Kim Jong Un is demanding a sharp increase in cash from North Korea's moneyed class to counter the dual threats from coronavirus and sanctions.
As North Korea faced its steepest economic downturn since 1997, analysts said its 36-year-old leader was reasserting centralised control over the economy, potentially undermining the shift towards marketisation and fledgling signs of capitalism.
Experts said reports of a rare bond issuance planned by Pyongyang, targeted at raising foreign currency to cover as much as 60 per cent of the country's budget from rich North Koreans — often referred to as the donju — indicated the severity of the economic downturn.
Details of the bond issue, the first since 2003, were reported by Daily NK, a Seoul-based news service, and referred to by rating agency Fitch in a report last week. It has not been independently confirmed by the Financial Times.
If true, the bond issue comes as border and internal travel restrictions — instituted to stop the virus spreading — have slowed domestic commerce and severed critical trade links along the 1,420km border with China.
"Suddenly issuing that amount of debt, in one year, is a big deal. I think this is the first real sign that they are under very significant financial stress as a result of sanctions and result of the virus," said Peter Ward, a Seoul-based North Korea researcher with the University of Vienna.
He added that there would be no guarantee of repayment for the buyers of the debt and noted the North Korean government had been "basically incompetent" in making sound investment decisions and providing social services.
"You are going to smash and grab and steal lots of cash from people who know how to spend it on good things for the economy," Ward said.
"They are probably going to spend it on all the things they usually spend it on: white elephant prestige projects, palaces for the leader and pay-offs to the elite."
Fitch predicts a 6 per cent decline in gross domestic product in North Korea this year, the worst since a 6.5 per cent fall 23 years ago. It marks an almost 10 percentage point downward revision from Fitch's earlier forecast of 3.7 per cent growth.
"We believe that it is now becoming tougher for the state to prop up economic activity as funding sources have dried up significantly . . . [There is] no doubt that the Covid-19 crisis has exacerbated the effects of the still large number of economic sanctions faced by North Korea," Fitch analysts wrote in a report last week.
Daniel Wertz, a programme manager at the National Committee on North Korea, a Washington-based non-profit organisation, said the pandemic appeared to have "created something of an opportunity for Kim Jong Un and the North Korean leaders".
Although North Korea claims that it has not suffered any coronavirus infections, Wertz said the crisis would bolster its bid to tighten control of foreign trade and foreign exchange.
"The goal is to get more of the revenue from market-orientated enterprises ultimately going to the state, instead of the coffers of corrupt elites . . . [also] they want to have a better ability to shape the general direction of the economy's development and know what is going on across the economy," Wertz said.
Pyongyang has embarked on "different ways" of coercing its people to turn over foreign currency to the government, according to Benjamin Silberstein from the Foreign Policy Research Institute, a US think-tank.
"I've also heard from people in regular contact with individuals inside the country that demands for 'loyalty contributions' and the like have increased. In other words, business people and really anyone who makes substantial money is having to give a 'voluntary' contribution to the state to show their loyalty to the leader. This is, of course, just extortion by another name," he said.
Andray Abrahamian from Seoul's George Mason University Korea, who has worked closely with North Korean businesses, said while the state would "coerce the business community" into purchasing bonds, "a negotiation" would still take place over the amount.
"All that depends on how much leverage [business people] have either with local People's Committees or central authorities," Abrahamian said.
"Are we talking about someone who runs, say, a cottage industry that employs 10 people, whose family earns several thousand dollars a year and they can afford a nice house and some appliances? Or are we talking about people who sit atop state-owned enterprises who are personally earning several million a year?"
Abrahamian added said the bond issue would probably create tension within the country's leadership.
"There will be elements in the government that want to make sure they aren't killing businesses. There will be others that care much less about that and will be interested in the short-term accumulation of capital for central state organs," he said
Despite the economic decline, Pyongyang continued to allocate huge financial resources to its military.
The Kim regime is estimated to have spent US$600 million ($967.1m) on nuclear weapons last year, according to the Geneva-based International Campaign to Abolish Nuclear Weapons.
Experts believe Pyongyang helps fund its weapons programme through hacking and money laundering.
"In the long run it is probably good for the world that North Korea is pushed into making these kinds of desperate moves because it will force change in North Korea," Ward said. "But in the short run, it is terrible for the North Korean people."
Written by: Edward White
© Financial Times