Tag Archive: economy

The cost of the North Korean rocket launch

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While only the highest echelons of North Korea’s opaque leadership will know the full financial cost of Wednesday’s launch, South Korea’s government estimates Pyongyang spent $1.3 billion on its rocket program this year.

Though the price of North Korea’s rocket launches might be lower because North Korean workers earn much less than their southern neighbors, says Cheong Wook-Sik, Director of South Korea’s Peace Network in Seoul.

According to an official from South Korea’s Ministry of Unification, the two rockets launched this year — this week’s mission and a failed attempt in April — cost $600 million, while the launch site itself is estimated at $400 million. Other related facilities add another $300 million.

“[$1.3 billion] is equivalent to acquiring 4.6 million tons of corn,” a South Korean official said. “If this was used for solving the food shortage issue, North Koreans would not have to worry about food for four to five years.”

But the financial cost and any risk of further sanctions may be a tradeoff for internal political gain as leader Kim Jong-Un tries to solidify his grip on power. Cheong Wook-Sik, Director of South Korea’s Peace Network in Seoul, said, “If North Korea succeeds in launching a satellite, North Korea propaganda may spin this by saying the country has become a prosperous and strong nation. That will help Kim Jong-Un both consolidate his power and help maintain the legacy of his father.”

If there is a message to the international community, adds Cheong, it may be that North Korea is implying “our satellite launch means we have nuclear weapons, we have a delivery system.”

Whatever the cost, what is known is that North Korea is one of the poorest countries in Asia, with an economy worth just $40 billion, according to the CIA World Factbook.

The elite mystery of Pyongyang

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North Korea can appear outwardly stagnant, a country frozen by poverty and Soviet economic policies, but a small but resonant market economy has taken root over the past 15 years or so. While the country still has a per capita GDP of just $1,800 per year, according to U.S. figures, this new economy – a mix of underground trading, investment funds, particularly from China, and the growth of government-authorized commercial enterprises – has helped reshape its capital Pyongyang.

Pyongyang is a closed city, sealed off by security forces that monitor movement at dozens of checkpoints. North Koreans cannot move there, or even visit, without official permission. Its estimated 3 million residents have been vetted for their ideological purity, or at least their connections to the inner circle.

Today, the Pyongyang rich, spending their dollars, euros and Chinese yuan, can buy everything from high heels to imported watches. They have bought enough cars in the past couple years to cause the occasional traffic jam. But few of these changes have gone beyond the capital, and the elite who live there. That contrast, between Pyongyang and every other city in the country, reflects an ever-growing chasm between North Korea’s elite and the daily struggles of everyone else.

The urban divide can be seen in the industrial city of Hamhung, where the skies above the handful of working factories are filled with gray soot, and workers are ferried to the beach on their day off in crowded, cobbled-together trucks powered by wood-burning stoves. It’s visible on the “Youth Hero Highway” outside the port city of Nampho, where there are so few cars on the eight-lane road that it looks like an empty parking lot stretching toward the horizon.

It’s in the province around Chongjin, where U.N. data shows the rate of abnormally short children – a key indicator of chronic malnutrition – is 50 percent higher than around Pyongyang.

You can also find the urban divide in the hospitals of the other second-tier cities, according to people who have fled North Korea. They say desperate doctors struggle to treat patients with almost no medicine, using equipment that can be decades old.

North Korea rolling out agricultural policy changes

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Several media outlets that employ North Korean defectors, including Washington-based Radio Free Asia, have reported that Pyongyang is rolling out agricultural policy changes that mark a significant break from the state-controlled economy.

Those measures, according to the reports, reduce the size of cooperative farm units from between 10 and 25 farmers to between four and six. The decrease is critical because it allows one or two households, not entire communities, to plan and tend to their own farms. Farmers still must hit production quotas, but they can keep 30 percent of their crops, up from less than 10 percent. They can sell the rest to the government at market prices, not state-fixed prices, and they can keep (and sell privately) anything exceeding the quota.

The changes do not apply to the entire country; they have been introduced in three rural provinces and took effect in July, according to reports.

It remains unclear what is driving the government to allow farmers more personal control. The North could be trying to wring more production from its farmers “out of necessity, not out of virtue,” because its centrally planned rationing system is broken, said Victor Cha, a former White House director of Asian affairs. If and when the North’s food shortages ease, he said, the country is likely to retreat.

“Having said that, the more time they have to do this and let the economy function on its own, the better off we all are,” Cha said. “You can say to farmers, ‘Okay, for six months, you can keep 30 percent,’ but the more times you do this, the harder it will be to pull back.”

Few foreign government officials or scholars on North Korea expect a big-bang economic makeover or official announcements about reform.

On North Korea’s economic development push

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Kornelius Purba, Senior Managing Editor of the Jakarta Post, has this to say about North Korea’s economic development push:

North Korea’s new leader, Kim Jong-un, has ambitions to revive the country’s collapsed economy as it is the only way to preserve his family’s control over the country. The young leader has apparently realized that he has no choice but to take quick action to rebuild the economy, as it is only a matter of several years before his regime will collapse if nothing is done to get the military-controlled economy back on track.

Kim Jong-un has taken an important preliminary step by reducing the military’s control of the economy. But his ambitions may backfire as the country has been under a military dictatorship for a very long time and the regime has little knowledge about market-based development, the key to China’s economic might today.

North Korea has little experience in opening its market to foreign investors and the few foreign companies allowed in, including those from China, have complained they were cheated.

The continuously increasing number of starving people represents a major potential threat to China’s national security in the event of a regime collapse and a subsequent flood of refugees spilling over the border. The failure to achieve food security in North Korea could destabilize the already fragile Korean Peninsula and the broader East Asia region.

North Korea a land of man-made misery

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The Economist puts it this way: With a decrepit economy, and now devastating floods, the closed regime of North Korea shows signs of greater openness—though not to everyone.

North Korea has been suffering flooding on a biblical scale. The official news agency this week reported that, after the heaviest rainfall in 39 years, 169 people had died and more than 200,000 had lost their homes. Some 65,000 hectares of farmland had been inundated, exacerbating the chronic food shortage the country has endured since famine killed as many as 1million people in the 1990s.

Both floods and hunger can be largely blamed on the government. Even without this year’s huge downpours, the policy failure that let goats and farmers desperate for arable land

Even without this year’s huge downpours, the policy failure that let goats and farmers desperate for arable land strip the country’s hillsides bare of trees has made flooding an almost annual event. Similarly, food shortages are the result of the economic mismanagement that saw GDP shrink almost by half in the 1990s, and never recover, leaving North Korea dependent on food aid from abroad.

Now the government has appealed to the United Nations for emergency aid, in a country where one in three children is chronically malnourished or stunted. Even before the floods, the World Food Programme expected life to be difficult through the annual “lean season”, until the harvest in October, with reduced rations from the public distribution system on which two-thirds of the population rely, and few ways of making up the shortfall.

Things would be a little less dire had Kim Jong Un, the young dictator and Great Successor to his father, Kim Jong Il, who died in December, not reneged on an agreement reached in February with America, which had offered food. After just a fortnight Mr Kim’s regime announced it would launch a satellite, in breach of United Nations sanctions.

If this made him look like his father’s son, he has since shown signs of becoming his own, rather different man. He has presented a jollier image, and people remember that, by local standards, he is cosmopolitan, having spent a couple of years at a school in Switzerland. On one recent outing, to a funfair, he enjoyed a ride with a young British diplomat and the Chinese ambassador. This seemed to be sending a message to a foreign as well as local audience. The British ambassador, Karen Wolstenholme, detects “more openness” in the regime under Kim Jong Un.

There is little to show for this yet in terms of closer economic or political contacts with Japan, South Korea and the West.

Signs of economic reform are even harder to detect. Three counties have been picked to test a new system of small farms, which will be allowed to keep 30% of their production quota, and any excess. Mr Kim has also complained about the way the country’s resources are being sold off on the cheap. He did not mention that the buyers are almost all Chinese, nor that many of the sellers are parts of the 1.2m-strong armed forces. Scholars in Beijing say he is trying hard to “recentralise” economic control, from the army as well as the largely illicit private sector.

That does indeed seem more likely than any radical reform. Economic relaxation is hampered by the fear of losing political control. As the official news agency puts it, “to expect…‘reform and opening’…is nothing but a foolish and silly dream, just like wanting the sun to rise in the west.”