Steph Haggard thinks that North Korea might be headed for a financial crisis. I’m skeptical and everyone is interpreting the fragmentary evidence as confirming their prior beliefs. Sufficed to say, if one reads the South Korean press, every day there is a story about how the economy is feeling the squeeze. Rice prices are up. Coal-laden ships floating in limbo. The waitresses at the North Korean restaurants in Dandong aren’t being paid. Hostile foreign forces are leaning on countries to de-flag North Korean vessels. James Passin, the rap music video impresario, is fleeing the country (who’s next Jim Rogers?!), and even Rodong Sinmun has gotten into the act, urging perseverance as the country enters another “Arduous March.” The place is so picked over that even the vultures are avoiding the country!
Holy moly, end times are here! This place is about to implode!
Uh, maybe not.
There are plenty of nervous traders, but the DailyNK reports that market prices seem to be holding relatively steady. And thus far, there is no evidence of a slackening in trade. The March figures for China-DPRK trade ought to be released next month, and might show some indication of declining trade, though even if sanctions were beginning to bite, it might not be evident in the March data.
And even in the case of Passin and HBOil, there seems to be some uncertainty. The firm has denied the Joongang Ilbo piece that claimed that they were pulling out of the refinery project. But that might not be the end of the story. As a piece by Hamish Macdonald in the NK News put it,
“There may also be existing concerns regarding U.S. sanctions against North Korea and the involvement of American James Passin, a hedge fund manager at Firebird Management, which owns nearly half of HBOil.
“The security risk is not small, as the oil business in D.P.R.K. is exclusively handled by the Communist Party and the military,” Paik Keun-Wook, an associate fellow of the Energy, Environment and Resources department at Chatham House, told the New York Times in January.
However, in the same article, Passin had said that Firebird Management did not require a U.S. Department of Treasury license to conduct its business in North Korea and that he had it legally reviewed by an “expert” and subsequently cleared.”
The problem is that the new Executive Order greatly expands restrictions on the ability of US citizens to conduct business in North Korea, specifically citing the energy sector among others. Activities that might have been acceptable two months ago, are now subject to sanction by the US government. If Treasury were looking for a non-Chinese firm that is engaged in activities that provide rents to the North Korean regime, HBOil (and Orascom Telecom) would be natural choices. Of course, at this point Orascom appears to have been effectively expropriated, and with oil prices collapsing it is not clear that the HBOil joint venture is actually doing anything anyhow.
So where does this leave us? Back at the Black Market Exchange Rate Contest! Is North Korea going to experience a financial crisis or not? You have until 15 April to get in those entries!