Part III: Aftermath of the Currency Devaluation
While the macro outlook for North Korea is disastrous, the micro outlook is even worse. In fact, the picture inside North Korea is bleaker than at anytime since the 1990s, when the loss of Soviet aid resulted in a widespread famine that killed as many as two million people.
Since 2005, when Pyongyang abruptly halted a fledgling set of economic reforms, the regime has drifted even deeper into authoritarianism, combining an iron grip on social controls with an outright ban on private markets. Yet even in this atmosphere, the currency devaluation announced last December—where the regime, without warning, devalued the currency at a ratio of 100:1—was a disaster of historic proportions. It may also prove to be the straw that breaks Pyongyang’s back.
As the Wall Street Journal explains:
The decision spurred chaos….Though North Koreans received small amounts of new cash, inflation set in, leading to hoarding as sellers of commodities like rice expected to receive more money later. The government rolled back the effort after food became scarce and protests grew, but the situation [became] unstable….
Noted Barbara Demick in The New Yorker:
‘High ranking officials with connections changed their money first, and let their relatives know.’ They rushed to get rid of their Korean money, either converting it to foreign currency or buying up whatever food or merchandise they could at the market. But ordinary people—those who live not too well but not too badly either—they were the ones who got hurt. They all went bust. I don’t know how to explain it. It was as though your head would burst. In one day, all your money was lost. People were taken to the hospital in shock. So many people suffered heart attacks and strokes, or attempted suicide, that the Workers’ Party had to act to stem the panic.
But more amazing developments were yet to come. Demick continues:
[S]ome people were reluctant to turn in their cash for fear of being punished for becoming too rich….Some dumped cash into sewers or public toilets, according to Good Friends, a Buddhist charity organization based in Seoul. In the east coast city of Chongjin, people were reported to have thrown their money into the ocean, while in Nampo five people were arrested for scattering money into the wind from the back of their motorcycles.
The force of these economic shocks caused panic within the government. What followed is what I call the three signs of the North Korean apocalypse:
· Executions. Pak Nam-gi, the planning and finance director of the Workers’ Party, was executed by firing squad at Pyongyang stadium. According to South Korea’s Yonhap news agency, he was found guilty of being the “son of a bourgeois conspiring to infiltrate the ranks of the revolutionaries to destroy the national economy.” As it turns out, at least the last charge was true.
· Apologies. In recognition of the fact that the devaluation was a debacle even by North Korea’s illustrious standards, the government issued a rare, perhaps unprecedented, mea culpa. As Demick explains, this announcement was anything but insignificant:
As far as anyone could remember, the Democratic People’s Republic of Korea had never apologized; not for the June 25, 1950 incursion across the Thirty-eighth parallel, which set off the three-year long Korean War; not for the famine of the nineteen-nineties; not for planting a bomb, in 1987, on a Korean Air flight, killing all hundred and fifteen passengers aboard.
With the regime having lost face, heads needed to roll. Prime Minister Kim Yong-il (not to be confused with the Dear Leader) was one of several who took the hit, losing his prime ministership (though fortunately not his head) just days later.
· Rehabilitations. As Kim Yong-il and others exited stage left (so to speak), Pyongyang welcomed back a familiar face, former Premier Pak Pong-ju. Considered the closest thing North Korea has to an “economic reformer” or “pragmatic technocrat,” Pak had disappeared from public view after his 2007 demotion from prime minister to manager of a barely functioning factory complex.
Pak’s return may be a hopeful sign to reformers, but it also reveals that Pyongyang recognizes it is quickly running out of options—as well as personnel with the mindset (if not the skillset) to re-establish the badly damaged private markets.
As if North Korea didn’t have enough to worry about, the country is also on the verge of a leadership crisis.
(Next: Part IV: Rise of the Son)
Disclosure: No positions