SEOUL—North Korea is said to have made an unprecedented apology for a major economic blunder and has said it will lift a ban on foreign currency, according to South Korean media.
The Yonhap news agency and Chosun Ilbo newspaper have quoted North Korean Premier Kim Yong Il as offering to local authorities last Friday “a sincere apology about the currency reform, as we pushed ahead with it without sufficient preparation and it caused great pain to the people.”
Ko Yong Hwan, a senior researcher with South Korea’s Institute for National Security Strategy and a former North Korean diplomat, said that in the aftermath of the currency reform, the North Korean regime felt it had to implement special measures to prevent public discontent from spiraling out of control.
But he added that North Korean authorities do not see the policy as a failure.
“The [North Korean] premier’s apology was not for the failure of the policy per se, but rather for faulty policy implementation,” Ko said.
"The North Korean people are angry, are expressing their frustration, and are starving. The regime’s priority now is to take a step back and appease people through such measures that appear to be implemented. Markets will probably be allowed, and so will be the use of foreign currency, and the sale of consumer goods," he said.
Earlier reports, which also cited unnamed North Korean sources, said North Korean leader Kim Jong Il had sacked Pak Nam Gi, the senior official responsible for the currency reform, which is said to have sparked unprecedented anger among the North Korean people.
Pyongyang scrapped its old currency in late November and allowed its people—whose economy has been in freefall since the mid-1990s—to exchange only a limited amount of the old money at a rate of 100 to 1.
The move wiped out the savings of millions and sent prices skyrocketing.
Authorities also announced a ban on the use of foreign currency.
Unconfirmed reports from the North said the public has engaged in rare protests against the new policies.
‘Royal court economy’
Kim Kwang Jin, a North Korean defector now working at the Committee for Human Rights in North Korea in Washington, describes what he calls Kim Jong Il’s “royal court economy,” or the funds that maintain the wealthy lifestyles of the country's elite inner circle, as totaling hundreds of millions of dollars a year.
In contrast, Kim said, the North Korean “people’s economy” doesn’t exceed several million dollars.
“Foreign currency is badly needed for the ‘people’s economy’ to recover, but Kim Jong Il’s ‘royal court economy’ holds the monopoly over foreign exchange transactions and reserves,” Kim said in an interview.
“The most pressing issue for the Kim Jong Il regime is nuclear and missile development,” he said.
“When foreign currency is earned, such resources are first and foremost used to preserve the military-industrial complex and to maintain the ‘governance funds’ needed to keep the court economy going,” he said.
“Significant national resources are also invested to ensure that those in Kim Jong Il’s entourage maintain their unshaken loyalty to the leader.”
Rudiger Frank, a North Korea economy specialist at the University of Vienna in Austria, said the policy had failed to help the North Korean economy grow, but added that the regime had never intended it to do so.
"This currency reform has to be seen as the latest step in a long row of measures towards turning back the wheel and reinstalling North Korean socialism as it existed in the 1970s and 80s."
"And from this point of view the measure so far has been a success because, as far as we know, despite all of the protests and the inflation, markets are being curtailed, trade with China is being reduced, and transactions by foreigners who live in North Korea in hard currency are not possible anymore," Frank said.
Frank said North Korea will inevitably return to allowing more market activity and the economic reforms begun in 2002.
"They are not really killing all the markets. They strongly reduce them—they reduce their significance—but I don’t really think it’s in the interests or that it’s the goal of the North Korean authorities to get rid of markets altogether," he said.
Andrei Lankov, a Seoul-based North Korea expert who works as a commentator for RFA, labeled the currency re-denomination a “failure,” but added that it is too early to tell how far-reaching the effects of the policy would be.
“I think that it was a failure, but not a disaster. If by late summer food prices will come back to the pre-reform level, it will mean a complete failure of the policy,” Lankov said.
He called reports of Kim Yong Il’s apology just “one of many strange things which [are beginning] to happen in Pyongyang with increasing frequency.”
Lankov also said recent reports that the North Korean regime would allow some local markets to reopen in an effort to solve food shortages are likely to be true.
But he said he remains “skeptical” about accounts of riots started by North Korean citizens in response to the new currency measures.
New currency issue
North Korea issued new currency last December, dropping two zeroes off the won. At the time, the North Korean central bank put strict limits on the amount of old money that could be exchanged for the new won.
At the old rate, U.S. $1 was equal to 135 North Korean won.
The move sent shockwaves through North Korea, with reports of citizens rushing to black market moneychangers to exchange their won for more stable U.S. dollars and Chinese yuan.
North Korean citizens were threatened with "merciless punishment" for defiance of the new currency rules and were told they had only a week to exchange a maximum of 100,000 won (U.S. $690 at the official rate, but less than U.S. $40 according to black market rates) per person of the old currency for new bills.
NGOs in Seoul reported that in response to widespread anger, those limits were raised to 150,000 won in cash and 500,000 won in bank notes.
Original reporting by RFA’s Korean service. Korean service director: Bong Park. Translated from the Korean by Grigore Scarlatoiu. Written for the Web in English by Sarah Jackson-Han.