The Beginning of the Economic Problems in North Korea

The government refused to admit that there was an economical problem in order to keep the respect of those within the nation and outside the nation.

Most jobs that were available were offered by the state and even they didn’t offer nearly enough money to live on. The only other way to earn money was by setting up your own market, as there were no large independent business’s; even this was ineffective as there were very few things that could be sold legally and even that was shunned upon.This means the government could ensure that most would work hard and show complete allegiance to the regime every day just to receive coupons which can be handed in to the state run stores.

However this system failed  in the 1990s when people began to realise the economy was failing. The rations were becoming smaller and more sporadic Koreans were forced to look at other ways to get food. The appeal of buying from the black market increased as the quality and availability of food from the state stores decreased;the foreign food on the black market is often of better quality and cheaper. The more successful the black market is the more people consider becoming a part of it, both as buyers and as storekeepers.

Another piece of evidence the people were presented with about the fall in the economy in the 1990s was the fact that there was no longer money to buy resources for people’s jobs. It became a domino effect ,once the material for the clothes could no longer be made at one factory there was no longer anything for the employees at the the clothes factory to do. Eventually the government ran out of money to pay their employees.

They were kept at work under the false pretences that the lack of resources was temporary, keeping the citizen’s faith in the economy. Employees had to arrive on time for work everyday because otherwise they risked being punished; if it was up to a week and they didn’t have a good reason then they would be sent to a labor camp. They were kept at work to stop them from working at black markets and other places that would take the money away from the government.
Electricity began to run out, at first it would go of randomly, then it would come on randomly, eventually people began to realise that the electricity wouldn’t come on again.

North korean Coupon

 

The Economic Reform That Backfired

For years North Korea had been experiencing inflation and in 2009, when the government tried to fix the problem it backfired and only made matters worse. The government implemented a reform to redenominate the economy, that is lowering the value of every note by two decimal places and therefore increasing the value of the won. Redenomination can  be helpful as it makes everyday transactions simpler, however when mishandled it can lead to families left bankrupt and problems for the economy nationwide. Unfortunately in North Korea it was mishandled, as the country only gave citizens 6 days to exchange their money and they were only allowed to exchange 100,000 won at a 100:1 rate and more than that 100,000 won at a 1000:1 rate.This means that a citizen could only exchange the value of $740/£445 at a normal rate.

The effect of this was essentially a tax on even the mildly wealthy. Kim Jong Il’s reasons are unknown, but it is hard to believe it wasn’t to further the centralisation of the economy; taking money from the markets and giving him control over the money as well as the people.

This move was possibly a step too far because ,whilst it controlled some, even well trained North Koreans were forced to disobey the law which caused problems for the economy. People began to exchange with other currencies (mainly Japanese yen, Chinese yen and the American Dollar) because they no longer trusted the won or simply because they couldn’t exchange their money in any other way(this is called dollarization).Unfortunately the value of the won internationally was incredibly low because the limited items that could be bought from  North Korea weren’t valuable and the world was now more than ever aware of the economic crisis.This resulted in higher inflation rates than ever before.