North Korea Economic Challenges and Marketization Progress
Explore the economic challenges faced by North Korea, including the impact of UN sanctions and the pandemic on its economy. The country's reliance on markets is growing, but there are concerns about weak productivity and limited resources. Analysis of Kim Jong Un's reform prospects and the need for macro and micro support for marketization. Images and data provide insights into trade dynamics and currency stability, shedding light on the ongoing economic strain.
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Presentation Transcript
o 2018 Kim raised expectations. In 2020 he talks plan failure. Apologizes. Self reliance. o Weak productivity, not lack of resources, makes North Korea very poor. o UN sanctions and pandemic closing sare having a large impact, external trade near zero. o Money stabilized but monetary, fiscal policy tight. Government is starving itself, privatizing a few assets. Little investment. o Pandemic controls likely stifling emergent markets. Some in Pyongyang no doubt approve. o Is there hope for reform under Kim Jong Un? o Bottom Up Marketization Underway o Top Down Macro / Micro Support Needed o Party Congress, New Plan, may give hints. Pandemic or Not, North Korean Economy Under Great Strain
o Border Closing and Internal Restrictions must be impacting markets. o Fewer Chinese consumer products o Traders losing money o Private employment endangered o No investment o Decline in living standards Impact of Pandemic o Government Benefits o Less outflow of foreign exchange o Less competition for state o Stronger controls, especially movement. o But Economy now Depends on Markets o Plan Needs imports o Imports need exports o Financial instability
Marketization Underway, Not Finished What is a Market? Marketization: Much more than marketplaces Many buyers Many sellers Rules, Structure Time, currency, behavior Compete for best price Market clears with flex price Usually most efficient outcome Decentralized, Unplanned Law of One Price Goods Markets Services Markets Labor Markets Real Estate/Land Markets Capital/Finance Markets Foreign Exchange Markets William Brown NAEIA, 11/1/2020
2017 3,328 2018 2,218 % ch Jan-18 169 Jan-19 167 China Exports of which Soybean oil Cereals Milled Seafood Agriculture plus -33 111.4 32.6 35.5 102.1 349.7 135.6 25.7 65.9 70.6 478.9 2211.9 9.7 0.1 0.5 -21 86 6.9 42.3 7.2 34.4 -31 37 Plastics Clocks & watches (parts) Woven syn fiber Fertilizer 231.4 221.8 36.9 126 84.8 -4 2 1.7 9.1 205.4 36.4 -39 126 Vehicles Trucks # Autos # Electric Machinery Non-Electric Machinery 202 6170 3269 338 268 1.9 20 46 7.7 -99 -99 -98 7 -97 China Imports Clock & Watches Coal 1,651 194.6 31.1 36.4 1.2 20.1 6.8 -88 1.8 401.7 0 0 0 -100 William Brown NAEIA, 11/1/2020
North Korea won per US dollar: 2012-2018 Won stabilized despite export collapse 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1-Sep 27-Sep July 2013 15-Sep 27-Oct Dec-16 Dec-17 Dec-18 William Brown NAEIA, 11/1/2020
Central bank reduces won supply in parallel with loss of dollars. Little printing of new cash. Few new net loans to state enterprises and state agencies State firms allowed to privatize assets to make ends meet. State agencies raise all kinds of fees to raise funds. (no normal tax system). Allow workers to engage in private income earning work. Theory: Very Tight Monetary, Fiscal Policy Impact is good for inflation but devastating to state investment, employment. Cost of stable won is shrinking , privatization of, state sector. State has very large assets so this can last a long time. Like China. Also, by allowing US dollars and RMB to circulate, real savings vehicles are available for the first time, allowing citizens to save. Reduces current demand. William Brown NAEIA, 11/1/2020
North Korea Won per US Dollar 2019-2020 10,000 9,500 9,000 8,500 8,000 7,500 7,000 6,500 6,000 5,500 5,000 9/1/2019 11/12019 1/1/2020 3/1/2020 5/1/2020 7/1/2020 9/1/2020 11/1/2020 Asia Press, source data. William Brown NAEIA, 11/1/2020
North Korea Won per China Yuan 2019-2020 1,400 1,300 1,200 1,100 1,000 900 800 700 9/1/2019 11/12019 1/1/2020 3/1/2020 5/1/2020 7/1/2020 9/1/2020 11/1/2020 Asia Press, source data. William Brown NAEIA, 11/1/2020
China Yuan per US Dollar North Korean cross rates 8.500 8.000 7.500 7.000 6.500 6.000 9/1/2019 11/12019 1/1/2020 3/1/2020 5/1/2020 7/1/2020 9/1/2020 11/1/2020 Asia Press, source data. William Brown NAEIA, 11/1/2020
Chinese construct. Order is important. Reform then Open. What is meant by Reform? Unify price system Establish at least some private property rights Decollectivize agriculture Create new money and banking system Shrink huge bureaucracy and military Privatize state assets Establish tax system and transparent budget This could put economy on moderate growth track, without foreign opening. Reform then leads to Opening, and massive engagement with rest of world. (like SK, China) Reform and Opening William Brown NAEIA, 11/1/2020
KEIA.org Peninsula Blog, Many Items NAEIA.org Many items http://blog.keia.org/2019/01/north-koreas-pegged- won-wiggles-doesnt-break-yet/ https://www.ncnk.org/sites/default/files/NCNK_Willia m_Brown_NK_Shackled_Economy_Report.pdf http://www.theasanforum.org/sanctions-and-nuclear- weapons-are-changing-north-korea/ Readings: William Brown NAEIA, 11/1/2020
