Seoul - North Korean leader Kim Jong Il moved early this month to wipe out much of the wealth earned in the past decade in his country's private markets. As part of a surprise currency revaluation, the government sharply restricted the amount of old bills that could be traded for new and made it illegal for citizens to have more than $40 worth of local currency.
It was an unexplained decision -- the kind of command that for more than six decades has been obeyed without question in North Korea. But this time, in a highly unusual challenge to Kim's near-absolute authority, the markets and the people who depend on them pushed back.
Grass-roots anger and a reported riot in an eastern coastal city pressured the government to amend its confiscatory policy. Exchange limits have been eased, allowing individuals to possess more cash.
The currency episode reveals new constraints on Kim's power and may signal a fundamental change in the operation of what is often called the world's most repressive state. The change is driven by private markets that now feed and employ half the country's 23.5 million people, and appear to have grown too big and too important to be crushed, even by a leader who loathes them.
The currency episode seems far from over, and there have been indications that Kim still has the stomach for using deadly force.
There have been public executions and reinforcements have been dispatched to the Chinese border to stop possible mass defections, according to reports in Seoul-based newspapers and aid groups with informants in the North.
Still, analysts say there has also been evidence of unexpected shifts in the limits of Kim's authority.
"The private markets have created a new power elite," said Koh Yu-whan, a professor of North Korean studies at Dongguk University in Seoul. "They pay bribes to bureaucrats in Kim's government, and they are a threat that is not going away."
The third generation
The threat comes at a time of transition in North Korea. Kim Jong Il, 67, suffered a stroke last year. While he appears to have recovered, at least enough to maintain control, he has begun a murky process of handing power over to a third generation, in the person of his youngest son, Kim Jong Eun, 26.
The Kim family dynasty built and presides over a totalitarian state that has lasted more than six decades, far longer than its mentors, Stalin's Soviet Union and Mao's China. It is the only such state to have survived the death of the leader around whom a cult of personality had been built. Kim Jong Il assumed power in 1994, after the death of his father, Kim Il Sung, the state's founding dictator.
It was an exceedingly bumpy transition: Famine killed a million people, the state-run economy imploded and private markets began an inexorable spread across the country. Still, it was a transition that had been in the works for more than a decade and was elaborately rolled out to the North Korean people, unlike the current succession.
"It would seem to an outsider that much less care has been taken to ensure a smooth dynastic transition this time around," said Nicholas Eberstadt, author of several books on North Korea.
Analysts in South Korea and the United States say there is little evidence that Kim Jong Eun has been groomed for power -- or that he is equipped to deal with the regime-rotting challenge presented by the growth of private markets and the rise of a bribe-paying entrepreneurial class.
In the view of several outside experts, this month's currency revaluation was a preemptive strike against the markets by Kim Jong Il, an aging leader who is worried about succession and trying to buy time.
"This was one of the strongest measures he could take," said Cho Young-key, a professor of North Korea studies at Korea University in Seoul. "Kim is thinking that if he can't control the markets now, in the future it will get even harder, and then he will be handing power to the son."
Stripping wealth from merchants is consistent with Kim Jong Il's long-held abhorrence of capitalist reform. His government regards it as "honey-coated poison" that can lead to regime change and catastrophe, according to the Rodong Sinmun, the party newspaper in Pyongyang.
"It is important to decisively frustrate capitalist and non-socialist elements in their bud," said the newspaper.
Closing the marketplace
Kim's government in the past two years has closed some large markets, shifted Chinese-made goods to state-run shops and ordered that only middle-aged and older women can sell goods in open-air markets, to try to limit the number of North Koreans who abandon government jobs for the private sector.
But capitalism seems to have already taken root. U.N. officials estimate that half the calories consumed in North Korea come from food bought in private markets, and that nearly 80 percent of household income derives from buying and selling in the markets, according to a study last year in the Seoul Journal of Economics.
Private markets are flooding the country with electronics from China and elsewhere.
Cheap radios, televisions, MP3 devices, DVD players, video cameras and cellphones are seeping into a semi-feudal society, where a trusted elite lives in the capital Pyongyang. Surrounding the elite is a suspect peasantry that is poor, stunted by hunger and spied upon by layers of state security.
In the past year, the elites in Pyongyang have been granted authorized access to mobile phones -- the number is soon expected to reach 120,000. In the border regions with China, unauthorized mobile phone use has also increased among the trading classes. And unlike most of the mobile phones in Pyongyang, the illegal phones are set up to make international calls.
Chinese telecom companies have built relay towers near the border, providing strong mobile signals in many nearby North Korean towns, according to the Chosun Ilbo, a Seoul-based daily.
Those phones have become a new source of real-time reporting to the outside world on events inside North Korea, as networks of informants call in news to Web sites such as the Seoul-based Daily NK and the Buddhist aid group Good Friends.
Good Friends reported last week that security forces in the northeastern town city of Chongjin executed a citizen after he burned a large pile of old currency. He was apparently worried that police enforcing currency laws would investigate him to find out how he had gotten rich, the group said.
Affordable electronics are also cracking open the government's decades-old seal on incoming information. Imported radios -- and televisions in border areas -- are enabling a substantial proportion of the North Korean populations to tune in to Chinese and South Korean stations, as well as to Radio Free Asia and Voice of America, according to an unpublished survey of newly arrived defectors in South Korea. It found that two-thirds of them listened regularly to foreign broadcasts.
Special correspondent June Lee contributed to this report.