US, WASHINGTON (ORDO NEWS) — North Korea has experienced the sharpest economic decline since 1997 and is planning to issue government bonds for the first time in 17 years, writes the Financial Times. According to the publication, Pyongyang forces rich North Koreans to buy bonds without guaranteeing a return on investment, and requires “voluntary” contributions that prove Kim Jong-un’s allegiance.
DPRK leader Kim Jong-un requires significant funds from representatives of the North Korean elite to deal with threats arising from coronavirus and sanctions, according to the Financial Times. According to FT, the severity of economic problems in the country is evidenced by information that North Korea plans to issue government bonds for the first time since 2003.
DPRK bonds were announced by the South Korean Daily NK News Service and Fitch Rating Agency. It was not possible to confirm FT information independently. The purpose of the bond issue is to attract foreign currency from wealthy North Koreans to finance 60% of the country’s budget, experts interviewed by the newspaper said.
The sudden release of such a volume of debt is an important event, said Peter Ward, an expert on the DPRK from Vienna University, to the publication. “It seems to me that this is the first real sign that they are faced with very significant financial problems due to sanctions and the virus,” he emphasized. Ward added that buyers will not receive guarantees of payment of bonds, and also said that the North Korean authorities were “incompetent” in the past when it came to investments.
Pyongyang uses “various methods” of forcing people to transfer foreign currency to the authorities, said Benjamin Silberstein, an employee of the American think tank Foreign Policy Research Institute. He noted that from sources regularly contacting people in the DPRK, he had heard about the growing volume of demands from the state. “Representatives of business and generally any people who earn significant funds should transfer“ voluntary ”contributions to the state in order to demonstrate loyalty to the leader. This, of course, is simply extortion under a different name,” he said.
Although the authorities will force the North Korean business to buy bonds, negotiations will still be held on the size of the deals, said Andrai Abrahamyan, an employee of the South Korean division of George Mason University, FT. According to him, it all depends on what levers of influence entrepreneurs possess in power structures. A bond issue is also likely to lead to tensions within the country’s leadership, Abrahamyan added. “There will be elements in the government who want to be sure that they are not killing the business. Others will worry less about this and will be interested in short-term accumulation of funds by central authorities,” he said.
Fitch forecasts North Korea’s GDP decline by 6% this year, FT notes. Agency analysts emphasize that Pyongyang faces increasing difficulties when trying to maintain economic activity in the country. They also indicate that the sources of funding in the DPRK have largely dried up. “There is no doubt that COVID-19 has exacerbated the effects of the still enormous amount of economic sanctions against North Korea,” analysts said last week.
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