Analysis: North Korea economic reforms seen out of reach

By Jeremy Laurence

SEOUL (BestGrowthStock) – The biggest political and military reshuffle in years in isolated North Korea, meant to smooth the way for a third generation of family rule, does not auger well for desperately needed economic reforms.

Despite prods from China — the North’s main benefactor and primary source of food and fuel — to follow its path of market reforms, ailing leader Kim Jong-il has signaled Pyongyang will stay the course of the closed economy, at least for now.

“They have got strong encouragement from China, but so far I don’t see much progress,” said Goohoon Kwon, an economist with U.S. investment bank Goldman Sachs in Seoul.

“It is very unclear which direction they are going. Internally, what they are doing with the party leadership and then by also putting the military still up front, is very difficult to reconcile with economic reforms that you see in China and other countries.”

North Korea is one of the world’s poorest countries with an annual gross national income of 28.6 trillion won ($24.1 billion) last year — less than 3 percent the size of the South’s economy.

Economists widely agree the only way for the North to pull itself out of its economic woes is to gradually open up the economy as communist China and Vietnam have done, although recent policy steps suggest a firmer grip by the state over enterprise.

The North has experimented with the free market, mainly by allowing limited private markets to develop near the Chinese border, but a currency revaluation last year paralyzed much of the nascent private business and sent shivers of unrest.

A policy brief by the Peterson Institute for International Economics earlier this year said many of the anti-market reforms of the past decade were driven by the threat private sector-style activity posed to its authority.

“The hope of the government is that this loss of private economic activity will be offset by the return of labor into the state-owned enterprise sector,” it said.

“The very fact that the government has had to revert to tighter controls and repression, in fact, demonstrates the determined survival instincts of its citizenry and the resilience of the market.”

China is a crucial economic and political backer of its smaller neighbor, which it fears could become a dire burden if 68-year-old Kim’s regime falls apart and spills refugees into northeast China.

President Hu Jintao told the North’s ailing leader in August that Pyongyang should keep “with the tide of the times.” “Economic development should be self-reliant and also cannot be separated from opening up and cooperation,” he told Kim.

Kim’s response was not recorded.

REFORMISTS MISSING

Late last month, the secretive state’s leader initiated a process to hand over the reins of power to his youngest son Kim Jong-un, giving him senior political and military posts, and promoting other trusted family and friends.

Analysts say there were no reform-minded officials among the 32 members selected to the Politburo, the top decision making body, or among the 124 full members of the Central Committee.

The appointment of Pak Pong-ju, a known reformer sacked in 2007, as an alternate Central Committee member stands as the lone leading light for instigating change to the state’s moribund and heavily indebted economy.

“Kim Jong-un’s anticipated succession is emblematic of status quo,” said Yoel Sano of Risk analysis group Business Monitor International in London.

“We think that if Kim Jong-il dies the real authority will be a collective leadership with military playing a strong part.

“The stability which would be associated with a collective leadership would be positive, but we wouldn’t be expecting major compromises or economic reforms.”

Experts agree North Korea will play it safe with the economy for fear of destabilizing its succession plans, and has reasserted that its ideologies of self-reliance and military authority work best.

“The tragic irony of juche (self-reliance) is that seeking self reliance only produces the opposite: reducing a once proud industrial state to beggary,” says Aidan Foster-Carter of Leeds University in Britain.

“If whoever is in charge in Pyongyang now or in the future does not grasp this, there is no hope,” he wrote in the Australian National University’s East Asia Forum.

(Editing by David Chance and Miral Fahmy)

Analysis: North Korea economic reforms seen out of reach