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The unavoidable risks of DRPK’s economic restructuring

  • AUTHORPeter Hayes and Roger Cavazos, ISPI Commentary
  • May 6, 2016

The prospects for the North Korean economy meeting Kim’s New Year’s demand that “…we should bring about an upturn in improving the people’s living standards" looked dim at the start of 2015. The self-imposed Ebola tourism ban lasted until April, cutting off a major foreign exchange earner. In the first quarter, there were reports that North Korea faced a severe drought that would cripple hydro-electricity production and agriculture in 2015. The former may have happened—no-one knows although power shortages appear to be as severe as ever, forcing the conversion of a ten electric trains to diesel and providing incentives to develop renewable energy sources. To what extent sanctions imposed after the January 2016 nuclear test and the February rocket launch may affect coal production and oil, especially refined products, imports, remains unclear. China has announced that it intends to implement a ban on exports of jet fuel to the DPRK, for example. However, we are skeptical that this will be a stringent application. Conversely, agriculture appears to have had a bumper crop in 2015, largely due to Kim’s apparent encouragement of a dramatic increase in the private share of agricultural production (reportedly up to 30-70 percent), and the service sector appears to have grown quickly in the major cities, along with economic inequality and even conspicuous consumption at restaurants and other approved sites. Thus, Kim can fairly claim to be bringing about “an upturn in improving the people’s living standards.”Larger-scale formal markets have remained fairly consistent in size and operation over recent years, especially in port, southern, and northern border cities. Private home-based and street corner service and goods vendors are not captured in this data but are likely expanding rapidly and flexibly, according to supply and political conditions on a daily basis. Although Kim’s on-the-spot guidance focused on “economic construction decreased from 28 per cent in 2014 to 22 per cent in 2015, he highlighted food production or the service sector on these visits, such as terrapin, catfish, or vegetable producers.

The above is an excerpt from the following paper published by ISPI. If you wish to read more, please download the attached file.