Impending calamity for the Kim regime

By Chan Young Bang

The latest meeting of the United Nations Security Council (UNSC) once again revealed the division on the sanctions against North Korea.

Following North Korea's Sept. 6, 2017, nuclear test ― their largest to date ― the UNSC adopted Resolutions 2375 and 2397, which expanded bans on the export of coal, minerals, textiles and food products; restricted imports of oil, heavy machinery, and industrial equipment; enhanced ship inspections; and curtailed the number of North Korean overseas workers.

As a result of diminishing exports, North Korea's trade deficit with China totaled $1.7 billion in 2017, a figure which is poised to drastically increase this year.

As such significant draining continues in the face of rapidly-declining exports, Chairman Kim Jong-un's dwindling reserves may be depleted as early as this month.

Such a trend will have a reverberating, detrimental impact on the stability of the Kim regime, eroding its legitimacy both economically and politically ― a risk so compelling that it has enticed Kim to the negotiating table.

However, prolonged sanctions will only further destabilize the regional politics of Northeast Asia and deteriorate the U.S.-DPRK trust building process.

Economic ramifications of sanctions

In the past, North Korea's saving grace has been China's reluctance to crack down on unauthorized trade, but in recent months Beijing has faithfully abided by UNSC sanctions, reducing imports from the North by 86.1 percent since the beginning of 2018, and likewise cutting their exports to the nation by 34 percent.

In spite of some illicit export channels, revenue has dropped accordingly, limiting the outflow of goods from the isolated nation and obstructing the inflow of foreign currency.

Compounded with the loss of labor remittances from overseas workers, projected to generate over $500 million annually, this ongoing deterioration of revenue will have a detrimental effect on the state's ever-widening current account deficit.

Unable to sustain this deficit, the regime is faced with colossal shortages of oil, machinery, and raw goods ― a perilous chain effect set off by diminishing exports.

The backbone of the centralized economy, the manufacturing sector, subsequently undergoes an agonizing downturn as sources of fuel, equipment, and materials diminish.

Reduced coal output due to the inability to restore flooded coal mines to functional use, and a shortage of the necessary machinery will worsen the energy shortage, impacting other industries and creating a negative feedback loop that will devastate levels of domestic production and inflict long-term consequences on the trajectory of the North Korean efforts for economic modernization.

As income from production and exports wane, the regime will be left with a growing gap between actual state revenue and government expenditure. Forced to finance massive operating funds ― particularly, the salaries of public servants and the upkeep of its prohibitively expensive military ― the state will be forced to respond by printing more currency.

As the economy is flooded by newly-minted won, inflation will soar. Retailers will react by pulling inventory off shelves in order to sell for higher prices in won at a later date. And the value of the won will nosedive, leading to a full-scale currency crisis.

Subsequent sociopolitical consequences

As the gap between the regime's revenue and expenditure widens, it will grow progressively desperate to find means of financing its operating fund.

Inevitably, this will lead to an increase in the extortion of overseas workers, the majority of whom live under poor conditions and retain meager cuts of their earned salaries. Likewise, exploitation of domestic labor will escalate as government officials squeeze the civilian sector for income.

According to figures supplied by the Rural Development Administration of South Korea, in the latter half of 2017, the North Korean regime lowered its daily rations quota from 400 grams of food per person to 300 grams, falling considerably short of its self-imposed goal of 573 grams per day, and measuring exactly half of the U.N.'s global nutritional standard of 600 grams per day.

This substantial cut is indicative of the grim conditions of the nation's agriculture systems, which for five consecutive years have come up nearly 500,000 metric tons short of the minimum output required to meet its self-imposed goal.

This shortage will lead to an inevitable famine and the collapse of the central rationing system, as prolonged drought in the spring and summer of 2017 caused the loss of another 1.7 percent of the total harvest of rice, maize and potatoes to be consumed in the 2018 grain year.

Worse, with human rights violations mounting and systems of bureaucratic control disintegrating, social unrest and widespread discontent will promptly follow, while rates of defection will climb sharply, already reaching approximately 1,127 in 2017 despite intense measures to consolidate security, especially along the Sino-DPRK border.

The North Korean regime simply does not possess the viable central agency necessary to stabilize its dysfunctional economy, nor to counteract the extensive sociopolitical consequences which will ultimately emanate from the enforcement of extensive economic sanctions.

It should be noted that at the upcoming high level meetings, world leaders should seriously and concretely discuss offering North Korea an opportunity for regime survival in exchange for peaceful denuclearization.

The latest UNSC sanctions may spell out a bleak future for North Korea, but the aftermath of armed conflict and regime disintegration would be incalculably costly on a global scale.

Dr. Chan Young Bang is the president of KIMEP University and principal investigator at the DPRK Strategic Research Center in Almaty, Kazakhstan. He is currently working with the Institute of World Economics and Politics at the Chinese Academy of Social Sciences to organize a research conference in Pyongyang, North Korea. The views expressed in the above article are the author's own and do not reflect the editorial direction of The Korea Times.