Why Has North Korea Engaged in the So-Called Economic Reform?

From Time:

North Korean leader Kim Jong Il and his cohorts labeled this week's sudden change in the country's currency, which has left chaos in its wake, economic "reform." On Monday the North Korean regime decided to lop off two zeroes from the existing paper currency, the won, and gave North Koreans less than a week to exchange all their old notes for new ones.

In many countries, economic reform can be a good thing. Even draconian changes to paper currency can help governments draw a line between "bad economic policies of the past, often after taming a hyperinflation," says Marcus Noland, an economist at Washington's Peterson Institute of International Economics. However, this being North Korea, one of the most repressive and impoverished nations in the world, that's not the case. The government announced that it would limit the amount an individual can exchange to just 100,000 won — or less than $40 at black-market exchange rates — and any amount above that threshold would be, in effect, worthless. NGOs in Seoul reported that in response to citizens' immediate and widespread anger, those limits were raised to 150,000 won in cash and 500,000 won in bank notes.

So why would Pyongyang make such a change? As usual, parsing the reasons the North Korean government does anything is murky business. But Pyongyang watchers in Seoul believe the crackdown comes for two main reasons. First, there has been a widening gap between the haves and the have-nots in North Korea, partly due to the prevalence of relatively free markets, says Cheong Seong-chang, senior fellow at the Sejong Institute, a think tank in Seoul. Since 2000, the bigger traders in North Korea have come to live a life "almost as lavish as South Koreans," says Cheong. "They have big refrigerators, color televisions, DVD players." In a socialist utopia like North Korea, such economic divides are unacceptable; the currency change would reduce inequality by making a broad swath of the North Korean population poorer.

The second reason for the crackdown — as ever with Pyongyang — is control. The government allowed black markets to proliferate this decade out of desperation, but they had grown to the point where the leadership may have begun to feel threatened. Small traders and black markets existed outside of government control, and by definition at some point the regime was not going to tolerate that, analysts say. "The breakaway, snowballing market is a threat to the regime," says Lim Kang-taeg, senior research fellow at the Korean Institute for National Unification, a government-sponsored think tank in Seoul. "This is a significant blow leveled at the market, and will help the government tighten up control."

Tighten up control — once again at the expense of the poor, benighted North Koreans citizens.

http://www.time.com/time/world/article/0,8599,1945251,00.html

From Al Jazeera:

According to South Korea's Yonhap news agency, the surprise announcement sent many North Koreans rushing to the black market to convert hoarded bills into US dollars and Chinese yuan.

Shops, restaurants and other businesses have closed while the switch is taking place.

Groups in South Korea with contacts in the North say the move has hit private market traders with large hoards of the old currency particularly hard.

In one case guards blocked the entrance to a bank in the city of Hoeryong after a stampede of people trying to offload old banknotes, the Seoul-based Network for North Korean Democracy and Human Rights said, citing unidentified sources.

Analysts have said the surprise switch appears to be part of a government crackdown on private markets, which have become an essential part of the food-supply system in aid-dependent North Korea.

The markets, which have gradually emerged across North Korea in recent years, have become a profitable business for some traders.

But their growth outside of government controls is believed to have unnerved authorities.
Faced with mounting food shortages, rigidly-controlled North Korea began allowing some private markets including farmers' markets to begin trading in 2002.

The markets have encouraged trade and boosted the supply of food, but they also become a source for banned goods such as films and soap operas from South Korea, which the government sees as a threat to its rule, analysts say.

http://english.aljazeera.net/news/asia-pacific/2009/12/200912371139615612.html

Fom YTN:

북한의 화폐 개혁은 2002년 '경제 관리 개선 조치' 이후 경제 자유화 흐름과 함께 개인적인 부를 쌓고 국가적 통제를 벗어나려는 중산층의 태동 움직임을 막으려는 북한 신보수주의 조치라고 북한 문제 전문가가 분석했습니다.

옛 동독 출신으로 김일성 종합대학에서 공부한 오스트리아 빈 대학의 루디거 프랭크 교수는 미국 안보 전문 연구 기관 노틸러스 연구소 홈페이지에 올린 보고서에서 이같이 분석했습니다.

프랭크 교수는 사적 경제 영역에서 활동하며 시장 경제적 요소를 주도하는 중산층을 겨냥한 이번 화폐 개혁이 단기적으로 국가가 주도하는 계획 경제를 복원하는 데 기여하겠지만, 장기적으로는 북한 체제 정통성을 잃게 하는 정치적 위험 요소를 동반하고 있다고 지적했습니다.