More dangerous than drugs

According to sources from within the DPRK, Pyongyang has issued an order to block the use of foreign currencies and to severely punish violators. This order specifically targets the demands for US dollar and Chinese renminbi, two most popular foreign currencies used for purchases in North Korea. Sure to be catastrophic and impossible to fully implement, the government rationale has been that it was the will of its late leader Kim Jong-il.

I noted in my last article that Pyongyang's primary objective for its year of "power and prosperity" will be geared towards curbing rampant food prices and bringing inflation under control. The most recent measure to insulate the nascent domestic consumer market from foreign currencies appears consistent with the desire to fulfill the above mentioned goals.

Pyongyang is still reeling from the devastating currency reform in 2009 which nearly wiped out the savings of everyday North Koreans. In order to revitalize the people's trust in the central bank, interest rates were raised and access to savings was eased. However, the sudden influx of cash into the capital-starved system seems to have led to inflation and people are once again abandoning the North Korean won for more reliable currencies such as the USD or RMB. At the rate that the North Korean won is devaluing, the most reasonable thing an individual can do is to convert cash holdings to stable foreign currencies.

The state is clearly worried about its increasing inability to manage the domestic market. After all, the issuing of money constitutes an enormously powerful mechanism of control. Accordingly, the recent order apparently noted that the punishment for illegal use of foreign currency should be more severe than the repercussions for drug smuggling.

More importantly, how the government resolves this crisis will dictate whether North Koreans will have something on the dinner table tomorrow. The price of rice and corn has increased dramatically in the last few months and many North Koreans are unable to afford their already meager meals. Stopping the use of foreign currencies may be intended to increase the value of the North Korean won and make goods more affordable - it could also turn out to be another major blow to consumers and merchants alike.

More on this to come...

A legacy of death and inflation

Rather than the prosperous state Pyongyang promised for Kim Il-sung's centennial celebrations in 2012, Kim Jong-il's shortsighted economic policies leave his son in a position in which Jong-il found himself in 1994 - inheriting a nation facing famine. The capital's relative luxury has indirectly caused soaring food prices and the young Kim Jung-eun is faced with the insurmountable challenge of controlling inflation.

In addition, with winter setting in, North Koreans may also have to make the difficult choice between fuel and food. If the inflationary pressures remain, vast portions of the population will starve or freeze to death by the end of the winter.

The danger lurking around the corner is the possibility of North Korea falling back on anti-Americanism to channel the public's distress away from the falling living standards. It will not be a particularly difficult task as the state propaganda apparatus has already pointed to US-led sanctions as the key source of the country's hardships.

According to some sources, Kim Il-sung engaged in provocative actions in 1968 precisely because of this: to convince the people that sacrifice was necessary for national security.

You can read my full article here

Claims and assertions... now with empirical data to boot!

Back in October, I suggested that the food crisis in North Korea is very real, not because of a definitive deficit of total food stuffs, but because of price increases in basic goods. I made the claim by piecing together ground observations and Andrei Lankov's analysis of the public distribution system, but had no empirical data to prove that the price of food was indeed increasing to unaffordable levels for everyday North Koreans.

Recently, two scholars with the Peterson Institute of International Economics have been posting articles about food and price inflation in North Korea on their blog. Marcus Noland and Stephen Haggard (the writing seems to be mostly done by Marcus Noland) collected data on rice and corn prices in the DPRK since Pyongyang's sudden currency reforms last winter. Much of their conclusions support what NGOs and UN agencies have already observed, but the empirical data that Haggard and Noland used to validate their analyses provide a definitive economic survey of the food crisis.

In the post "Inflation in North Korea," Noland observes:

A simple regression of the prices (technically their logarithmic values) against time suggests that since the beginning of 2010, inflation on an annualized basis has averaged 131 percent for rice and 138 percent for corn... Most worrisome, however are recent post-harvest observations. Unlike 2010 when, as would be expected, the price of rice fell after the harvest, the rice price has been rising continuously since the harvest. Corn prices, which tend to fall even more dramatically after the harvest, for example by nearly 50% in the three months following the harvest in 2010, have actually risen since the harvest.

further explicating what their findings actually mean, Noland continues in the post "The food situation in North Korea"

Abundant evidence suggests that the distribution of income in North Korea is becoming less equal. The upshot, as the WFP report makes clear, is that some swath of the non-elite population is being squeezed, with a reported 50-100% increase in hospital admissions of malnourished children and rising numbers of low birth-weight babies.

So, with all this analysis available and understanding the social and political hazards of allowing the starvation to continue, it's mind boggling how Washington can maintain its rhetoric on the need to "identify and complete an assessment of whether food aid assistance can effectively be provided in a manner that is transparent and targeted and reaches intended beneficiaries and avoids the risk of graft and misappropriation” in the face of such a catastrophe.

Yes, there are obviously considerations in regard to "rewarding bad behavior" and whatnots. And the systemic reforms to food production and distribution in the DPRK are long ways away from being implemented, if they have even been planned. Regardless, if the first world nations do not come to the aid of North Korea now, we will be condemning millions to unfathomable suffering and death.

There are certainly more eloquent ways to say this, but: think of the children.