LEAD: N. Korea acknowledges failure of currency reform+

BEIJING, March 2 Kyodo -
(EDS: UPDATING WITH MORE INFO IN 8TH, 11TH-15TH GRAFS)
North Korea has acknowledged the failure of the currency reform it conducted
last November, saying it caused confusion in the supply of money and the
distribution of goods, sources familiar with China-North Korea relations said
Tuesday.
North Korea made the acknowledgement in a note sent to its diplomatic missions
abroad in mid-February, the sources said.
The note urged North Koreans to ''get united and overcome the difficulty,''
they said.
It is rare for North Korea to acknowledge a failure of economic policy.
The acknowledgement suggests the failure dealt a severe blow to North Korea's
efforts to rebuild its economy, a key to achieving Pyongyang's goal of
''opening the gate to a great, prosperous and powerful socialist nation'' in
2012.
North Korean officials ''do not need to deny'' the confusion sparked by the
redenomination of the currency when explaining it externally, the note said,
according to the sources.
By acknowledging the problem, Pyongyang is believed to have been attempting to
ease the sense of alarm among foreign companies about trading with and
investing in North Korea.
A senior South Korean Unification Ministry official quoted visitors to
Pyongyang around the Feb. 16 birthday of North Korean leader Kim Jong Il as
saying they saw no signs of confusion over currency at shops, hotels and
restaurants in the capital.
On Nov. 30, North Korea redenominated the won, knocking two zeros off its bank
notes.
Despite the redenomination, Pyongyang failed to curb inflation and caused
confusion in the supply of goods, the sources quoted North Korea as telling
Chinese investors and trading partners.
Rice prices, for example, effectively rose by 15 to 30 times after the
redenomination. According to South Korea's Unification Ministry, the price of
rice came to 300-600 won, or 30,000-60,000 old won, per kilogram after the
redenomination, compared with 2,000-2,500 won before Nov. 30.
The sources said North Korea also told Chinese investors and trading partners
that it carried out the currency reform ''without sufficient preparation.''
When carrying out the redenomination, North Korea launched a ''price adjustment
committee'' to set prices for goods and price caps for products sold in
markets. But delays in the work made it difficult for authorities to fix new
prices, forcing some shops to suspend operations for nearly a month, diplomatic
sources in Pyongyang said.
Similarly, the new won's exchange rates against the dollar, the euro and other
currencies were not made public until early February, the sources said.
According to official rates, the dollar traded at 100 won, the euro was quoted
at 140 won and the yuan fetched 14 won, marking sharp depreciation of the won
compared with levels prior to the redenomination.
North Korea admitted that information about the currency reform had been leaked
prior to implementation.
The leak prompted some of the new rich in North Korea to try to move their
money to China and other countries, fearing that their foreign currency
holdings might be confiscated.
The action prompted security authorities to tighten control of the border with
China late last year, sparking speculation that the North Korean leader might
visit China as early as in January.
Senior officials of the Workers' Party of Korea and aides reported directly to
leader Kim Jong Il about the confusion resulting from the failed currency
reform, leading to the dismissal in January of Pak Nam Gi, director at the
party's Financial Planning Department, and others involved in the project,
according to diplomatic sources in Beijing.
==Kyodo
2010-03-02 23:15:15