NK to stay afloat economically

This is the first in a series of articles regarding North Korea under Kim Jong-un upon his official inauguration as leader of the communist dynasty. ― ED.

By Chang Se-moon

Marcus Noland of Peterson Institute (PIIE) states in his March 29, 2016 blog that many mistakenly believe that the North Korean economy “is so picked over that even the vultures are avoiding the country! Holy moly, end times are here! This place is about to implode!” As bad as the North Korean economy is, I tend to agree with Marcus Noland that any imminent collapse of the North Korean economy is highly unlikely.

Kim Jong-un’s opening speech and his report on the work of the central committee during the 7th Workers Party Congress, held in May, stressed political stability promoting Kim Jong-un from dictator to the absolute dictator, shedding little light on the future of the North Korea’s economy. Both stressed the aged “byungjin” line of maintaining nuclear weapons while simultaneously pursuing economic development.

Let us review key factors that will constrain the future of the North Korean economy.

The February 10, 2016 closure by President Park Geun-hye of the Gaesong industrial complex led to the loss of $130 million revenue to North Korea, representing about a quarter of annual trade deficit that North Korea incurs against China. With the loss of 54,000 jobs, the closure will clearly cause a hardship in North Korea, but the hardship will be limited to the general public, not the leaders of North Korea.

More importantly on March 2, 2016, the United Nations Security Council (UNSC) has unanimously approved its toughest-ever sanctions on North Korea. The 2016 sanction is spelled out in UNSC Resolution 2270. This is the latest set of sanctions, following Resolutions 1718 (2006), 1874 (2009), 2087 (2013), and 2094 (2013).

Resolution 2270 requires U.N. members to inspect all cargo to and from North Korea at all airports and seaports. Previously, nations had to inspect such shipments if they had reasonable grounds to believe they contained illicit goods. Resolution 2270 bans exports of coal, iron, iron ore, and other minerals to and from North Korea. The resolution also requires U.N. members to freeze the assets of companies and other entities linked to the North Korea's nuclear and missile program.

The success and failure of U.S. sanctions against North Korea depends heavily on how China implements Resolution 2270. On April 5, the Ministry of Commerce (MOFCOM) of China released Announcement No. 11.The Announcement bans imports of coal, iron and iron ores from North Korea with exceptions that are unrelated to the nuclear and missile program. The Announcement also bans “imports of gold ores, titanium ores, vanadium ore, and rare earth minerals from the DPRK,” and “exports of aircraft fuel including aviation gasoline, naphtha aircraft fuel, kerosene aircraft fuel and kerosene rocket fuel are forbidden” except those that are “used to satisfy basic human needs.”

On March 15, President Obama issued Executive Order 13722, outlining new sanctions that go far beyond Resolution 2270 as a result of the North Korea Sanctions and Policy Enhancement Act of 2016.

How can the North Korea economy withstand the pressure of all these sanctions that will clearly damage its economic activities? Let me explain how.

First of all, as Stephen Haggard of Peterson Institute states in his April 11 blog, both Resolution 2270 and MOFCOM Announcement No. 11 “provide China with discretion to implement the sanctions depending on North Korean actions,” suggesting any accommodating gesture by North Korea will lead to a loosening of sanction enforcements especially by China.

Secondly, Executive Order 13722includes humanitarian exemptions for activities that support humanitarian projects, democracy building, education, development projects directly benefiting the North Korean people, and environmental protection. There appears to be a large room to lessen the harsh impact of sanctions.

In the third place, as the economy worsens following new sanctions, the black market exchange rate has to move in such direction that the North Korean won per dollar increases rather significantly. According to DailyNK.com, the NK won per dollar changed from 1000 in May 2010 to 3100 in January 2011, 4400 in January 2012, 8100 in February 2013, 8400in February 2014, 8000 in January 2015, 8190 in January 2016 and 8100 in April 2016. The rate has remained stable from early 2013 to this date against all the tough sanctions.

In the fourth place, Kim Ga-young in his January 7 blog of DailyNK.com states that “financial sanctions will hurt the North Korean economy to some degree, but its people will be left to bear the brunt.”

Finally, albeit a snail’s pace, Kim Jong-un has been opening up the North Korean economy to market forces, likely for securing more funds for his leadership. It seems, according toDailyNK.com, that “more than 90 percent of North Koreans maintain their livelihood through the marketplace,” as rations are not enough for their survival.

Kim Ga-young and Kim Chae-hwan, in their May 9 blog in DailyNK.com, defines the “jangmadang generation” as those “who grew up in the late 1990s around the time of the widespread famine.” Authors conclude that the jangmadang generation has now emerged as a significant influence in North Korea, and is placing increasingly “greater importance on their individual freedom to pursue happiness, as they begin to reject the restrictions placed upon them by the regime.”

Chang Se-moon is the director of the Gulf Coast Center for Impact Studies. Write to him at: changsemoon@yahoo.com.