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North Korea Plans Economic Reforms - 2002-08-06

In the latest sign that North Korea may be trying to emerge from decades of self-imposed isolation, the communist country has reportedly embarked on a scheme to scrap its Soviet-style economy. There is little consensus among the experts about where the North appears to be heading with its economic reforms and why it waited until now to begin them.

It is unclear when North Korea first made its decision to overhaul its broken economy. But the news filtering out of the reclusive nation in recent weeks indicates that several radical market-based reforms are now taking place inside the highly secretive society.

Kathy Zellweger is the Hong Kong-based director for the Caritas aid organization. She has made numerous trips to the North and says economic changes were being discussed as early as February.

"When I was in North Korea in February and also in May, there was talk about a new salary system and markets being established in cities and town districts."

In one of its bolder moves, Pyongyang has stopped issuing ration coupons that its 22 million people used to purchase basic necessities, such as rice. Now, the government purchases rice from farmers who sell their crops at the so-called "farmers black markets," where costs are 10 times higher than what farmers can receive for selling rice to the state.

Some experts have interpreted the move as North Korea's desire to emulate China's shift from a central-planned economy to a market-oriented system. North Korean leader, Kim Jong-il, has visited China at least twice in the past two years to study its reforms.

But a North Korean expert, Professor Kwon Man-hak at Kyunghee University in South Korea, says he believes the government had no choice but to scrap the rationing system. He argues that Mr. Kim is desperate to assert control over the thriving black market, which is beginning to severely undermine the country's socialist system and erode his political power base.

The private, illicit markets, selling homemade goods and goods smuggled in from across the border in China, sprang up after a severe famine hit the country in the mid-1990s. Aid agencies estimate the famine, brought on by years of mismanagement and series of natural disasters, have killed some two million people throughout the country.

"When the famine began in 1995, North Koreans were not prepared to secure food and other necessities, when they are not provided by the rationing system," Professor Kwon said. "So that year North Korea saw massive starvation. But since then, people have had to find ways to survive. If North Korea wants to stick to the socialist system, they would have to control the markets."

Authorities in Pyongyang have also sharply raised prices in government stores and have promised a 10-fold increase in North Korean wages. Salaries for military and government officials are to rise 14 to 17 times their current levels.

Last week, the U.N. Undersecretary General for Humanitarian Affairs, Kenzo Oshima, spent four days in the capital. He was the highest-ranking aid official to visit the North this year. He told reporters Monday that he believes Kim Jong Il's main objective is to increase food production by providing better economic incentives in the form of higher prices. Since the 1990s, North Korea has produced less food a year than its capitalist neighbor, South Korea, throws away in a month.

But skeptics say no matter what reforms are introduced, the suffering of the North's impoverished people will not end overnight. Crucial questions that remain unanswered are how the salary increases would be implemented and what would happen to those who, even with a wage increase, cannot afford food at the new prices. Furthermore, economists worry that the extra money the government needs to print to meet the wage increases could trigger runaway inflation, which would devastate the economy even more.

The bottom line, Kathy Zellweger says, is that no one really knows exactly what North Korea wants to achieve in its experiment with market reforms.

"It's still very unclear and it's still early to say much. Are they moving to a market economy? It's hard to say."

Meanwhile, the United Nations' World Food Program warns the North's famine situation remains critical. It estimates there are still more than one million malnourished children and elderly people in desperate need throughout the country. The agency recently announced that it would not be distributing any more food to them this year because of a major shortfall in donations.