ILC2021-8 Session 4 - Presentation of Dr. Pavel Leshakov

The end of this year will mark the first decade of Chairman Kim Jong Un’s leadership of the Democratic People’s Republic of Korea. These years witnessed fundamental changes in the country’s economic strategy. In March 2013, his father’s “military first” policy was replaced by the “parallel line of developing the economy and building a nuclear arsenal”. With the series of atomic warhead tests and successful launches of intercontinental ballistic missiles, Kim Jong Un announced in December 2017 the “completion of the state nuclear forces’ build-up” and, in the April 2018 Plenary Meeting of the Korean Workers’ Party, he declared that “all efforts of the party and the country would be concentrated on socialist economic construction”. The transition from “military first’ to “people-centered” policies was confirmed by the 8th Party Congress held in January 2021.

 This shift in economic strategy resulted in the following major developments.

  • The replacement of the dispersed economic management system made up of the Cabinet, Korean Workers’ Party and military during Kim Jong Il’s rule by a “unified economic management” system centered on the Cabinet.
  • A significant increase in the autonomy of enterprises and collective farms through the introduction of a “socialist enterprise responsibility system” and “farm responsibility management system”.
  • The marketization of the economy through the diversification of the country’s distribution mechanism, creation of labor and financial markets, expansion of entities aimed at foreign trade and promotion of foreign investments.
  • The dollarization of the economy, which took the form of the substitution of the local currency with stable foreign currencies, due to inflation and the long history of economic and financial mismanagement. According to the estimates of the Korea Development Institute, since 2013 around half of ordinary North Koreans have relied on Chinese Yuan in lieu of local currency for their daily economic activities.

To summarize, Chairman Kim Jing Un’s strategy was aimed at achieving economic growth through the expansion of the market system, while maintaining the regime’s stability through the strengthening of the government’s management over the economy. In fact, the expansion of the actors involved in foreign trade and more autonomy given to trade-related entities boosted foreign trade, which grew 20% in the period from 2012-2014, reaching its peak of US$7,6 billion (excluding inter-Korean commodity exchanges). More openness to the world market (mainly Chinese) led to a rapid rise in consumer goods and food imports, the emergence of a private markets network and growing consumerism enhanced by the free circulation of cash foreign currencies. Along with exports, a major source of hard currency was from North Korean laborers sent abroad to work.

All those developments were in principle favorable for business activities and potentially beneficial for foreign actors. Yet the strict international and bilateral sanctions enforced on the DPRK since 2017 for pursuing its nuclear and ballistic missile program has left little room for North Korea’s engagement with the world economy. Moreover, the suicidal restriction on cross-border movements introduced by the regime at the outbreak of the Covid-19 pandemic has worsened the situation to the point of no return. In order to survive the sanctions and pandemic, the 8th Party Congress emphasized as its major strategy “self-rehabilitation” and “self-sufficiency”, preparing the people for another “Arduous march” within a self-isolated “Hermit kingdom”.

North Korea’s re-engagement with the outside world, especially in legal business activities, is totally dependent on the lifting of international sanctions and successful combating of the Covid-19 pandemic. The possibility of these changes occurring in the near future is highly unlikely. Moreover, even if the sanctions and pandemic were over, due to the many uncertainties and risks, as well as the specific mentality of local businesses crippled by outside restrictions and local zigzag policies, economic cooperation with North Korea should be, in the first place, started by state-owned entities or NGOs rather than private companies. While working in the Russian Embassy in Pyongyang as an economic counsellor in 2013-2016 (just before the hardest UN sanctions hit), we had several joint projects in trade and investments with the participation of Russian private companies. None of those projects was a success story.

 

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