Despite sanctions, North Korea prices steady as Kim leaves markets alone

August 7, 2016 7:06 PM EDT

People visit the Pothonggang Department Store in central Pyongyang October 11, 2015. REUTERS/Damir Sagolj/File Photo


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By James Pearson and Ju-min Park

SEOUL (Reuters) - Food and fuel prices in North Korea have remained largely stable under leader Kim Jong Un, despite tightening international sanctions to punish the North for its nuclear and ballistic missile tests, rare data from inside the isolated country shows.

The relative stability of both prices and the currency - in contrast to the volatility seen under his father Kim Jong Il - is partly attributable to the younger Kim's hands-off approach to an increasingly market-based economy and also, experts say, suggests some policy learning in Pyongyang.

Once reliant on a Soviet-style centrally-planned economy, North Korea is now home to a thriving system of semi-legal but policed markets known as "jangmadang", where individuals and wholesalers can buy and sell privately-produced or imported goods.

"Since Kim Jong Un came to power, there has been no control or crackdown on the jangmadang," said Kang Mi-jin, a North Korean defector who works at the Seoul-based Daily NK website and regularly speaks to market sources in the North.

"Kim Jong Un is doing a lot of bad things, but keeping the markets open has had a positive effect on the people. He has no other option. He can't feed the people, and he can't completely shut the markets down."

The data, compiled by Reuters based on information from the Daily NK, an organization staffed by defectors, showed the price of rice, corn, pork, petrol and diesel remained relatively stable over the last year, demonstrating resilience to domestic and outside events.

While that might alleviate some concerns of critics who argue sanctions aimed at starving Pyongyang of funds for its atomic weapons program might hurt ordinary people, it may also help strengthen Kim's grip on power.

Information about what is really going on inside North Korea is difficult to verify, but analysts say reports of past discontent or unrest have usually been tied to economic disputes such as earlier disastrous crackdowns on private markets.

North Korea came under the latest round of United Nations Security Council sanctions in March, following its fourth nuclear test and the launch of a long-range rocket. Further short and medium-range missile launches have raised tensions.

STABLE STAPLES

The Daily NK obtains prices from its contacts in the capital Pyongyang and the northern cities of Sinuiju and Hyesan, which both border China.

A calculated average of these prices shows the market cost of goods has not markedly increased as more North Koreans are allowed to buy and sell in the unofficial economy. The number of stalls in the jangmadang has grown by hundreds, defectors said.

North Korea's centrally-planned rationing system never recovered from a devastating famine in the 1990s. From April to June this year the state handed out just 360 grammes of rations per person per day, the lowest amount for five years, according to a recent World Food Programme (WFP) report.

The market, however, has been able to make up the shortfall.

Rice, an important staple in North Korea, cost on average 5,240 won per kg over the last year, or around 63 cents at unofficial market rates, according to the data.

Corn, a cheaper and often more-readily available staple sold for an average of 2,022 won, or just 24 cents per kg.

Pork prices were most volatile, dropping off sharply in the hot summer months.

"They can't freeze pork. North Korea lacks refrigeration facilities. Pork meat turns bad quickly so merchants can't raise prices," Kang, the defector, said.

The only notable spike over the last year was a sudden rise in the price of petrol and diesel in early March, just before the latest U.N. sanctions were imposed.

A fear of shortages under sanctions pushed the average market price of petrol up by 45.1 percent in the space of a few days, according to the data. Diesel increased by 17.4 percent in the same period. Prices returned to normal after fears about sanctions calmed.

CURRENCY MYSTERY

The Korean People's Won, the official currency, is valued by the state at around 100 won to the dollar. Its real worth, however, is around 8,300 won to the dollar, a value largely determined by the markets.

That unofficial exchange rate has remained stable for the last few years, in contrast to its extreme volatility under Kim Jong Il following a botched currency reform in 2009.

"The effective stabilization of the won which occurred over the last two years is a bit of a mystery to everyone," said Stephan Haggard, an expert on the North Korean economy at the University of California, San Diego.

"It almost certainly involves some monetary policy learning after the currency conversion debacle".

Under Kim Jong Un, North Korea has started to produce more domestically-made consumer items, from toothpaste to perfume, which could also have helped stabilize local prices.

Some showcase shops in Pyongyang now sell almost exclusively locally-made products, and price goods according to the market value of the won.

"North Korean knock-offs of Chinese products are more popular and cheaper than the original," said Seo Jae-pyoung, a defector who left North Korea in 2001 but regularly speaks to sources inside the country.

For now, ordinary North Koreans are coping comparatively well despite their country's deepening isolation.

"Despite the sanctions this year, ordinary people are doing fine," said Seo. "But the effects may slowly start to hit from next year."

(Reporting by James Pearson and Ju-min Park; Editing by Alex Richardson)



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