STTB: It’s All About the Benjamins

September 5, 2014 6:00 AM

We are living in a material world.


Follow the money.

--Deep Throat

Around the time that Jang Sung-taek was arrested and executed, rumors began circulating that one (or two) of his deputies were on the lam in China carrying critical bank account information (or in more fanciful renditions, nuclear codes). I have no idea if these rumors were true, but as Jake Barnes put it, “Isn't it pretty to think so?"

This past week a similar tale has emerged with the alleged defection of Yun Tae Hyong supposedly president of the Daesong Bank, an institution believed to be involved in the financing of illicit activities and under sanction by the US Treasury. According to an un-sourced piece in the Joongang Ilbo, Yun took off with $5 million and is seeking asylum in Russia. (I don’t know what Edward Snowden did to the market for asylum seekers, but as my former colleague Erik Weeks pointed out, if he wanted to get on Vladimir Putin’s good side and stay out of the North Korean gulag, he might have added a zero or two to his haul. But I digress.) As Brad Martin observes in a nice piece for the Global Post, there are grounds for skepticism, starting with some question as to whether Yun Tae Hyong actually exists. Michael Madden appears to be most definitive on this score, placing him as a mid-level manager tasked with managing financial relationships in the Russian Far Eastern region. And then there is the issue that Russia is currently cozying up to North Korea so it is not clear why one would want to flee there.  And it’s not obvious how one transports $5 million across the border undetected, though there must be ways.

Reuters quotes Koh Yu-hwan of Dongguk University to the effect that because of the compartmentalization of the North Korean system, Yun, should he exist, really would not know much. But Professor Koh never met Mark Felt. A centrally placed financier would actually be one of the few people who might have more than a worm’s eye view and as such would be a valuable prize. A mid-level manager, not so much.

Back on the ground, the DailyNK is reporting a renewed attempt to block remittances from South Korea via China insofar as the money may induce a “longing for life in the South.”  The paper has also reported the construction of new towers to jam the cross-border cell phone calls which are the backbone of the remittance system. The problem is that there is an overwhelming incentive for the underpaid police to turn a blind eye toward the business, for proper compensation of course.

NK Won exchange rate as of August 2014

If the state were actually successful in blocking the remittances its action might even have an effect on the currency market, encouraging a depreciation of the North Korean won. If the Daily NK data are to be believed, the black market exchange rate has stabilized since January 2013, presumably on the back of the emergence of a current account surplus.

Parenthetically the actual purchasing power of the NK won is the subject of a very nice piece by Rob York at NK News. The point of the article is that due to multiple distortions in the North Korean system, products are exchanged at wildly different implicit prices depending on whether the transaction occurs via ration cards, the enormously overvalued official exchange rate, or the black market rate.

volvos in NK

Finally, there have been a spate of stories about 40 year old Volvos plying the streets of Pyongyang.  (Note missing wiper blades. Maybe that explains what the Chong Chon Gang was doing in Cuba: picking up spare parts for 40 year old sedans.) The story is that in 1974 North Korea obtained and then neglected to pay for 1,000 Volvo 144 sedans.  Every fiscal year the Swedish Exports Guarantee Board calculates the interest due on this single account which makes up more than half of the agency’s outstanding claims and semi-annually informs the North Koreans of their outstanding balance, now approaching $400 million. Needless to say, the North Koreans do not respond. Maybe the Swedes should get together with the South Korean Export-Import Bank “food loan” crew and commiserate over a few beers.  The South Koreans should pick up the tab: they’re only down $6 million.

But what about the Volvos themselves? Jason Torchinsky at probably had the best take on this: “Cars that run for 40 years in an environment like North Korea, with bad roads, no real service network, and in hard-wearing jobs like taxis are certainly great cars to feature in ads showing how tough and well you company builds cars. Modern Volvo could use a little bit of the Old Volvo's rugged workhorse charm and personality, and these 1000 political prisoners are just the ticket.”


Walter L. Keats

Just a note re the "missing" windshield wipers: in my experience in the DPRK and other 3rd World countries, this certainly reflects a shortage of parts, but specific absences may evidence a wise decision by the driver to save/protect his wipers from theft by not leaving them out where they can be easily stolen by a less-wise driver who already lost his.

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