North Korean Economy Watch

From the BBC:

North Korea’s economy has been in the doldrums for more than a decade. Perhaps as many as a million people perished in a famine during the 1990s, and the food situation inside the country remains precarious today.

There are two hypotheses about why a country facing such problems has pursued nuclear weapons.

1. Its nuclear programme is merely a bargaining chip to be traded away to extract political and economic concessions from the US – a kind of atomic “trick or treat”.

2.  The North Koreans regard nuclear weapons as an end in themselves – a military deterrent and the ultimate guarantor of the regime’s survival.

North Korea’s foreign ministry said as much on 18 April when it declared, “The Iraqi war teaches a lesson that in order to prevent war and defend the security of a country and the sovereignty of a nation, it is necessary to have a powerful deterrent force only.”

Yet even from this perspective, there is an intriguing economic angle.

If a nuclear North Korea were to foreswear aggression toward South Korea, then its huge conventional forces would be redundant.

Its million-man army, an albatross around the economy’s neck, could be demobilised.

In fact, before the nuclear crisis erupted last October, North Korea floated trial balloons regarding the possibility of such a demobilisation.

But if the North’s army is to be demobilised, those troops have to have jobs to go to.

Last July, the government announced a package of policy changes designed to revitalise the economy.

These included marketisation, the promotion of special economic zones, and a diplomatic opening toward Japan, which the North hoped would pay billions of dollars in post-colonial claims and aid.

However, the rapprochement with Tokyo has stalled, and the expected capital infusion has not materialised.

The consensus of outside observers is that, so far, the reforms have largely failed to deliver.

Indeed, some of the policy changes, such as the creation of massive inflation and the demand that North Koreans surrender their holdings of dollars, could be interpreted as an attempt to re-assert state influence rather than reform the system.

Last month, Pyongyang introduced a new financial instrument it called a bond, though it is more like a lottery ticket. A mass campaign encouraging citizens to purchase these bonds suggests that politics, not personal finance, is the main selling point.

To make matters worse, the oil flow through a pipeline from China on which North Korea depends was interrupted earlier this month for several days.

The official explanation was that mechanical failure, not diplomatic arm-twisting, was the cause.

In sum, the economic situation remains dire.

However, both China and South Korea have indicated that while they want to see a negotiated resolution [to the nuclear issue], they are unwilling to embargo North Korea in the way the US envisions.

This reluctance to sanction Pyongyang undercuts the credibility of the US threat to isolate North Korea.

The Bush administration’s own rhetoric also calls into question its willingness to promote North Korea’s constructive integration into the global community.  

Marcus Noland is a senior fellow at the Institute for International Economics, and author of Avoiding the Apocalypse: The Future of the Two Koreas.

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BBC
11/15/2002

South Korea has pressed North Korea to scrap its suspected nuclear programme, welcoming a decision by the US and its allies to stop deliveries of oil to its impoverished neighbour.

Diplomats from South Korea, the US, the European Union and Japan agreed that a 42,000 tonne shipment of fuel, currently on its way to North Korea, should be the last.

The US had called for the aid to be stopped, unless the Communist regime dismantled its alleged nuclear weapons programme.

South Korea and Japan had both argued for continuing the fuel shipments over the winter, and analysts say they faced several weeks of pressure from the US over the issue.

But on Friday South Korea said it was “quite united” with its allies and “pleased” with the decision to cut off supplies.

“I hope this message will be heard by North Korea,” a senior government official told reporters.

The South Korea Deputy Foreign Minister Lee Tae-shik said the government would continue to holds talks with Pyongyang.

Deadlock

The fuel decision was announced as the allies met in New York as part of the Korean Peninsula Energy Development Organisation (Kedo), which administers a 1994 accord designed to limit North Korea’s nuclear ambitions.

Under the plan, North Korea agreed to freeze its nuclear programme in return for 500,000 tonnes of fuel oil a year in aid.

Washington considers that Pyongyang nullified the 1994 pact, after confessing to a US envoy last month that it was trying to build nuclear weapons with enriched uranium.

“Future (oil) shipments will depend on North Korea’s concrete and credible actions to dismantle completely its highly enriched uranium programme,” said the Kedo statement.

North Korea says it will only scrap its nuclear programme if the US signs a non-aggression treaty.

Both South Korea and Japan have expressed doubts that stopping oil deliveries would persuade North Korea to terminate its nuclear weapons programme.

They fear it would instead lead to a revival of an earlier, plutonium-based nuclear programme.