By Károly Fendler (historian, orientalis, lector for Korean History at the University ELTE, Budapest)

Nuclear weapons, mass famine, economic collapse, Stalinist dictatorship – these and similar news have characterized the international news about North Korea for years, among which sometimes we can also read about powerless, unsuccessful economic “reform-attempts”. Without questioning the above, we would like to briefly summarize the measures the North Korean government took over the past 1.5-2 years in order to fight economic crisis, and behind which there is a new economic policy to emerge.

It is without doubt that at the moment we can only talk about the “rescue” of the old political system, the hindering of a potential social-political collapse. Although we cannot talk about “economic reforms” in North Korea, only “government measures”, but gradually, “new wine is poured in the old barrels”, only the label has (still) remained the same, and it is undeniable that Pyongyang is showing an ever greater flexibility in these matters. There are more and more young-generation, reform-minded professionals in the executive (including the new generation of the Kim clan). In this spring started rewriting text-books in the Economic Faculty of “Kim Il-sung” University to the market economy.

Half of the parliament, elected in August 2003 (highest people’s assembly), has been filled with new persons, 52% of the representatives are under the age of 55, and 92% has completed higher education. The Prime Minister of the new government is Pak Pong-choo, former Minister of Chemical Industry, who, in his inauguration speech, pointed out that one of the most important tasks of his government will be “the basic renewal in economic programs”. Pak and the majority of the ministers of key economic areas have all been studying the South Korean economy and companies over the last years for weeks.

In May 2003, in the DPRK, state bonds were issued for the first time since 1950, with a ten-year period of maturity, in order to shake up the capital on the free (and black) market. According to some analysts in Seoul, this sum can exceed the double of the government’s annual budget. This action was intended to hold back the inflation tendencies, as well as to make up for the lack of expected foreign investment. (The first lot was held in December 2oo3).Presumably the measure counts on the people’s patriotism, allegiance as it happened in South Korea with the financial crisis of 1997-1998, too.

The devaluation of the North Korean won was a significant step toward the special economic reform. The 2002 official exchange rate of the USD was elevated from 150 won to 900 won (earlier it used to be 2.2 won!), in order to decrease the price gap between the official and the black market rates, and at the same time the floating exchange rate was introduced. Free market trade of consumer and manufactured goods was permitted (agricultural products have already been liberalized), that is, the authorities de facto acknowledged the existence of the free market. There is a large-scale reconstruction going on in Pyongyang, streets and quarters are being renovated. South Korean companies are actively participating in the works. Both in the capital and in the country, electricity service is improving – the decade-long evening darkness is replaced by bright windows, street-lighting is improving. The (finally) favorable weather, as well as the completion of several major irrigation canals and other agricultural projects, such as the 150 km long Kaechon-Taesong canal, have contributed to the good harvest over the past two years.

North Korea is obviously leaving behind the economic view of “war communism”. The global, overall autocracy of the planning bureau was abolished, its task is now (similarly to South Korea!) limited to the definition of strategic aims. The companies themselves further concretize these aims. The rationing system in food and other goods was abolished, wages are dependent on accomplishment and education. Shopping centers, department stores are being opened in Pyongyang, and shops are appearing in distant villages, far from the capital, beside the roads, selling vegetable, fruit, drinks and cigarettes only, but still, they mean the beginning of a “commercial infrastructure”. At some places, we can already find half-made food products (meat products!). There are more and more foreign manufactured cars on the roads, not to mention the advertisements of South Korean car companies. Ch. L. Pritchard, a former top official of the American foreign ministry, who personally has visited the North several times, gave a surprising account on his experiences during his visit in January, at the Brookings Institute in Washington.

Without going into further details, it is worthwhile mentioning that in the past couple of years the DPRK introduced enterprise self-management and replaced the central allocation of production resources by inter-enterprise contractual arrangements. Enterprise efficiency is increasingly measured by profitability and enterprises are allowed to use part of their hard currency export revenues for their own development. The role of banks as financial intermediaries is gradually increasing. The modernisation and computerization of various industries also represent a departure from the earlier economic model.

These developments are accompanied by several administrative and legislative measures, particularly in free-trade zones. However, the underdeveloped infrastructure, the (still) existing totalitarian political system and the resistance of the political establishment, which has grown enormous for the past decades, represent serious problems. Nevertheless, it seems that North-Korean professionals having received foreign education and training in recent years, including those attending the CEU’s programmes in Budapest, may also play a significant role in “perestroika”.

The development and strengthening of the North Korean market economy is inseparable from the inter-Korean economic relations, which are especially depending on the changing political situation (nuclear crisis, land and sea incidents, provocations). Today, the South Korean presence is perceptible in every field of economy in North Korea, and it is beginning to spread to the social, cultural, as well as scientific and sport relations, too.(Several hundreds of North Korean athletes and fans participated at Universiade in Taegu, South and North Korean workers’ delegations had a common festival on May Day in Pyongyang).All over the country we can see investments of South Korean companies, where northern engineers and workers work together with their southern colleagues. One of the most important South Korean investments is the joint industrial zone in the district of Kaesong, the medieval capital of Korea, located at the border of the two Koreas, in the North. The regulations about entry and stay in the Kaesong industrial zone and the Diamond Mountain tourist zone were passed this January, then South Korean representatives signed a 50-year rental contract for 3.3 million m2 land on April 13 in Kaesong. South Korean visitors are more and more frequent in the North through the previously impenetrable demilitarized zone. Now, South Korean tourists can visit the Diamond Mountains, the “Korean Switzerland” by bus, instead of the earlier, more expensive ships (a three-day trip costs ca. 130 USD). For the first time since 1950, rail and highway connections have been reopened between the two Koreas, although we cannot talk about a regular traffic yet.There are carrying negotiations on the regular truckage lines. The first high-level military negotiations on prevention of the naval incidents were opened in May-June,too.

In August 2003, both North and South Korea have introduced four inter-Korean agreements about the protection of investments, the avoidance of dual taxation, the settlement of business disputes, and accounting; regulations already passed in December 2000. All these play an important role in promoting South Korean investments, opening a way for further economic cooperation between the two Koreas (which is so badly needed in the North). In September 2003, North Korea agreed for the first time to the transportation of South Korean tourists by its own Air Koryo airline, together with a southern travel agency, from Seoul to Pyongyang. (North Korea previously permitted flight in its air-space for Southern civil lines,

significantly shorting the flying-time and route between Seoul and West Europe. South Korean minister of foreign affairs Bang Gi-Moon very aptly remarked 3o August at Canberra: Inter-korean cooperation is an irreversible process because of the serious interests of both sides. Of course, in North Korea, it is understood that the only real alternative to overcome the economic crisis is reform politics, opening up, but at the same time they are afraid that these phenomena might be dangerous for the existing political system, therefore they try to limit them. The occasional stops and tensions that can be experienced in the North are probably reflecting the internal differences and power-struggles in the political leadership. But it was interesting that a few years ago Kim Jong-il appreciated positively the South Korean dictator Pak Jong-hee’s historical role

Kim Jong-il, in case he is the real leader of the “careful corrections”, has two difficult tasks: he has to fight the almighty apparatus of the political system created by his father and himself, and the developments could easily bury him in the ruins (this is not favorable by either Korea or the great powers). Furthermore, he must settle the relations between Pyongyang, Washington and Tokyo, since without their support, the DPRK will not receive loans from the World Bank or other international financial organizations.

And the third serious question related to close connection with the formers: it is North, judgement, its discredited financial situation and political behaviour. It takes, however, its origin from the country’s internal affairs, the dictatorship on the one hand, and from the 5o years its international blockade in the Far East on the other. Consequently, it is a legacy of the Cold War. But great powers concerned in the Peninsula have to take notice of that time of “balance of intrigue” has passed there. On the other side Koreans have to be aware of that the country’s century old situation “Korea between great powers” can get over together, reunificated only.

Korea’s very bad international image judgement, its discredited financial situation and political behaviour. It takes, however, its origin from the country’s internal affairs, the dictatorship on the one hand, and from the 5o years its international blockade in the Far East on the other. Consequently, it is a legacy of the Cold War. But great powers concerned in the Peninsula have to take notice of that time of “balance of intrigue” has passed there. On the other side Koreans have to be aware of that the country’s century old situation “Korea between great powers” can get over together, reunificated only.

Above mentioned circumstances, considerations means the background for North Korean “perestroika”, which has already begun, and cannot be turned around any more. It will sooner or later lead to results similar (and in some ways very different) to those in China and Vietnam. This is beginning to be realized and appreciated abroad. It is not accidental that leading politicians of the world, including the United States, representatives of respected international organizations, follow on each others’ heels in Pyongyang,as it is done by the European Union, Poland, the Czech Republic, not to mention Germany, who has not only an Embassy in Pyongyang, with lot of specialists, but opened an Information Center in last June there with free accessibility (including internet) for citizens. Unfortunately, Hungarian foreign policy has given up its decades-long favorable positions, and in 1999 the Hungarian embassy in Pyongyang was closed down.

Of course, the economic recovery will have a long, difficult and painful way, with coming to a sudden stops and crisis. And moreover the social-political stability must be retained, what depends not only on North Korean leadership but significaly on the international conditions, on the great powers policy,too. Nevertheles, it will be the real way „from perestroika to the national reunification” but it will be impossible without changes in the political system, in the hierarchy.