North Korea Relaxes Economy, Reaches Out to U.S. and Japan
By John Larkin
The Wall Street Journal
Aug 2, 2002SEOUL -- Is North Korean leader Kim Jong Il turning from warmonger to peacemaker?
A week of intensive and rare peace overtures from North Korea seems to suggest so at first glance. Pyongyang's top diplomat, Paek Nam Sun, sought out U.S. Secretary of State Colin Powell at the Association of Southeast Asian Nations Regional Forum in Brunei this week to press for an end to a long hiatus in dialogue with Washington. That meeting, Mr. Paek said Thursday, secured the promise of a visit to Pyongyang by a senior American envoy, the Associated Press reported, though the U.S. diplomat, James Kelly, wouldn't confirm whether a meeting would take place.
Mr. Paek also struck an accord with Japan to restart stalled talks on establishing diplomatic relations. Last week. Pyongyang called for ministerial contacts with South Korea, the first since April.
Specialists on North Korea caution that Pyongyang has raised false hopes of detente with the West many times before. But the latest flurry of diplomacy marks a policy U-turn from just a month ago, when North Korean naval vessels sank a South Korean patrol boat in disputed waters at the sea border separating the two Koreas, killing five Southern naval personnel. That incident stoked criticism in South Korea that Seoul's policy of courting North Korea is too generous and isn't being reciprocated by Pyongyang.
On the home front, the North has embarked on what could be the most dramatic retooling of its economy in its 54-year history. Two days after the late-June sea battle, North Korea began phasing out the food-rationing system under which its citizens have for decades exchanged coupons for subsidized food. Prices have been allowed to rise to roughly those charged on the booming black market. Wages have been raised in some cases 30-fold to cover the increased cost of living. For the first time, households will have to pay for food, rent and utilities; and businesses will be made to pay their own way.
"North Korea is coming out on a full scale," says Paik Hak Soon of the Sejong Institute, an independent think tank in Seoul. "It realizes it is running out of time."
It does sound promising. The key question will be whether Mr. Kim's sudden change of heart is an attempt to transform the nature of his oppressive regime, or merely to defend it from further attack.
There's reason to doubt Mr. Kim's motives. His tinkering with the command system his father, Kim Il Sung, molded around his philosophy of juche, or self-reliance, could be a ploy to shore up his faltering control over an economy that is increasingly dominated by underground activity in the form of so-called farmers markets. Lifting food prices means more farmers will sell their produce to the government for higher prices, rather than hoard it or sell it at the farmers markets.
That would allow the North's leader to reassert control over prices by effectively renationalizing a food-supply system that shook off state controls as famine gripped the nation during the 1990s. "My gut tells me that Kim Jong Il hates the traders and black-marketeers, and on some level thinks this will wipe them out," says Marcus Noland, an expert on North Korea at the Institute for International Economics in Washington.
Moreover, the fact that groups such as the military will get bigger pay rises and, therefore, bigger real incomes suggests an attempt to reward key constituencies whose loyalty Mr. Kim needs. And there are nagging questions, such as what will happen to those who can't afford the higher prices at official food-distribution depots. And what about the workers who lose their jobs at inefficient state factories stripped of subsidies?
These questions might yet be answered with further reforms, which North Korean officials say will come. To that end, Pyongyang's courtship of Washington and of Tokyo is encouraging. It needs their imprimatur to have any hope of gaining loans from international financial institutions like the World Bank to rebuild its shattered industrial infrastructure.
Pyongyang's pitch for unconditional talks with the U.S. suggests to some South Korean scholars that the North is poised to take that step by offering concessions on issues of concern to Washington, such as inspections of nuclear facilities and curbs on missiles. Its overture to South Korea has spurred optimism because it was paired with an expression of remorse over the naval clash, which Seoul's pro-engagement government interpreted as the apology the South had demanded. "It's a very positive development," says Moon Chung In of Yonsei University in Seoul, a key adviser to the South Korean government on engaging North Korea.
Certainly, it appears the backlash from the naval clash jolted Pyongyang into a rethink. Days after the skirmish, Pyongyang signaled it was prepared to meet a longstanding demand by Washington that the North deport Japanese terrorists harbored in the North since they hijacked an airliner in 1970.
Mr. Kim has dashed such hopes before. The euphoria generated by his June 2000 summit with South Korean President Kim Dae Jung evaporated within months as he regressed to his usual tactic of reneging on agreements and canceling talks.
Will this time be any different? Pyongyang's peace offensive suggests the North knows it needs foreign investment to resuscitate its economy. But its economic reforms indicate Kim Jong Il isn't ready to accept the erosion of his power that foreign investment would bring. If that is the case, he may find himself in more trouble than he is now. Higher salaries, which will presumably come from printing more money, might help trigger a wave of inflation that would put life's necessities even further out of reach for many North Koreans.
That is unless Mr. Kim succeeds in containing inflation by boosting the supply of goods. Increased foreign investment is the fastest way to do that. But attracting money will require better relations with Washington and Tokyo, which is why Mr. Kim's recent diplomatic outreach is so crucial.