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Economic Outlook of North Korea in 2012
Samsung Economic Research Institute
In recent years, North Korea has calibrated its actions to become a socialist economic power by 2012, the centenary of the birth of Kim Il-sung, founder of the Democratic People`s Republic of Korea. The capital city of Pyongyang was spruced up; cooperation with China was strengthened; new power plants were built; the currency was redenominated; and efforts were made to resuscitate major industries. Moreover, science and technology development policies were given new emphasis.
Outwardly, the North Korean economy appeared to be in its best shape since the collapse of the Soviet socialist bloc in the early 1990s. Trade with China, the almost exclusive trading partner of the North, reached an historic high, and Pyongyang showed some signs of revitalizing with various construction projects. The Rodong Sinmun, the official newspaper of the Workers` Party, also reported the resumption of operations at large industrial plants. All in all, no major obstacles appeared to be in the way of the North declaring itself “a strong and prosperous nation” on April 15, 2012, Kim Il-sung`s birthday.
Then, at noon December 19, 2011, North Korea`s Central News Agency announced the death of Chairman Kim Jong-Il. It seemed like time stopped in the reclusive state with a major hurdle in the run-up to proclaiming that it had joined the ranks of the world`s economic powers. After the official mourning period ended, North Korea appeared to be returning gradually to routine but the shock of Kim Jong-Il`s death will continue for some time to come. After the April 15 anniversary events, the main concerns will pivot around Kim Jong-un`s leadership ability and the North`s economic orientation, rather than ushering in a “strong and prosperous nation.”
As yet no particular changes have been detected from North Korea. We recall that after the death of Kim Il-sung in 1994, North Korea did not attempt any political or economic changes. It simply followed the deceased leader`s “deathbed instructions” for three years in the “March of Tribulation.” Thus, a similar path can be expected, with the North carrying out Kim Jong-il`s last instructions.
This study previews the possible direction of the North Korean economy in 2012. A review of the North`s 2009-2011 policies will first be made because they laid the foundation of the North`s “bequeathed policies.” Second, the North Korean government`s recent policy announcements, including the joint New Year editorial of major official newspapers, will be examined. Third, the development of private markets in the socialist state will be observed because conflicts and compromises between the official and unofficial sectors will likely shape the practical course of its economy.
II. Experiments during the Past Two Years
Kim Jong-un became the official successor to his father Kim Jong-il when he was named vice chairman of the Workers` Party Central Military Commission at a party conference on September 28, 2010. But he presumably was designated the heir apparent around January 2009. Therefore, the economic steps North Korea took between January 2009 and December 17, 2011 became the foundation for Kim Jong-un`s takeover.
Policy experiments in North Korea during the past two years can be observed on two planes ― normalization of the official economic sector and the strengthening of economic cooperation with China. In the former, North Korea began a “150-day battle,” a campaign to raise agricultural and industrial production, in May 2009. North Korean authorities discarded formal economic plans and concentrated their resources and capabilities on sectors where actual output was possible. North Korean people mobilized for the first public work projects in many years were not entirely happy but they participated more or less gladly. However, the ensuing “100-day battle” was not as productive as the earlier drive and caused complaints from residents.
On November 30, 2009, when the second campaign was about to be completed, North Korea announced a 100:1 redenomination of its currency. The outside world was surprised and hurried to determine the background and impact of the sudden measure, which Pyongyang installed within one week without much confusion. The Choson Sinbo, the official organ of the pro-Pyongyang Korean residents` association in Japan, published a special article on December 4, explaining that “the currency reform was aimed at protecting the interests of workers and stabilizing their lives.”
The article quoted a North Korean official outlining the three main objectives of the redenomination. According to the article, the first objective was to raise the value of the currency and thereby facilitate its smooth circulation. In order to protect the interests of workers, the official said, their wages were maintained at the pre-redenomination level, which effectively meant a 100-fold increase. The other two objectives were ending an abnormal supply of money in circulation and giving the currency a new theme and ideological and artistic contents.
The currency reform, according to the article, was merely a step needed to realize the 2012 goal of building a strong socialist economy, rather than preparation for a market economy. The official was further quoted as saying: “In the past, the government partially allowed the use of markets because the state and enterprises were unable to supply enough materials needed for planned production. As the state has strengthened its capabilities, the function of the market as a supplementary economic space will be gradually reduced.”
The official predicted that prices would fall below the level seen immediately after the new economic measures of July 1, 2002, because the redenomination pushed up the value of the North Korean currency. He added that most economic activities would thereafter depend not on market forces but on planned supply and distribution, thereby reinforcing planned economic management.