Build-up
of Self-Reliant National Economy
North
Korea¡¯s guidelines for economic policies are
build-up of the self-reliant national economy that
¡°can meet the domestic demand on its own and
fulfill the needs for technological revolution and
material conditions for enlarged reproduction¡±
based on the principle of self-reliant
rehabilitation. However, recognizing the
limitations of the attempts for economic
development through purely internal mobilization
in the 1980s, it has moved to adopt more pragmatic
lines, emphasizing the need for foreign trade and
economic cooperation with other nations.
Proclamation
of the Rajin-Seonbong Free Economic Zone and
enactment of the Law on Attraction of Foreign
Investment are the examples in addition to its
newly-expressed strong interest in the trade and
economic cooperation with the South and the
promotion of the Mt. Kumgang Tourism Project.
However, it sticks to the time-worn self-reliance
in national economic lines, emphasizing ¡°we
must stand up against the imperialists¡¯
attempts to make the world economy subordinated to
them.
"Heavy
Industry First" Policy
North
Korea has consistently promoted the economic
development policies that places top-priority on
heavy industry, trumpeting that heavy industry is
the foundation of the development of people¡¯s
economy. With unreasonably lop-sided promotion of
heavy industry, there has been deepening
structural imbalance between industries, which
resulted in dilapidation of agriculture and social
overhead capital. Nonetheless, the North is still
emphasizing the importance of heavy industry as
part of its efforts for normalization of the ¡°priority
sectors¡± such as power supply, coal mining and
metal production which were dealt a severe blow in
the structural recession.
Parallel
Development of Military Strength and Economy
In
an effort to pursue the policy of developing the
economy and strengthening the military strength at
the same time, the North has developed its
industries in a military-industry complex type,
linking the heavy industry with the munitions
industry. Thus, its munitions industry is
indistinguishable from the civilian supply
industry, as it is deeply linked with the heavy
industry centered around the mechanical industry.
People's
consumption must be controlled in order to promote
the dual goals of strengthening its military
strength and developing the economy. As a result,
the people are forced to endure the extreme
difficulties in shortage of articles of everyday
consumption.
FOREIGN
ECONOMIC POLICY OF NORTH KOREA IN 2001
Evaluation
on the last year's foreign economic activity of North Korea
Diplomatic
Results
Last
year was the year that North Korea's diplomatic activity was
very active to the extent that no such history can be found, and
that it came closer to the international society, getting out of
isolation. The step to make a diplomatic relations with Italy
announced on Jan. 3, the very beginning of the year, was a
signal telling the beginning of North Korean forward-looking
diplomacy, and the normalization of the relations with Great
Britain, a closest ally of the US, after the restoration of the
ties with Australia and forming a friendly relations with the
Philippines, was a very significant development. , .
It
is forecast that North Korea will also establish diplomatic
relations with more advanced western countries this year. We
expect that currently progressing negotiations to make friendly
relations with EU nations such as Germany, Spain, the
Netherlands and Belgium, and Canada and New Zealand will bear
fruitful results during the first half of this year.
The
crossing visits between Vice Marshal Jo Myong Rok, No.3 man in
North Korea's power system, and US Secretary of State Albright
were made, and the relations with the US developed further to
the extent that President Clinton's visit to North Korea is
reviewed seriously.
We
cannot ignore the restoration of the relations with China and
Russia, former major diplomatic counterparts. The conclusion of
a treaty on 'North Korea-Russia Goodwill, Good Neighbor and
Cooperation' in February and Putin's state visit to North Korea
in July turned the estranged relations since forming of North
Korea-Soviet Union's amity relations into new friendly
relations.
With
regard to the relations with China, both nations reassured
traditional ties and actual cooperative relations through the
meeting with President of the presidium of the Supreme People's
Commission Kim Yong Nam and Chinese Foreign Minister Tang
Jiaxuan in 1999, ensuing unofficial visit to China by Chairman
of the National Defense Commission Kim Jong Il before
South-North Korea Summit Talks and Foreign Minister Paek Nam Sun
and Minister of the Ministry of People's Armed Forces Kim Il
Chol's visits to China. Above all, the fact that North Korea is
recognized as a cooperative partner, getting out of so called
'bad nation' image in the international society through the
Summit Talks between South and North Korea can be evaluated as
the most remarkable fruitful result.
Results
in the area of foreign economic cooperation
Although
there were no visible results in the area of foreign economic
cooperation, we could find some signs of change in many areas.
Last
June, a measure to ease US economic sanctions against North
Korea, announced but postponed continuously, started to take
effects. Even though its effects are not visible much, since
North Korea was not excluded from the list of terrorism
supporting nations, the symbolic significance of the measure was
great.
The
fact that US Startech Co. agreed with Korean Communications
Enterprise of North Korea on the Internet communications
business and that Oro Co. agreed with North Korean Magnesia
Clinker Co. to cooperate in exporting of North Korean magnesia
overseas showed the visible signs of change symbolically.
Although it was regretable that the attempted dispatch of a
commercial mission to North Korea by US Chamber of Commerce to
South Korea was not successful, it became an opportunity to show
US enterprises' enhanced interests.
It
is also noteworthy that exchanges between North Korea and the
nations that made diplomatic ties are expanding. North Korea
concluded a pact on investment guarantee, economic cooperation
and cultural & scientific cooperation with Italy in last
September, and after that, Italian Industry & Trade Minister
visited North Korea. It was known that the president of Benetton,
as a businessman, tapped a business possibility by visiting
North Korea. The visit to North Korea by an economic delegation
of Italy is scheduled next year.
Australia
also dispatched a market survey delegation of a national foreign
trade promotion agency in August, and it was known that an
energy related business mission visited North Korea and
consulted the cooperative businesses such as maintenance of
electric power system. In November, when Australian Foreign
Minister visited North Korea, a letter of understanding to
promote the cooperation for agricultural technology between the
two nations was signed .
It
is also remarkable that a jointly ventured multinational
corporation between Sweden and Switzerland, Asea Brown Boveri (ABB)
made a cooperative agreement with North Korean government. At
the end of November, the CEO of ABB visited North Korea himself
and agreed to the business of modernizing the nationwide
electric power distribution network of North Korea with the
Ministry of Metal and Machine-Building Industries and Ministry
of Power and Coal Industries. They also agreed to participate in
the various electricity & power plant facilities and
industrial facilities improvement businesses. The fact that a
world-leading multinational corporation started to participate
in the development of North Korean social overhead capital area
is very significant.
At
the same time, the fact that Snowy Mountains Engineering Corp.,
an Australian engineering consulting company, visited North
Korea last July and checked the appropriateness of the project
to modernize Pyongyang's water supply and drainage, which
receives assistance from a Kuwait fund, is significant in that
it is the infrastructure development utilizing a third nation's
fund.
As
economic situation tuned somewhat favorably, overseas purchase
centered on the equipment goods became active. Beginning with
dispatching a light-industry-machinery-equipment purchasing
mission to Taiwan, the import of cars and buses increased
substantially including the importation of 100 cars from
Belarus. North
Korea imported beer plant facilities from Great Britain and
attempted to introduce light airplanes from Poland, which was
not successful.
As
for inducement of foreign investment, its overall performance is
presumed to be minimal, in spite of the reports that some
Chinese and Hongkong corporations invested in North Korea. North
Korea's investment inducement activity also shrank, since even
North Korea's pertinent institutions didn't make much effort in
inducing foreign investment, differently from the past, .
Foreign
trade promotion activity through international exhibitions has
not been activated yet. At the Pyongyang International
Exhibition held in May, only 22 companies (Most of them were
Chinese and Taiwanese companies.) from 9 countries as overseas
businesses participated in the exhibition. It seems that the
activity to promote foreign trade didn't reach the full-fledged
stage yet, given that the number of hosting of the overseas
exhibitions and participations in overseas fairs didn't surpass
much the level of 1999.
OUTLOOK
FOR THE FOREIGN ECONOMIC POLICY IN 2001
Direction
of the foreign economic policy
It
is expected that North Korea will actively pursue foreign
economic cooperation this year based on the fruitful diplomatic
results achieved last year.
That
North Korea pursued forward-looking diplomatic activity last
year was an effort to guarantee its system and acquire economic
support simultaneously. The effort to acquire economic support
through diplomatic activity is forecast to be strengthened more,
given that no sign of economic recovery by its own effort has
shown and the electric power and energy troubles are getting
deeper.
North
Korea had evaluated in the commentary of Rodong Sinmun on Dec.
18 last year, "Gradually higher international interests in
our country and many countries' intentions to improve the
relations with us are becoming an irresistible flow." In
the new year's greeting address this year, North Korea also
revealed, "We will improve the external relations with any
country that respects our sovereign rights and will contribute
to the autonomization of the world and the great undertaking of
humankind's peace actively." In view of all these, North
Korea is likely to solidify foreign relations much more.
The
fact that North Korean Finance Minister and Central Bank
Governor were changed last October, and in the wake of it, that
Foreign Trade Minister was reinforced with a young man in his
40s last December is analyzed as showing North Korean
authorities' strong will to pick up the economy through
actualization of foreign economic cooperation.
There
are, however, some sceptical opinions on the possibility of the
western world's actual economic cooperation with North Korea. If
economic cooperation with foreign corporations to be in
full-swing stage, a certain level of condition requested
internationally should be met, but there is no movement of
internal reform to do so. Therefore, the opinion, asserting
foreign economic cooperation might not expand in spite of the
diplomatic performances, is also strong.
The
increase of exchanges with the international society can be an
opportunity for North Korea to feel the need to change strongly.
In the process of discussing economic cooperation, the western
world is highly likely to demand North Korean authorities'
internal change. The surge of exchanges with the nations that
formed new amicable relations with North Korea gives the sense
of expectation that the improvement of diplomatic relations can
be linked to the economic cooperation and that it also can bring
the change of North Korea.
This
year's activity for foreign economic cooperation by North Korea
is forecast to maintain last year's basic policy. It appears
that efforts for the expansion of commercial cooperation with
nations that signed diplomatic relations, strengthening of
external cooperation to develop social overhead capital and
acquirement of economic support to overcome economic hardship
will be solidified.
Expansion
of the exchanges for commercial cooperation
It
is a general process in which the establishment of diplomatic
tie is developed into economic relations as a next step.
Accordingly, as more countries form diplomatic relations with
North Korea this year, external commercial cooperation also is
likely to increase.
Italy
that signed an economic agreement guaranteeing investments as
well as diplomatic tie last year plans to dispatch an economic
mission during the first half of this year to realize the
cooperative business in full swing. Sweden and the Netherlands
are also scheduled to dispatch economic missions. Taiwan is
slated to send a market survey group led by CETRA, its trade
promotion agency, and Japan also plans to dispatch a large-scale
delegation led by East Asia Trade Research Association to
Pyongyang International Exhibition.
The
Pyongyang International Exhibition, which had not been much
successful until last year, seems to play an important central
function in foreign economic cooperation this year. North Korean
authorities also try to attract much more participations of
foreign companies compared with previous years and the
exhibition scale will be extended to 5,000 sq m. It is expected
that trade through a fair will be active, since Japan's East
Asia Trade Research Association plans to send a large-scale
delegation, and many companies of Taiwan, of which 9 companies
joined the exhibition last year, are also scheduled to
participate in it.
Strengthening
of the efforts to develop the social overhead capital facilities
The
foreign capital inducement policy as a form of economic special
zone development such as intensive investment inducement in
Rajin-Sunbong Region seems to be weakening relatively and the
cooperation with & investment inducement toward foreign
companies to improve social overhead capital (SOC) will be
presumably solidified. The signing of an agreement in the
electric power area with ABB and the appropriateness
investigation of the project to modernize Pyongyang's water
supply & drainage by Australian SMEC appear to be a signal
to this direction.
Since
the loans from the international financial institutions as the
source of funds to develop SOC are the most promising, North
Korea is forecast to attempt to improve the relations with these
institutions. The efforts for the negotiations with the US will
be enhanced, because the US representative is supposed to oppose
the supply of loans from the international financial
institutions, unless North Korea is excluded from the terrorism
supporting nations' list.
We
cautiously predict that areas of electric power and land
transportation such as roads and railways will be developed
above all, if once the loans from the international financial
institutions are supplied. There is a case in which Vietnam
propelled a road construction project by receiving loans from
IMF and ADB, when the US withdrew the opposition on the supply
of the loans from the international financial institutions
before Vietnam established the diplomatic relations with the US.
Efforts
to acquire economic support for overcoming economic difficulties
North
Korea's economy recorded plus growth rate in 1999 and the growth
trend is forecast to continue last year as well.
This
growth trend can be largely attributed to South-North Korean
economic cooperation business and foreign countries' support.
Especially, in the settlement of food crisis, foreign countries'
assistance was crucial.
North
Korea received 600,000 tons of food assistance from the US, and
150,000 tons of food and 400,000 tons of coking coal from China
through diplomatic negotiations in 1999. Last year, it received
the support of 600,000 tons of food from Japan and also from
Korea another 600,000 tons of food. (500,000 tons were loan type
and 100,000 tons were free.) North Korea received $6.51 million
worth of assistance from Australia as well, which made a
diplomatic relations with it last year, and other international
society such as Food and Agriculture Organization supported it
with tens of millions of dollars.
Considering
the announcement of North Korean authorities that its food
harvest declined 1.4 million tons due to natural disasters in
2000, diplomatic efforts to receive food assistance will be
heightened. Especially, assistance requests to the nations under
negotiations to open diplomatic relations are predicted. The
nations that can support North Korea, however, are limited,
therefore, the burden to support North Korea is likely to fall
on the hands of China, Japan, America and South Korea in the
end.
Matters
to be required for the expansion of foreign economic cooperation
Change of the internal economic system
Although,
macro-situation progresses in the direction that the economic
exchanges between North Korea and the international society
expand, there still exists some questions about whether the
exchanges can be developed into actual cooperative affairs in
terms of micro-perspective.
It
is true that external world has strong sceptical views on
whether North Korean internal environment can guarantee business
activity sufficiently and whether there is profitability in
doing business with North Korea, let alone the credibility issue
of North Korea.
It
is pointed out that there is no change inside of North Korea,
although its external negotiations are active. So far, even
though many laws were enacted to induce foreign investment, free
activity of a company is not guaranteed actually. It's hard to
find a remarkable successful case of the advanced businesses to
North Korea.
While
the World bank raised the problems related to investing in North
Korea such as the exchange rate & price system not
reflecting actual value, lack of credibility of the statistical
data, lack of recognition of business and above all the
perceptive differences on the management and labor management as
well as the issues of expansion of SOC facilities and law
system, the bank stressed the need of education to improve such
problems, which can be regarded to have pointed out the matters
for North Korea to improve rather precisely.
North
Korea needs a long-term strategy to search for a co-existent way
that can guarantee profits to the investing foreign corporations
as well through the change of its internal system, not just
sticking to immediate economic profits, while paying attention
to these external views.
Western
world's cooperation to settle the change of North Korean system
North
Korea already admitted that its new targets for economic
cooperation should be the advanced western countries as the
socialist economic cooperative system collapsed in the beginning
of the 1990s. However, it depended on the strategy to settle the
issue with military assets such as nuclear bombs and missiles
not on the normal economic exchanges, which caused the
opportunity to recover economy to be lost and led unsuccessful
actual results.
It
is very desirable that North Korea set up a policy to expand
economic cooperation, from the previous year, through
normalization of the relations with the western world, escaping
from isolation . Still, the policy is not solid enough yet and
there will be many disputable factors inside of North Korea. As
the exchanges with the western world expand, the decisive time
to reform North Korea's internal system is approaching, and the
time could be this year.
The
western world's interests in economic cooperation and efforts
for it are necessary for North Korea to make a rational decision
to get out of economic isolation. At the same time, the attitude
urging North Korea to change to be acknowledged as a member of
the sound international society is also needed. Because North
Korea thinks that it did what it could do so far, some are
disappointed at the fact that the foreign investment was not
induced as expected, therefore, there will be some internal
opposition against the change. If confidence on the maintenance
of the system and economic recovery is constructed through the
formation of credible relations with the western world, North
Korea's open change might settle down as a solid policy.
*
This writing is the manuscript that was carried in the Jan. and
Feb. issues of 'The Economics of Korean Reunification' published
by Hyundai Research Institute.
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