"North Korea in 2019: Price and Exchange Rate Stability Despite Continued Sanctions"

[Asia Economy Reporter Kim Dong-pyo] It has been analyzed that North Korea showed a relatively stable price trend last year despite international sanctions against it.

Researcher Choi Ji-young of the Korea Institute for National Unification evaluated this in her paper titled "Assessment and Outlook of the North Korean Economy in 2019: Focusing on Market Prices and Market Exchange Rates," published in the January issue of the Korea Development Institute (KDI) North Korean Economic Review on the 4th.

In 2016, after North Korea conducted its 4th nuclear test, the United Nations Security Council adopted Resolution 2270, the "strongest ever" sanctions resolution, which included mandatory inspection of North Korean cargo, control of land, sea, and air transportation, and prohibition and blocking of North Korean mineral trade.

Researcher Choi pointed out that until the third quarter of 2016, before the strengthening of sanctions, prices of rice and corn in the North Korean market had a positive correlation with international prices, but this correlation significantly weakened thereafter.

Seafood prices actually fell from the second half of 2017, when the Security Council sanctions banning North Korean seafood exports were adopted. This was due to increased internal supply as export routes to China were blocked.

Refined oil prices surged in 2017?2018 but shifted to a downward trend from the second to third quarters of last year. This is estimated to be because refined oil imports remained below the sanctions cap (500,000 barrels annually), and supply through some smuggling was maintained.

Researcher Choi stated, "Although economic activities related to residents' livelihoods somewhat deteriorated after the sanctions, they have remained relatively stable," adding, "In particular, food products are items that can be supplied relatively stably unless there are adverse weather conditions even if sanctions are prolonged."

Exchange rate stability also continued. Especially, the correlation between the North Korean market exchange rate and international prices weakened.

Regarding this, Researcher Choi noted, "The strengthening of sanctions has reduced external transactions, which may be a signal that the North Korean market is becoming isolated from the international market," and warned, "The possibility of increased volatility in the future is somewhat high."

Senior Researcher Jeong Hyung-gon of the Korea Institute for International Economic Policy also described the stable price situation within North Korea as an "unsolved mystery" in his paper titled "Assessment and Outlook of North Korea's Foreign Trade in 2019: Focusing on the Effects of Sanctions."

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