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North Korea offers loans from state funds to firms serving foreigners

Uncirculated banknotes of North Korea with bank seal. (Zhimin Pan/Flickr)
April 28, 2019

This article was originally published by Radio Free Asia and is reprinted with permission.

In desperate need of foreign currency, North Korea is opening state coffers to offer loans to businesses that are successful in earning it. Securing a loan from the government is difficult for most North Korean business entities because of strict eligibility requirements, but sources say that firms specializing in international tourism are able to pass loan screening procedures with relative ease.

Residents, however, are resentful because they believe tourism does nothing to improve their lives. They say the government should also approve loans for viable companies that provide goods, services or employment to North Koreans.

“The Central Bank has started identifying companies with outstanding performance, and is offering them loans from state funds,” said a source from North Hamgyong province in an interview with RFA’s Korean Service on Tuesday.

“The selected companies can take out loans of up to $100,000,” the source said.

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This is a relatively new policy, according to the source.

“It is the first time that the Central Bank has used state funds to offer loans,” the source said.

The source noted that the strategy might be based on a Chinese model of financing. As North Korea transitions to a market economy, it has continually looked to the model of China, which underwent a similar transition since the early 1980s.

But as North Korea has been hit by international sanctions aimed at deterring its nuclear ambitions by restricting the regime’s access to badly needed foreign cash, the government seems to be investing in these companies based on their ability to rake it in.

“An increasing number of companies in Chongjin are qualifying for the Central Bank’s state fund loans. But most companies that [serve the domestic economy and make money off of North Korean customers] don’t pass screening,” the source said.

The source said that this goes against the government’s own directives, as the government should be also investing in companies that provide goods and services that enhance North Koreans’ lives too.

“At the second national general meeting of elementary propaganda workers held in Pyongyang on March 6, a letter from Kim Jong Un was released. It stated that there is no revolutionary mission that is more urgent than economic development and the improvement of people’s lives. But the authorities are making absurd policies in reality,” said the source.

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“The companies that are receiving the loans are all tour agencies that deal with foreign tourists,” the source said, adding, “The Central Committee [of the Korean Workers’ Party] is only supporting businesses they recognize for their ability to make foreign currency.”

“They recognize that international tourism is the biggest contributor in terms of foreign cash, so they are going all in,” the source said.

A second source, from the city of Rason in North Hamgyong said that the eligibility criteria for the loans are very strict. Beyond simply having to prove that they have the ability to repay, the companies must show that they generate foreign cash.

“In this regard, international tourism companies, foreigner-only hotels and shops, and casinos have the most advantage,” said the source.

But just as the first source pointed out, many of the companies that aren’t getting approved for loans feel that the government is saying one thing and doing another.

“They are complaining because [the authorities] always say they are doing their best to improve the economy for the people, and bring more stability to our lives, but here they are investing in tourism because they can surely make foreign currency,” the source said.

“Most of the factories and other businesses that are directly related to enhancing our lives have gone out of business because of financial difficulties. [The government] is loud when it talks about improving our lives. It sure sounds great, but then they do nothing about it,” said the source.

Money talks, and the customer is king

The emphasis on earning foreign cash appears to be the government’s aim in approving these loans, and the recent influx of Chinese tourists to the North is causing the government to bend to the will of the money in the tourists’ pockets.

Two sources in North Hamgyong province confirmed that authorities have removed portraits of Kim Il Sung and Kim Jong Il from an international tourist hotel, an extremely surprising move, considering that the portraits must be prominently displayed in every building, and failing to maintain portraits of the leaders in a North Korean home is a criminal offense.

North Koreans are expected to revere every image of the former leaders and behave accordingly while in their presence.

But as foreigners are not beholden to this expectation, many of the Chinese tourists at the hotel had reportedly spoken in loud voices and even smoked cigarettes in front of them. Rather than make an effort to change the behavior of the tourists, the portraits have been replaced with landscape paintings.

Reported by Jieun Kim for RFA’s Korean Service. Translated by Leejin Jun. Written in English by Eugene Whong.