North Korean Economy Watch

The Economist
2/10/2010

However loathsome his neighbours find Kim Jong Il, the nuclear-armed North Korean dictator, there are few who do not also admit that beneath the big hair lurks a tactical genius with a flair for survival. At home, North Koreans are smothered by his ruthless personality cult. With the outside world, he is an adept blackmailer: act mad enough to be dangerous; then be conciliatory in exchange for cash.

Recently, however, on both counts he has made tactical mistakes. None of these are serious enough to endanger his regime, diplomats say. But they are encouraging to those who believe they can eventually push North Korea back to talks about dismantling its nuclear arsenal. And they reaffirm the benefits of what the Americans call “strategic patience”: waiting until North Korea is desperate enough to offer concessions.

Even the regime appears, in its oddball way, to have acknowledged the most recent blunder. News reports this month suggest that North Korea has reversed some elements of a crackdown on private enterprise that it unleashed with a cack-handed redenomination of the won on November 30th.

In the interim, the currency collapsed, the price of rice surged by as much as 50 times, and much of traders’ working capital for buying and selling goods was wiped out. Amid a seizing up of food distribution, there were some rare grumbles of protest.

But since early February, regulations on trading in the jangmadang, or markets, across North Korea appear to have been lifted, according to news reports. Official prices (which are not necessarily what are paid) have been posted. A kilo of rice costs 240 won ($1.80) (a bit less than a pair of socks), a toothbrush is 25 won.

Meanwhile, the Dear Leader has made what some observers believe to be an unprecedented apology to his people for feeding them “broken rice” and not providing enough white rice, bread and noodles. He was, he said, “heartbroken”, and implicitly acknowledged he had violated an oath to his godlike father, Kim Il Sung, to feed the people rice and meat soup.

Adding to the poignancy, experts say the bungled reforms were done in the name of Kim Jong Un, the dictator’s third son and potential heir. The young man’s involvement may have been part of a strategy to reassert Stalinist-style state control of the enfeebled economy ahead of 2012, the 100th anniversary of grandfather Kim’s birth.

People knowledgeable on North Korea are loth to believe that such a plan has been abandoned, not least because the small markets that have flourished since the famine of the 1990s represent such a challenge to the state’s authority. But they say the ineptitude must have been glaringly obvious, even in the hermetic state.

“The government has never said sorry to the people, especially on a topic as sensitive as rice,” says Andrei Lankov of Kookmin University in Seoul, who has written a lot on North Korea and has described its leaders as brilliant Machiavellians. “Because of Kim Jong Il’s age and the age of those around him, it looks like he may be losing touch with reality.”

Mr Lankov believes there may have been a similar miscalculation in North Korea’s recent behaviour towards America, China, South Korea, Japan and Russia, the countries with whom in 2003 it started on-again, off-again denuclearisation negotiations, known as the six-party talks. Its firing of a long-range missile and explosion of a nuclear bomb in quick succession last year hardened the resolve of the five to strengthen United Nations sanctions against Pyongyang and maintain them until it gives ground on its nukes. However much Mr Kim has cajoled and coaxed in the months since, he has not yet managed to divide them.

What’s more, diplomats say he appears to be increasingly open to discussing a return to the six-party talks, something which last year he vowed “never” to do. China, which is closest to North Korea and chairs the six-party forum, sent Wang Jiarui, a senior Communist Party official, to meet Mr Kim this week and invite him to Beijing. Mr Kim made no public commitment regarding the six-party talks. But his nuclear negotiator returned with Mr Wang to the Chinese capital.

Lee Myung-bak, South Korea’s president, surprised his countrymen by saying that he, too, hoped to meet Mr Kim “within this year”. The timing was odd. His statement came at about the time North Korea was lobbing artillery shells threateningly into the Yellow Sea. But it revealed what officials say is a twin-track process in Seoul to engage North Korea: bilaterally and via the six-party framework. “My impression is that the North Koreans are moving in the direction of talks,” says Wi Sung-lac, South Korea’s special representative for peace on the peninsula.

Both North Korea and its six-party counterparts have set such tough conditions on coming together that it would be foolhardy to be optimistic. North Korea wants a lifting of the UN sanctions and a peace treaty with America to out a formal end to the 1950-53 Korean War before restarting talks. Washington has resisted both. An East Asian diplomat said the other five countries are demanding that North Korea take “concrete measures” towards denuclearisation as a pre-condition for talks and the lifting of sanctions. “We’re not giving any carrots.”

Underscoring the resolve, humanitarian assistance to North Korea has slowed to a trickle. South Korea sent only $37m of public aid north last year, compared with $209m in 2007. Officials say Mr Lee is adamant no money will go to North Korea to coax it into agreeing to a summit. Talks on cross-border tourism and factories, another means for Pyongyang to extort hard currency from the south, have made no progress.

Mr Kim still has some good cards up his sleeve. Tensions between China and America over Taiwan and Tibet provide a thread of disharmony that he can tug upon. And China has a strategic eye on North Korea’s ports and minerals, which may encourage it to be overly generous to the regime.

But the mere hint of economic and diplomatic fallibility in a regime that demands almost religious devotion from its subjects may be significant. It comes at a time when North Koreans, via smuggled DVDs and telephones, have a greater idea than ever before of how far their living conditions fall short of their neighbours’. That is a rare point of vulnerability for Mr Kim’s interlocutors to exploit.