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C O N F I D E N T I A L SEOUL 000136 
 
SIPDIS 
 
E.O. 12958: DECL: 01/29/2030 
TAGS: PREL PHUM PGOV SOCI ECON KN KS
SUBJECT: INFLATION, HOARDING HAVE DPRK REGIME BARING ITS 
TEETH, NGOS SAY 
 
REF: SEOUL 81 
 
Classified By: POL M/C James L. Wayman.  Reasons 1.4 (b/d). 
 
Summary 
------- 
 
¶1. (C) Interlocutors from several North Korea-focused NGOs 
have told us that inflation is rising rapidly in the DPRK in 
the wake of the regime's currency replacement fiasco. 
State-run stores list the current price for a kilo of rice at 
44 new North Korean Won (NKW) but have no rice to sell; in 
black markets where rice is available, the cost is 500 new 
NKW.  Our contacts asserted that the black market exchange 
rate is now 1,000 new NKW to the dollar, more than 10 times 
the official rate, prompting ordinary North Koreans to hoard 
their goods or engage in barter trade.  The combination of 
inflation and widespread hoarding has reportedly prompted the 
regime to take steps to short-circuit potential unrest. 
Border guard units have begun a "50 Day Battle" against 
unauthorized crossings into China.  Our interlocutors 
confirmed ROK media reports that some people caught crossing 
into the PRC have been publicly executed.  End summary. 
 
 
Refugee NGO Leaders on DPRK Inflation... 
---------------------------------------- 
 
¶2. (SBU) In a series of discussions during the past week, 
"Network for North Korean Democracy and Human Rights" 
Secretary General Kim Yun-tae, "Daily NK" Editor Shin 
Ju-hyun, and "Committee for the Democratization of North 
Korea" Vice-Chairman Kang Chol-hwan asserted that inflation 
is rising rapidly in the DPRK in the wake of the regime's 
replacement of its currency.  Echoing what we have heard 
elsewhere (reftel), Kim and Shin claimed that the price of 
staple goods like rice and corn have risen particularly 
sharply since the beginning of the year.  They explained that 
while State stores uniformly list the price of a kilo of rice 
as 44 new North Korean Won (NKW), they do not have actual 
rice to sell at that price.  In cities where black markets 
are open and have rice available for purchase, Kim and Shin 
asserted, the current price is nearly 500 new NKW per kilo. 
Black market exchange rates for foreign currency are 
similarly skyrocketing, they said.  The official exchange 
rate is 79 new NKW to the dollar, but the black market rate 
in Sinuiju, Hyesan and around Pyongyang is now approximately 
1,000 new NKW to the dollar, they said. 
 
¶3. (SBU) Kang Chol-hwan, a gulag survivor and author of 
"Aquariums of Pyongyang," said the DPRK regime's reaction to 
the inflation reflected its ignorance of basic economics:  it 
has printed more money and significantly boosted salaries. 
Kim and Shin agreed with Kang's assertion that the recent pay 
hikes have now brought average wages to their previous, 
pre-currency replacement levels. 
 
...Barter Trade and Hoarding... 
------------------------------- 
 
¶4. (SBU) All of our interlocutors reported that black markets 
are functioning throughout the country but on a radically 
smaller scale than before the currency replacement.  Most 
ordinary North Koreans were reacting to inflation by hoarding 
their goods or by engaging in barter trade when, for example, 
they needed to procure grain.  Kim and Shin related that, 
according to contacts in Hyesan, government officials were 
trying to jawbone traders into selling rice to the regime for 
40 new NKW per kilo; traders were refusing, they asserted, 
opting to "wait things out."  Kang claimed that the DPRK's 
sudden acceptance of 10,000 metric tons of corn from the ROK 
government was a sign of just how desperate the regime is to 
fill empty shelves at State-run stores. 
 
...and a "50 Day Battle" 
------------------------ 
 
¶5. (C) According to our contacts, the combination of 
inflation and hoarding has prompted the DPRK regime to take 
steps to short-circuit potential unrest.  For example, they 
noted that Kim Jong-il has made widely-publicized visits/pep 
talks to public security organizations, and border guard 
units have begun a "50 Day Battle" against unauthorized 
crossings into China.  Citing mobile phone conversations with 
contacts inside North Korea, our interlocutors corroborated 
ROK media reports that some people caught crossing into the 
PRC have been publicly executed.  Kang related that he has 
spoken to several non-elite North Koreans who have made it 
 
safely into China during the past few weeks.  Asked why they 
fled, all cited the currency replacement and some, Kang 
asserted, said they thought Kim Jong-il had "finally gone 
crazy." 
STEPHENS