[Seri Column]Markets provide clues to North’s economy

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[Seri Column]Markets provide clues to North’s economy

Open markets can now be found practically anywhere in North Korea, including in the capital city of Pyongyang. These markets go beyond just satisfying people’s basic needs for previously unavailable foreign goods, and even encroach on state outlets. At the same time, they provide a bigger window to understanding how the North’s fragile economy can operate on both an official and unofficial level.
In the northwest border city of Shinuiju, a transportation terminus on the Yalu River, a cornucopia of goods brought across a bridge connected to China are scooped up by North Korean merchants operating as quasi-collectives. The goods are then hauled from a designated special economic zone in Shinuiju to local markets across the country.
The prices, naturally, are determined by transactions between wholesalers, retailers and consumers. This spring the price of rice, North Korea’s most important staple, has moved in an unanticipated direction.
Normally, at this time of year, the price of rice increases due to real or perceived shortages before the next harvest. In recent years, the increase has been as much as 10-20 percent. But in April, rice prices actually dropped!
The catalyst was impending shipments of rice from South Korea following the February six-party agreement on dismantling Pyongyang’s nuclear program. Rice vendors must have figured that it would be unwise to hold rice stockpiles because North Korean authorities would likely limit rice dealings on the open market after receiving 40,000 tons of rice from the South.
Rice is the most sought-after commodity in the country’s open market and is perhaps the most sensitive item in the national food supply. The country has never been far from severe shortages, if not in times of famine. With a greater supply in the pipeline and potential restrictions on the open-market business, enterprising rice traders apparently decided to compromise their profitability to avoid the risk of being stuck with excess inventory.
The developments in the rice market suggest a number of important changes in the North Korean economy, which is reluctantly being opened up to cope with the hermit kingdom’s internal deficiencies and external isolation.
First, the open-market rice distribution system has become more sophisticated and is capable of surviving on its own.
Second, the distinction between the black market and the official economy may now be blurring. Previously, there was virtually no connection between the two economies.
Now, they are increasingly playing complementary roles to each other, as the official state distribution system indirectly links itself to the markets.
Finally, this nexus between the two sectors does not necessarily accompany corruption as in the past; instead, it has just become an integral part of life.
Although the markets have taken on a greater importance, it is probably too soon to say their role will expand even more within a short time span.
Surely, the general public increasingly accepts markets as necessary for their survival. Still, there is an ample risk of authorities squeezing the unofficial supply chain by tightening border inspections, banning the circulation of foreign currencies and taking other preemptive steps.
Recently, the former North Korean prime minister, Pak Pong-Ju, was dismissed with no apparent explanation. As someone thought to be a reform-minded politician, he may have been a victim of ongoing highest-level infighting in Pyongyang over market-economy liberalization and the role of central planning in the economy.
Some analysts believe North Korean leader Kim Jong-il may try to emulate neighboring China in opening up its lagging economy. If that is true, the potential for the market economy to eventually overtake the state-controlled economy would likely have a profound impact on Pyongyang’s external diplomatic and economic relations.

*The writer is a research fellow at the Samsung Economic Research Institute. Inquiries on this article should be addressed to yongsueng.dong@samsung.com.
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