Following the Money: The Economic Mysteries of North Korea

On Monday night, I had dinner with a distinguished group that included Andrei Lankov, Chuck Downs, Curtis Melvin, and a friend who covers North Korea for a major news service. Professor Lankov is here to speak at a think tank event and to promote some exciting ideas about getting subversive information into North Korea, which I hope to interview him about later.

I asked Professor Lankov about those alarming reports from Good Friends about the food situation last year. With the exception of the Ven. Pomnyun’s prediction of up to 300,000 deaths by summer, I believed most of those reports until the end of the summer, when the lean season had clearly passed without the expected disaster.

Not only did that disaster not happen, but the regime shows anecdotal signs of being flush with cash: there’s a small construction boom in Pyongyang, fresh produce is pouring in at the Chinese border crossings, harvests are better despite the lack of South Korean fertilizer, and the regime is acting very confident about its ability to do without South Korean aid money, without Kumgang, and without Kaesong. According to some rumors, there are also fewer refugees crossing into China these days, although that seems like a hard fact to verify, and it’s at some variance with other reports.

Even so, it was pretty clear to all present that the regime received a large infusion of cash from somewhere last year, which is where the consensus ends. I doubt it all came from Orascom. China would seem to be the most likely source. The improvement in the regime’s fortunes is happening despite the regime’s determined resistance to any serious economic reforms, and notwithstanding the continuation of plenty of misery (but not mass famine) by the peasants in the provinces. Not all is rosy, of course: the North Korean won’s value is said to be falling sharply, and that will harm legal and illegal trade with China.

[Update: This report claims that the North Koreans’ latest provocations are acts of economic desperation.]

And not all is gloom for the people. The increasing number and wealth of North Korean defectors in South Korea and China means more people are able to send money home to their families inside the North. Remittances have since become a major part of North Korea’s underground economy:

The number of North Korean refugees who remit money to their families in the North is rising. “Some 15,000 North Korean refugees have settled in the country, and over 6,000 of them are remitting money to North Korea,” a government official said. “We understand the size of the remittances is also growing.” An official with a refugee organization said there must be more than 10,000 who remit money to their families in the North.

If some 6,000 North Korean refugees here send money North, and a refugee remits US$1,000 a year, some $6 million is sent to North Korea per year. To that should be added 20,000-30,000 of the 100,000 North Koreans estimated to live in China.

Remittance routes are clandestine. Money is remitted to a Chinese broker, who contacts another in North Korea, who pays the recipient with his own money and settles the account with the Chinese broker later, leaving no documentary trail.

Currencies are usually American dollars and Chinese yuan. Commissions range between 15 and 20 percent, according to sources. “Remittances through brokers designated by North Koreans generally reach the recipient without a hitch, but Chinese brokers contacted in China are liable to steal the money,” a refugee said. The brokers handle tens of millions of dollars and are linked to organized gangs. [Chosun Ilbo]

This trend is a very good thing on several levels. A dollar and yuan-based market will further depress the value of the North Korean won. The development of even a primitive, underground market economy is probably the best protection the North Korean people can have against another famine. The circulation of money means more food will be drawn into the North from across the Chinese border. Despite the imperfections of a market-based distribution system, especially one that’s under the heel of a command economy, the market will undoubtedly feed a lot of people the regime either can’t or doesn’t want to. It’s also bad for the regime’s control: people who are surviving on their own are harder to control, and people who have enough to eat are more likely to be restive and discontented. And as markets develop, they inevitably respond to a growing demand for things other than food, such as subversive entertainment and information.

In other words, a remittance-fueled black market is opening up North Korean society in exactly the way advocates of the Sunshine Policy thought transfer payments to the regime would, but didn’t. The real agents of change in North Korea are not apparatchiks in Pyongyang, they’re the hungry people in the markets and the refugees that Comrade Chung wanted to keep out.