regime’s trading bodies cannot follow
through on a prearranged transaction. 

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