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Posted on Sustainabilitank.info on February 6th, 2010
by Pincas Jawetz (pj@sustainabilitank.info)

“THE WINTER OF THEIR DISCONTENT: PYONGYANG ATTACKS THE MARKET.”

That was the title of a lunch event at The Korea Society Forum on Wedneday, January 27, 2010, and the speaker was Mr. Marcus Noland, Deputy Director at the Peterson Institute for International Economics in Washington DC, and  Senior Fellow at the East-West Institute.He has held academic positions at Yale, Johns Hopkins, USC, Tokyo U, Saitama U, The U. of Ghana, and the Korea Development Institute. He was also a senior economist at the Council of Economic Advisers to the President of the USA.

The event was chaired by Mr. Evans Revere, President and CEO of the Korea Society. Both of them also old hands of the US Department of State – former Ambassadors with deep knowledge of Korea.

The paper that was presented was co-authored by Mr. Noland with Stephan Haggard with whom he also co-authored a book titled:  “Famine in North Korea: Markets, Aid, and Reform.” Other books he wrote are “Pacific Basin Developing Countries: Prospects for the Future and Korea after Kim Jong-il,” and he edited “Economic Integration of the Korean Peninsula.” His book “Avoiding the Apocalypse: the future of the Two Koreas,” won the Ohira Memorial prize.

The reason for having this meeting was the North Korea’s recent currency reform of November 30, 2009, that literally threw North Korea back to Stalinistic Days of unbelievable economy these days of the 21st century.

North Korea also declared a ban on the use of foreign currencies on top of having declared useless their own National currency account. The net result was a clear blow o the market – so there is literally no market – thus no real economy – only a barter system.

History: In the last 15-20 years there was a bottom up marketization of the North Korean economy. It started with households and local government offices. It somehow evolved in the 1990s into a highly distorted market economy and the State was not comfortable with this because of the private origin of this up-swell – it was outside the State Control. There was also some intrusion of foreign companies – such as an Egyptian Telecoms that provided for individuals and businesses a cellphone network. The recent currency reform is simply the outcome – a clamp down on private initiative – and as there are no civil society institutions there is also no way to channel the peoples unhappiness. What we have now said Noland – is a revival of the Stalinist economy of the 1950s.

There have been conventional currency reforms in many countries – Turkey, Romania, Ghana … usually you cut off three zeros from the currency and you get it exchanged – but not in North Korea. Here, on November 30, 2009, North Korea announced a reform to replace all currency in circulation with new bills and coins. You had to declare all what you have and you could only exchange a small part of what you had – so the rest became useless paper. It was thus a confiscatory measure. Businesses operated in cash – so this destroyed the financial basis of the economy that operated outside the government controlled system. Call it the return to State socialism for those that tried to make a living for themselves. The Chinese never entered this North Korean world – they just do not operate in this sort of environment anymore.

The inflation was spiralling out of control before this sort of reform, now people did not even know how to price their products – it did not make sense to obtain this new currency – so how do you run a market under these conditions?

Things even sound worse when you realize that most North Koreans are government employees. – People join the government system so they can participate in the corruption cycle. If you ask in North Korea someone -Have you ever been detained? Most likely the answer will be yes. Even in this case – the currency exchange law – it was several days before it happened and you felt there was a dollarization of the system. Many knew it is coming and did buy dollars for their soon to be devalued money.

Some information became available when mid January a North Korean defected from the Embassy in Ethiopia.

Look at the difference between North Korea and Vietnam. Both were hit by withdrawal of Soviet assistance in the 1980s. While Vietnam changed and took off – North Korea stagnated and rolled back.

China started its reforms in the 1970s – Vietnam in the 1980s – both started from a high agriculture society. They had parades of improvement and everybody participated and took advantage of the changes. THey did freeze State Planning and people improved. Now North Korea did the opposite – they froze the market and demonetized the economy and the society. There is no lending – there is no banking – nothing. NORTH KOREA IS A FAILED STATE! What about the nukes? {as we shall see this was only the last question and came from a Japanese Government official.}

Before November 30, 2009, if you had some drive – you did push yourself up, or you left for China. What now? If there is no market you cannot sell even if you make something.

It amounts to a militarized workers party regime. Being a conscript in the lower ranks of the army is no big deal – but then the further down the ladder you go in North Korea – the more sensible the people are! The closer you are to Pyongyang – the more ideological and worse people get.

Interesting – the word nuclear was not uttered by the speaker or by people asking questions – this until the last question that came from a Japanese Consulate person. Mr. Noland pointed out that he was already hoping, against his expectations, that nobody will touch upon this. Then he stressed that development assistance is important – but you must make sure that like food assistance, it goes for good purpose to the right people. Such efforts are fungible and might produce no results if you are not careful.

———–

At the end of the Forum, I stayed around to discuss issues with some of the people present – it was a roomful – maybe 40 people. My cklear question was about reunification of the Koreas and I got quite a few skeptical answers. It is obvious they thought that a united Korea will be nuclear and the Japanese official just had no interest in this. Others just did not trust the North Korean leadership of being ready to give up the reins for an unsafe future – that is as if today their future is safe.

What about the real huge internal market that would open up by reunification? Why not do it in such a way that some leadership position is left in the hands of the present leaders of the North, in the hope that an Angela Merkel type will emerge from among them also? It will be no big thing to award penssions and guarantee the condition of those that will have to give up power? No tribunals please – just future well behavior can be the link. Part of this generation will be non-productive, but the young people from the North will show talents that can help all of Korea.

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One Response to “North Korea, on November 30, 2009, by the will of Kim Jong-il, regressed to 1950s Stalinism, when via a currency reform and confiscation, he killed the market and turned the country into a clearly demonetized and centralized Failed State. Was this his idea of getting a stronger hand before entering negotiations with his neighbors?”

  1. Ludwik Kowalski Says:

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