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On the March 5, the U.N. Security Council introduced new sanctions targeting North Korea. Although they have some loopholes, they are much tougher than any previous sanctions. They might be the first sanctions to create real economic trouble in North Korea. The question is, will they?
Sanctions are manifold, but the single most important item is the ban on exporting North Korean mineral resources that all U.N. member states are expected to abide by. Resolution 2270 unconditionally bans exports of titanium and vanadium ores, as well as rare earth minerals and gold. Importing North Korean coal and iron ore is also theoretically banned, but with some caveats that leave the issue essentially at the discretion of the buyer.
In the past, we have seen many times when the introduction of a new set of sanctions has been followed by optimistic predictions from hardliners asserting that ‘sanctions would soon start to bite'. The belief was that with sanctions hurting, North Korea would mend its unruly ways. Thus far, such predictions have never been confirmed, but this is not very surprising given the indecisive nature of previous sanctions. This time, however, things appear to be different. Last year, earnings from the sale of mineral resources constituted more than 60 percent of all North Korean export earnings. If sanctions are fully implemented, North Korea could lose a significant part of its foreign currency income.
So far, signals are mixed. On the one hand, China seems to be taking a tough approach to the issue, fully implementing sanctions. Judging by available reports, so far, China has forcibly cut back on North Korean coal and iron ore exports ― even though the ambiguous wording of the resolution would allow China to continue trade in these two commodities.
On the other hand, reports from North Korea do not indicate any deterioration in the economic situation. One can say that sanctions will take some time to have any effect, and this is definitely true, but it is still remarkable that the sanctions regime has failed to produce any noticeable impact on any major economic indicators.
Admittedly, North Korea does not have a stock exchange. However, for the last 15-20 years, North Korea has had some important and easily traceable macro-economic indicators: the price of rice and corn, and the exchange rate (NK won to U.S. dollar).Had the situation in North Korea noticeably deteriorated, this would have been reflected in these indicators, but this is clearly not happening now.
The U.S. to North Korean won exchange rate, actually, even marginally improved, so now it is 8000-8100 NK won per dollar. One kilo of rice is sold in Pyongyang for 5,000, the same price as in May 2015. This indicates that the economic situation is stable, and North Korean merchants (remarkably well-informed and savvy people) feel secure about the immediate future.
The only type of commodity that increased in price is diesel fuel, but this is not all that surprising: the North Korean agricultural sector has recovered to the extent that farmers are again able to use tractors and other machinery during the planting season. Rising fuel prices are likely to be nothing but a normal, seasonal fluctuation.
Other anecdotal evidence seemingly further confirms that it is still business as usual north of the DMZ. Throughout April and early May, construction work continued apace in major cities where new apartment blocks continue to pop up in ever growing numbers. There is no doubt that such building projects are largely financed by private money nowadays, but the fact that the work has continued uninterrupted seemingly demonstrates that so far the impact of sanctions remains very slight.
Of course, all this can be described only as preliminary observations. Two months is not a period long enough to produce a noticeable impact and a majority of Pyongyang watchers agree that sooner or later, the new sanctions regime will have a negative impact on the state of the economy and living standards of the average North Korean. Nonetheless, it is still remarkable that it has not happened.
Be that as it may, what is clear thus far is that the North Korean economy remains relatively immune to external pressures. The jury is still out about whether sanctions will ultimately prove effective, but I will not be surprised if new sanctions will prove to be almost as ineffectual as previous attempts.
Professor Andrei Lankov was born in St. Petersburg, Russia, and teaches at Kookmin University in Seoul. Reach him at anlankov@yahoo.com.
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