Missiles, Stamps, and Inflation

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(Originally from KP double number November 2012 / February 2013, Vol. 54 Nr. 4 / Vol. 55 Nr. 1) In some interviews after the missile test last month [December, 2012], I mentioned in passing that North Korea had featured its missiles on postage stamps. The reporters were invariably surprised. Our man in Seoul, Jae-sung Ryu, has rounded up images of several of these stamps, as shown below. 

Apart from the sheer curiosity aspect, the stamps speak to a deeper point usually ignored in commentary on North Korea: the more the regime elevates its missile and nuclear programs (the latter has its own postage stamps), the harder it becomes to negotiate away these accomplishments. This is particularly the case if the accomplishments are not simply praised but presented as the justification of and reward for decades of deprivation and sacrifice.

That the surrender of the family jewels would be to foreigners whom you have spent decades demonizing would seem to make such an outcome even less palatable. Each time the regime puts out one of these postage stamps or erects another billboard extolling its nuclear and ballistic accomplishments, it raises the internal political costs of changing course and reduces even further the eroding likelihood of successful international negotiations over its weapons of mass destruction and their delivery systems.

Jaeung’s stamps possibly make another important point. Assuming that the stamps all deliver the same service, their denominations can be read as in-formation on inflation. (It’s been a while since I posted a letter in North Korea; maybe someone more experienced can help us out on this point.) The first stamp (Figure 1), from 1998, is for 1.5 won. The second (Figure 2), from 2009, appears to be for 120 won. At the end of that year, the country experienced a currency reform that, in theory, should have reduced the price level by a factor of 100–i.e., a post-age stamp should have cost 1.2 won. But the most recent stamp, from 2012 (Figure 3), is for 50 won. Assuming that the stamps all deliver the same service, the increase from 1.5 won to 120 won over the period 1998-2009 implies an annual rate of inflation of about 50 percent. The nominal decrease from 120 won to 50 won between 2009 and 2012 actually represents a large price increase once the November 2009 currency reform is taken into account. If one assumes that the 120 won stamp was issued in July 2009, immediately following the July 4 launch, and the 50 won stamp was issued last month, then over that interval the cost of mailing a letter rose at a rate of approximately 200 percent per year. Such a magnitude would be broadly consistent with previous estimates of post-currency reform inflation based on the prices of rice, corn, and foreign exchange.

NOTE:

Published with permission of the author from the blog, “North Korea: Witness to Transformation,” dated January 18, 2013, at http://www.piie.com/blogs/nk/?p=8956. Marcus is Director of Studies and Senior Fellow, Peterson Institute for International Economics and Senior Fellow, East-West Center, Honolulu, Hawaii.

(Postscript: the graphics in the printed article are not available here, please see online article at PIIE for graphics.)

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