It still remains to be seen whether the North Korean leadership is truly intent on implementing real reforms next month when the June 28 Policy is to go into effect; however, several indicators point towards a genuine attempt by Pyongyang to transform its economic model.
South Korea’s Ministry of Unification announced that it was seeing signs of the Korean People’s Army being restrained from decision making processes involving the economy. Under Kim Jong-il’s military-first policy (songgun), the military had been given priority in much of the state’s resource allocation – and the military reciprocated by using its vast manpower to provide additional labor both in urban and rural areas. Now “specific progress” is apparently being made in line with Kim Jong-un’s stated objective (from a speech in April) of shifting the control of economic projects from the military to the cabinet.
As noted earlier, the government is also enforcing work on collective farms – perhaps in an effort to prepare agricultural collectives for the agrarian reforms that will be at the center of the June 28 Policy. The enforcement has the added bonus of allowing food production to be less dependent on military labor.
Adding on to the wave of liberalization and incentives-driven reforms, North Korean state has also decided to give state-owned enterprises and shops control over 70% of their profits. The new business model also allows the state enterprises themselves to take more control over matters of management and selection of suppliers. Paralleling the move in the collective farms where individuals will be given freedom to do as they will with the surplus production, Pyongyang seems intent on unleashing small-scale liberalization to attract much needed cash to the market.
Greater circulation of goods and increased productivity in all sectors of the North Korean economy will help stabilize the wild fluctuations in both prices and exchange rates which act as huge burdens on the country.
Until implementation, however, the reforms themselves are contributing to the severe fluctuations as North Korean denizens, based on past experiences of economic reforms in the country, are hedging against the expected consequences and are forcing prices in the market to rise. Adding to the domestic uncertainty, Pyongyang has been disrupting the exchange rate between the Renminbi (RMB) and the North Korean Won (KPW) by attempting to purchase foreign currency from the people. Around early/mid-August, after abandoning efforts to illegalize the transaction of RMB, the state has been trying to exchange foreign currency for marginally-better quality sticky rice (20kg for 100 RMB). Despite these efforts, the end result of this policy was the rise in value of the RMB against the KPW – which at its apex on August 27 rose to 1/1300, a 44% rise in a week.
This rise in value of the RMB was immediately reflected in the rise in the cost of rice, which reportedly reached the unprecedented level of 7000 KPW/kg in Hyesan on August 28 (2500 KPW/kg in April of this year).
The consecutive natural disasters that have plagued the country this year have further assisted the deterioration of living standards for everyday people. The fall harvest is expected to plunge by 600,000 tons this year and some experts estimate that North Korea may experience a crop shortage of between 800,000 and 1 million tons between November of this year and October of the next. Kim Hartzner, managing director of Mission East, a Danish aid group which focuses on providing food aid to children, noted that the damage to the arable land by consecutive drought, flood and typhoon will be felt in two to three months when the maize already harvested have been consumed.
Even without the natural calamities, North Korea has an ongoing food crisis that could unexpectedly turn into severe deprivation in a short amount of time. The seriousness of the problem ahead has convinced some like Andrei Lankov that the reforms are genuine – nonetheless, there are many legal and institutional reforms left out of the June 28 Policy that makes it difficult to predict whether these changes will have long-lasting impact.
For instance, as in the case of the agrarian reforms where the state will maintain command over the supply of resources to the collective farms, the state will continue to choose who will be in the management position of the state-run enterprises and still dictate production to a large extent. The basic principle of using incentives to expand production is on the right track; however, inexperienced or distrustful Pyongyang is making a haphazard attempt at maintaining control over production. As in the case of the 1955 Crisis, economic correction does not always translate to political reform even though both are absolutely necessary to achieve the goal of increasing productivity and enhancing the people’s quality of life – reflecting over history and the current state of affairs, the people of the DPRK may be right to prepare themselves for a cold and hungry winter.