PRC-DPRK BORDER: TRADERS DISCUSS CURRENCY REFORM

C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000221 SIPDIS DEPARTMENT FOR EAP/K, EAP/CM, INR MOSCOW PASS TO VLADIVOSTOK E.O. 12958: DECL: TEN YEARS AFTER KOREAN UNIFICATION TAGS: CH ECON EFIN KN KS PGOV PINS PREL RS SOCI SUBJECT: PRC-DPRK BORDER: TRADERS DISCUSS CURRENCY REFORM REF: A. SHENYANG 170 ¶B. SEOUL 1921 ¶C. SEOUL 1956 Classified By: Consul General Stephen B. Wickman. Reasons 1.4(b/d). ¶1. (C) SUMMARY: Contacts in Northeast China along the PRC- DPRK border say that North Korea's latest currency reform will not have any short-term implications for social stability. Sources agreed that this was a move by the DPRK government to wrest back control of income streams from those who had made money outside of legal channels over the last decade. Markets remained closed as of December 9 and while the victims of this reform were limited, the tiny North Korean middle class was the biggest loser. END SUMMARY. ¶2. (U) ConGenOff traveled to Jilin Province's Yanbian Korean Autonomous Prefecture and Mudanjiang City in Heilongjiang Province December 6-15 to meet local contacts. CURRENCY REFORM: ELITES AND MOST PEOPLE KEEP WEALTH -------------- -------------- ¶3. (C) A Yanji-based Sino-Korean trader said that the DPRK's latest currency reform targeted the emerging middle class (Ref A) and others who earned their modest fortunes outside of DPRK government-accepted channels, such as the informal markets. While currency reform was deadly for this small group, he said the policy affected neither the elites nor the vast majority of people who were too poor to have substantial amounts of currency to lose. One of Heilongjiang Province's ten wealthiest businessmen, a Mudanjiang Sino-Korean who proudly displays a picture of himself next to Korean Workers' Party Secretary Kim Ki-nam, said the impact of the revaluation on DPRK elites, bureaucrats, and overseas business representatives was non-existent because they all hold their wealth in foreign currency. ¶4. (C) A Tumen-based Sino-Korean businessman said on December 9 that a surprising, yet limited number of Chinese traders were victims of this currency exchange, as some occasionally received North Korean currency as temporary barter chits while waiting for the real barter items to come through. This businessman said that from his vantage point on the Tumen River, the effect on the North Korean people appeared minimal. Even though some people might be angry, he didn't see any evidence of social unrest in North Korea (Ref B outlines such concerns.) MARKETS CLOSED DUE TO UNCERTAINTY, DPRK REACTING FLEXIBLY -------------- -------------- ¶5. (C) A Sino-Korean trader from Longjing who shuttles to North Korea several times a week told us on December 9 that as of December 8, markets in North Hamgyong Province were still closed as traders were unwilling to unload product in an atmosphere where there were no established prices. She noted that prices were skyrocketing (Ref B). The president of the Yanbian University of Science and Technology, Amcit James Chinkyung Kim, subsequently said that the North Hamgyong Workers' Party Deputy Secretary had visited him in Yanji on December 11, telling him that each North Korean household was simply given 500 New Korean won (NKW) outright and then allowed to exchange up to 1,000 NKW (Ref C). According to this source, the North Korean authorities realized the need for some flexibility amidst the reality of numbed traders and shuttered markets. ¶6. (C) A Yanji Sino-Korean pastor previously involved in assisting DPRK refugees said he recently hosted a cousin from the DPRK's South Pyongan Province for almost a month (until early December). His cousin spent all his remaining currency and re-entered North Korea at Dandong on December 8 only carrying consumer goods. The pastor said his cousin had been trained by the authorities and ordered to ask his Sino-Korean relatives for as much money and donations as possible and before he was granted an exit visa and that this training was mandatory. His cousin was initially issued a two-month North Korean exit visa but upon exiting at Sinuiju, the North Korean border officers reduced this to SHENYANG 00000221 002 OF 002 one month. REASONS FOR CURRENCY REFORM: LOCALS SPECULATE -------------- ¶7. (C) Our Yanji-based trader said that it was rash to speculate about the reasons for the reform, saying that there could be many. He surmised that though this reform would go over successfully in the short-term and not affect social stability now, it could have long-term consequences for the people since they could chalk this up to their government appearing to be out of control. Our Mudanjiang contact said that while it was clear that the DPRK government wanted to reassert control of the economy and redistribute resources - with the added political benefit of penalizing those who profited from the informal economy - the policy also fit North Korea's ongoing campaign to reach the goal of being an economically strong nation by 2012. Another contact, the Amcit director of the Tumen River Vocational School, said he thought the currency exchange might portend a DPRK move to interfere with existing foreign investments or stave off potential calls for reform. WICKMAN