Sanctions drive trading companies to default on payments
Choi Song Min | 2016-06-21 15:54
A number of North Korean companies are reportedly failing to meet payment deadlines in their trade agreements with China, causing negative repercussions for all cross-border deals involving credit transactions. Companies under the control of Office No. 39, which is tasked with managing Kim Jong Un’s leadership funds, are reported to be particularly struggling to secure foreign currency.
Although market prices in the North have remained stable, active trade directly tied to the leadership’s funds has plummeted, suggesting international sanctions targeting the regime may be proving effective.
“Companies under the Ministry of External Economic Affairs and other trade agencies have recently been experiencing a severe foreign currency crisis,” a source from South Pyongan Province told Daily NK on Wednesday. “Even those under the Central Party’s Office No. 39 have insufficient liquidity (in foreign currency), and this is creating obstacles for trade with China,” he added.
Additional sources in South Pyongan Province as well as North Pyongan Province verified this development.
Cross-border transactions had been proceeding relatively unhindered until just a few months ago. However, an increasing number of conflicts have been arising with Chinese trade companies over payments, reported the source. “A lot of trade companies in Pyongyang and provincial areas have not been able to pay on time after bringing in goods from their Chinese counterparts,” he explained.
“In the past, the principal at least was always paid on time for goods that had been brought in past customs. But foreign currency is drying up, so the settlement dates are being dragged out,” the source said. “Up until early May, payments normally wouldn’t be any later than 15 days, but now there are a lot of cases where companies have been unable to pay even half the amount owed over a month past the due date.”
Clear signs of payment difficulties started to become noticeable in mid-April. The North Korean leadership had traditionally secured funds through arms and other illicit trade, but sanctions have made that increasingly difficult, leading to a shortage in money to pay for transactions.
As previously reported by Daily NK, the "70-Day Battle" and "200-Day Battle" are thought to have exacerbated the problems, with the state mounting pressure on trade companies in a bid to create tangible accomplishments.
In response, workers within the industry have been forced to place a greater emphasis on fulfilling the regime’s demands at the expense of international business transactions and meeting state quotas, putting the stability of future trade transactions on a precarious footing.
“Having faced this situation for two months, Chinese companies are now asking for cash payments only and have become extremely reluctant to allow deferred payments,” the source said. “If this lasts for a few more months, all of the previously amicable Chinese traders will start to avoid further business with the North,” he speculated.
Trade banks in Pyongyang have seen their foreign currency supplies dry up, making it particularly challenging for even official trading firms to obtain credit. Trade company heads have been overheard remarking that borrowing from banks is even harder than borrowing money from individuals at exorbitantly high interest rates (loan sharks), said the source.
“Not so long ago, the Cabinet Premier Pak Pong Ju failed to make a payment of 30,000 USD for a Chinese vessel that arrived at Nampo Port with some 1,000 flat screen televisions, thereby forcing him to return to Pyongyang empty-handed,” the source said, explaining that rumors of the incident quickly made the rounds, igniting concerns about the implications for the economy if even the regime’s trading bodies cannot follow through on a prearranged transaction.
*Translated by Jiyeon Lee
*Edited by Lee Farrand