North Korea's black market

North Korea's black market

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When North Korea's late "Dear Leader" Kim Jong Il opened the Pothonggang Department Store in December 2010, he called on it to play "a big role" in improving living standards in the capital Pyongyang, official media said.

Five years later, judging by the long lines inside the three-storey store that sells everything from electronic gadgets and cosmetics, to food and household goods, the Pothonggang is meeting Kim's expectations - at least for privileged Pyongyang residents.

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj
Girls take pictures of themselves at a park in front of the Pothonggang Department Store.

But the department store also starkly illustrates the extent to which the underground market has become the new normal in isolated North Korea. That poses a dilemma to the Kim family's hereditary dictatorship, which up until now has kept tight control of a Soviet-style command economy, largely synonymous with rationing and material deprivation.

Now that the black market has become the new normal, Kim Jong Un's government has little choice but to continue its fledgling efforts at economic reforms that reflect market realities on the ground or risk losing its grip on power, experts say.

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

A Reuters reporter, allowed to roam the store with a government minder for a look at the North Korean consumer in action, noted almost all the price tags were in dollars as well as won.

A Sharp TV was priced at 11.26 million won or $1,340; a water pump at 2.52 million won ($300). Beef was 76,000 won ($8.60) a kilogramme. North Korean-made LED light bulbs sold for 42,000 won ($5).

The exchange rate used in these prices - 8,400 won to the dollar - is 80 times higher than the official rate of 105 won to the dollar. At the official rate, the TV would cost over $100,000; the light bulb, $400.

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj
Alcoholic is for sale, at the official exchange rate, in a Pyongyang hotel used by foreigners.

Shoppers openly slapped down large stacks of U.S. dollars at the cashier's counter. They received change in dollars, Chinese yuan or North Korean won - at the black market rate.

The same was true elsewhere in the capital: taxi drivers offered change for fares at black market rates, as did other shops and street stalls that Reuters visited.

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

For the last twenty years, North Korea has been undergoing economic changes, the fruits of which are now more visible than ever in the capital, Pyongyang, where large North Korean companies now produce a diverse range of domestically made goods to cater to this growing market of consumers.

People are spending money they once hid in their homes on mobile phones, electric bicycles and baby carriers.

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

Only recently an elite item, mobile phones are now common in the capital, with nationwide subscriber numbers topping three million, an employee with Koryolink, the cellular carrier controlled by Egypt's Orascom Telecom told Reuters.

And the latest sign that the workers' paradise is going capitalist: cash cards from commercial banks.

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj
A man tries a toy drone he just purchased at the Pothonggang Department Store in central Pyongyang.

None of that has had much effect on the vast majority of North Koreans living in the countryside, where a rudimentary market has evolved considerably over the past two decades.

Agricultural mismanagement, floods and the collapse of the Soviet Union led to famine in the mid-1990s. The state rationing system crumbled, forcing millions of North Koreans to make whatever they could to sell or barter informally for survival.

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

The regime penalised this new class of entrepreneurs in 2009 when it redenominated the won by lopping off two zeros and setting limits on the quantity of old won that could be exchanged for the new currency. That move ended up destroying much of the private wealth earned on the market.

Demand for hard currency surged after the bungled currency reform as more and more merchants in the underground markets required transactions to be conducted in foreign currency. It triggered two years of hyperinflation.

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj
A woman rides a bicycle in Pyongyang's suburbs.

But the government of Kim Jong Un, who became leader after his father's death in December 2011, has essentially accepted the ubiquity of the black market rate and a widespread illicit economy, North Korea experts say.

"Under Kim Jong Un, not a single policy has been implemented which would somehow damage the interests and efficiency of private businesses," said Andrei Lankov, a North Korea expert at Kookmin University in Seoul. "It's a good time to be rich in North Korea".

. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

At a speech following a military parade marking the 70th anniversary of the ruling Workers Party, Kim Jong Un (right) promised to introduce "people-first" politics.

It remains unclear, however, how committed he and his Workers Party - not to mention the powerful military - are to market-based reforms.

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The 105-storey Ryugyong Hotel, the highest building under construction in North Korea, is seen behind residential buildings in Pyongyang. North Korea celebrated the 70th anniversary of the founding of its ruling Workers' Party of Korea on October 10.
. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

The 105-storey Ryugyong Hotel, the highest building under construction in North Korea, is seen behind residential buildings in Pyongyang. North Korea celebrated the 70th anniversary of the founding of its ruling Workers' Party of Korea on October 10.

A woman and her daughter pay their respects at statues of North Korea founder Kim Il Sung (left) and late leader Kim Jong Il in Pyongyang. Isolated North Korea marked the 70th anniversary of its ruling Workers' Party with a massive military parade overseen by leader Kim Jong Un, who said his country was ready to fight any war waged by the United States.
. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

A woman and her daughter pay their respects at statues of North Korea founder Kim Il Sung (left) and late leader Kim Jong Il in Pyongyang. Isolated North Korea marked the 70th anniversary of its ruling Workers' Party with a massive military parade overseen by leader Kim Jong Un, who said his country was ready to fight any war waged by the United States.

O Yang Ran and her husband Kim Chol Nam (centre) are accompanied by friends during a photo session at Pyongyang Folk Park.
. Pyongyang, North Korea. Reuters/Damir Sagolj

O Yang Ran and her husband Kim Chol Nam (centre) are accompanied by friends during a photo session at Pyongyang Folk Park.

A woman films with her phone from behind a curtain at the Kim Il Sung Stadium. North Korea’s national anthem was played before their team's preliminary 2018 World Cup and 2019 AFC Asian Cup qualifying soccer match against the Philippines in Pyongyang.
. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

A woman films with her phone from behind a curtain at the Kim Il Sung Stadium. North Korea’s national anthem was played before their team's preliminary 2018 World Cup and 2019 AFC Asian Cup qualifying soccer match against the Philippines in Pyongyang.

People play basketball in central Pyongyang, North Korea.
. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

People play basketball in central Pyongyang, North Korea.

"Soldier-builders" walk through central Pyongyang.
. Pyongyang, North Korea. Reuters/Damir Sagolj

"Soldier-builders" walk through central Pyongyang.

Passengers enter a subway station visited by foreign reporters during a government organised tour in Pyongyang. One of the world's most inaccessible places, North Korea invited foreign journalists to Pyongyang  for celebrations marking the 70th anniversary of its ruling Workers' Party.
. Pyongyang, North Korea. Reuters/Damir Sagolj

Passengers enter a subway station visited by foreign reporters during a government organised tour in Pyongyang. One of the world's most inaccessible places, North Korea invited foreign journalists to Pyongyang for celebrations marking the 70th anniversary of its ruling Workers' Party.

A man looks from inside a train that stopped at a subway station visited by foreign reporters during a government organised tour in Pyongyang.
. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

A man looks from inside a train that stopped at a subway station visited by foreign reporters during a government organised tour in Pyongyang.

A boy sits next to a woman inside a train that stopped at a subway station visited by foreign reporters during a government organised tour in Pyongyang.
. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

A boy sits next to a woman inside a train that stopped at a subway station visited by foreign reporters during a government organised tour in Pyongyang.

Commuters make their way through a subway station visited by foreign reporters during a government organised tour in Pyongyang.
. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

Commuters make their way through a subway station visited by foreign reporters during a government organised tour in Pyongyang.

Taxi driver Kim Myong Chol talks to passengers after dropping them at a hotel in central Pyongyang. Parts of impoverished North Korea have been serviced for decades by a small fleet of run-down taxis, but in the last few years the industry has mushroomed in the capital, fueled by a rising consumer class.
. Pyongyang, North Korea. Reuters/Damir Sagolj

Taxi driver Kim Myong Chol talks to passengers after dropping them at a hotel in central Pyongyang. Parts of impoverished North Korea have been serviced for decades by a small fleet of run-down taxis, but in the last few years the industry has mushroomed in the capital, fueled by a rising consumer class.

People walk in front of portraits of North Korea's founder Kim Il-sung (left) and former leader Kim Jong-il at Pyongyang's main square.
. Pyongyang, NORTH KOREA. Reuters/Damir Sagolj

People walk in front of portraits of North Korea's founder Kim Il-sung (left) and former leader Kim Jong-il at Pyongyang's main square.