Brief thoughts on North Korea’s stalled reforms and future prospects

A year ago, the internet was buzzing with analyses on how Kim Jong-un was going to be a different leader than his father – since then there have been several provocative rocket launches, a nuclear test, and (in our modest opinion) most importantly, a failed reform effort.

We at DPRK Food Policy blog believe that Pyongyang’s moves to reform the agricultural policies between April and October 2012, collectively referred to as the June 28 Measures (and abroad as “Reforms”), were genuine.

This belief then obliges us to explain why the implementation of these changes were put on hold. The North Korean state noted in its official statement that the needs of the military were too great to be put on hold while the economy reorganizes. We on the other hand looked to the institutionalized asymmetry between Pyongyang and the rest of the country, driven by inflation, as the underlying factor in the delay.

More recently, Marcus Noland of the Peterson Institute published a report for the East-West Center titled “The Elusive Nature of North Korean Reforms” which explores the difficulties facing the country even if the leadership seeks to make changes.

He looks to inflation as the key source of North Korea’s difficulties:

[The North Korean state] has been unable to establish an effective tax system since the demise of central planning in the 1990s. It cannot float bonds, and the country has no real banking system to speak of. Instead, the state relies on… the printing press. As a reaction to the ongoing monetization of the government deficit, enterprises hoard foreign exchange and engage in various ruses to keep it out of state hands. The cycle further depresses the value of the North Korean won and worsens inflation.

This phenomenon adds fuel to the rapid increase in food prices, decreasing consumption and prolonging the country’s endemic food insecurity.

Nonetheless, the destructive effects of inflation might be something Pyongyang is willing to accept as continued flow of capital is needed to finance the (domestic) inputs for the mass construction that is continuing in the capital. After all, bulk of the suffering caused by the asymmetry is exported from the capital, thus the elites are unlikely to press for the status quo to change.

Despite these obstacles and the ongoing tensions on the peninsula, Noland cites three reasons why he is confident in the prospects for reforms in North Korea:

  • The leader is more willing to engage in reforms (due to more worldly thinking or desperation)
  • Officials who had undertaken the reforms in 2002 have been rehabilitated
  • China’s depleted patience may prompt Pyongyang to seek financial and technical assistance from Beijing through the reform efforts

He looks to Uzbekistan as a more-likely analogy of what to expect from North Korea if it engages in reforms.

In so far as why the reforms stalled last October, Noland only forwards the possibility that Kim Jong-un might still be establishing his authority over the regime. This is the most widely-speculated reason and it is also implied in our explanation as we are essentially suggesting that the interest groups within Pyongyang have great influence over state policy, even if they go against Kim Jong-un’s objectives.

In terms of future prospects for change, the recent reappointment of reform-oriented Pak Pong Ju as Prime Minister might be a sign that the country is stepping towards the right direction. However, given the speed of change since April 2012, the more telling indicator of reforms (and Kim Jong-un’s effective control over the Pyongyang elites) might be the effective control over inflation reflected in the domestic rice prices.

Keep your eye out for changing patterns.


About Yong Kwon

I develop trade advocacy strategies for a DC-based consulting firm. Studied economic history at the London School of Economics, and can be found on twitter at @ykwon88
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