Saturday, March 15, 2003

BRADLEY BABSON ON DPRK ECONOMIC REFORMS. The whole thing is worth reading but here are a few highlights:
Facing up to economic realities in the future will require that the DPRK leadership acknowledge the historic dependence on generosity of other countries and shift from behaviors that seek to extract subsidies from other countries to maintain viability of a failed system, to behaviors that foster foreign aid and investment on terms acceptable to the international community based on improved relations and commonly accepted financial practices. To accomplish this shift, it is also necessary that the DPRK leadership accept the political implications of the fact that economic survival depends on deepening not lessening economic interdependence with other counties. In the end, the Juche philosophy cannot achieve its basic goals in the economic sphere, and is destined for the same creative re-interpretation as the ideologies of the Communist Parties in China and Vietnam have undergone in recent years.

But the underlying story is that even in a good year such as 2001, cereal production remains far below the yields of the early 1990's and a food deficit of between one and two million tons per year is a structural reality for DPRK.

There are also many informal reports of the "dollarization" of DPRK, as the dollar, Yuan and Yen are used as the medium of exchange for domestic transactions. This is not surprising given the differences in price levels of the official and unofficial economies and the availability and denomination of won currency. Privately held foreign currency amounts to about $1 billion, more that twice the value of domestic currency in circulation.

It is also not clear that North Korean officials have enough knowledge of economics to design and implement the reforms in a way that will achieve the desired results. They have been sending study teams abroad and have been doing homework on their own, but there is no evidence that they are receiving advice from any knowledgeable outside source on the reform process. Thus, even if the political will exists, there is little known capacity to support the planning and management of economic system change. From this perspective, the recent reform initiatives could be seen as a courageous decision for the DPRK leadership or one of desperation.

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