By Kang Hyun-kyung
Staff Reporter
The big-budget economic package to be sponsored mainly by Seoul is not expected to have a profoundly beneficial impact on the struggling North Korean economy, an economist said.
Prof. Zang Hyoung-soo of the Department of Economics and Finance at Hanyang University in Seoul said that these packages are likely to be short-lived, as financial resources that Seoul can use are limited.
``Instead, Seoul should help Pyongyang consider outward-looking economic reform by helping the North join international financial institutions as a member state,'' he said in an interview with The Korea Times Friday.
The economist called the massive-budget economic package for North Korea, a so-called Marshall Plan, a ``politically motivated idea'' to curry favor with voters.
Zang, with the National Intelligence Service (NIS), had been involved in a variety of research projects on North Korean affairs for years before joining the university as faculty.
The discourse of searching for financial resources to sponsor the communist country's economic reform is underway among experts in South Korea.
According to a report, the government is considering creating a regional development bank to sponsor inter-Korean economic projects, and China, Russia, and even the Asian Development Bank already expressed interest in joining the financial institution as stakeholders.
Zang indicated that the Seoul-led plan to offer economic packages to Pyongyang will reveal limitations in reviving the planned economy in the long run, and a more sustainable and feasible growth path should be addressed.
The security situation on the Korean Peninsula has begun to change after the multilateral talks dealing with the North Korean nuclear standoff are on the right track.
Experts have begun speculating about what Pyongyang's next move will be after it ``verifiably'' disables its nuclear facilities and Washington delists it from its list of states sponsoring terrorism.
Zang predicted Pyongyang will seek membership status of the International Monetary Fund (IMF) and the World Bank (WB) to find durable financial resources that will move the economy forward in the long run.
``Joining the IMF and the WB should be considered a feasible option that could create a virtuous circle of sustainable growth in the North,'' Zang said.
He stated that this is because being a trusted member of international financial institutions is likely to lead the North Korean economy to find a realistic and feasible growth path in the post-denuclearization era.
Some experts analyzed that Pyongyang aims to pursue the membership of the international financial institutions to secure seed money to finance its massive economic reforms in the future.
Zang said the observation is ``misleading and shortsighted.''
The implication of being a credible member country of the IMF and WB is more profound than simply being eligible for the low-interest or interest-free loan programs which these two global institutions provide to its members, he said.
``In fact, North Korea will benefit from massive foreign direct investment from the global private sector in the future if it gets a reputation as a committed and dedicated member among member states.''
All members of international financial institutions are required to compile and submit macro and micro economic data such as national income, financial facts and international trade and policy consultation to the institutions on a regular basis.
If Pyongyang joins these institutions, it will also have to file these reports.
The experience of Vietnam supports the example why trust-building matters to transitional economies.
The Vietnamese government has implemented market-oriented economic reform, which is called ``Doi Moi,'' since 1986.
Policy priorities were given in six major areas such as decentralization of state-owned economy, reforms in exchange and interest rates and stressing the private sector as an engine for growth.
``Over the two decades of consistent reform efforts, the Vietnamese economy has literally begun taking over nowadays. The country received only $500 million annually in the incipient period after it joined the Asian Development Bank and WB. Now the economy sees the influx of FDI equaling to $20 billion from all across the globe every year,'' said Zang.
He said that maximum total loan North Korea could borrow from the International Development Association (IDA), which is the part of the WB is estimated at $465 million as of 2006.
The IDA was established to reduce poverty by offering interest-free credit and grants for programs that boost economic growth and reduce inequalities.
Zang said it is hardly expected that the grant will change the economic outlook of North Korean a lot, given that the level of financial assistance is less than a half of that which South Korea spends on inter-Korean economic cooperation.
He said the North should prove itself a decent member to member nations for two to three years after joining the international financial institutions, as trust-building is a must to be a recipient of the loan program.
He said the North will accept economic packages if the South offers, but will not allow Seoul to be a backseat driver of its domestic economy.
``Policymakers in Seoul should be careful not to use such a presumably intrusive suggestion that Seoul will help Pyongyang become a good example in its transition economy by infusing its experience into North Korea,'' he said.
The North Korea expert said this is because non-economic factors such as self-esteem and political ideology are equally important as economic interests to North Korea.
``North Korean officials are likely to feel pressured when practitioners in Seoul try to transplant their growth path ideas into the North because they would interpret this as Seoul attempting to undermine their country's high self-esteem,'' he said.
Over the past decades, Pyongyang has sought market-oriented economic reform to feed poverty-stricken North Koreans who fell prey to the economic meltdown.
Zang said the North has ``almost nothing'' in its economic vision.
``Officials of the North's Communist Workers' Party, however, made it clear that they are pursuing a growth model that allows the regime to preserve communism. North Koreans would welcome foreign aid and a variety of economic assistance packages but they will not accept it if the reform requires Pyongyang to challenge communism,'' he said.
Pyongyang has looked at the Vietnamese and Swedish growth models as benchmarks. But it remains to be seen whether Pyongyang will follow suit or not.
Several North Korea experts shared the view that the North is looking at an internal growth model.