N. KOREA: North Korean Economic Crisis Complicates Transition

March 30, 2010

by Anthony Kuhn

Economic upheaval in North Korea may have cost one of the country's top economic policy officials his job, and maybe even his life.

If media reports in South Korea are accurate, earlier this month, North Korea hauled its equivalent of Alan Greenspan in front of a firing squad.

If not, then Pak Nam Gi, in charge of finance and planning for the ruling Workers' Party, may be doing just fine.

After all, even experts don't know who many North Korean officials are, much less whether they've been shot. But North Korea watchers agree that the economic reforms Pak presided over have failed disastrously, complicating North Korea's leadership transition.

Many analysts believe Pak was made a scapegoat for the currency reform.

"Pak Nam Gi's a technocrat. He's not a power man. He has just implemented what the politicians have wanted, but he was blamed for the failures of the currency reform," says Park Hyung-jung, a senior researcher at the Korea Institute of National Unification, a government think tank in Seoul.

 North Korea kicked off economic reforms by replacing its old currency for new (shown here) at the end of November 2009. But the effects of the changes have been devastating.  Jung Yeon-je/AFP/Getty Images

Currency Reform

At the end of November, North Korea scrapped its old currency for new. This wiped out household savings and investment capital, and sent food prices soaring.

The currency reforms were meant to confiscate merchants' wealth and give it to farmers, workers and soldiers in the state sector. Many state-owned firms have fallen idle, and their workers have gradually migrated to the free markets to survive.

The plan worked, at least for a while, says Kim Yun-tae, secretary general of the Network for North Korean Democracy and Human Rights, a Seoul-based group that gets information from a network of informants in North Korea.

"The government printed money and distributed it to farmers and the lower classes," Kim says. "People loved it at first. But when the working class spent all that money, it was eaten up by inflation, and their lives got even harder."

At the same time, the government has cracked down on foreign trade and the use of hard currency. Park, the researcher, says that the government may not have confiscated hard currency only for its own use, but also to generally exert central government control over trade, while punishing political rivals and rewarding allies.

Succession Dilemma

All of this complicates what is perhaps North Korea's most destabilizing problem: the succession to a third generation of the ruling Kim family.

In a clandestine video shot in North Korea, schoolchildren march through the streets of Pyongyang singing a song called "Footsteps." The lyrics declare: "Commander Kim is stepping forward" and "taking over." The song is believed to refer to ailing leader Kim Jong Il's third son and presumed heir, Kim Jong Un.

But North Korea's cryptocratic regime has never publicly mentioned the fact that Kim Jong Il even has a family, much less a presumed heir.

North Korea expert Kim Yun-tae says the currency reforms were supposed to be a curtain raiser for Kim Jong Un, who is still in his 20s and lacks leadership experience.

"Kim Jong Un could have gotten the credit for the currency reform, if it had succeeded," he says. "But since it failed, he can't. So this situation makes it hard to introduce him."

For now, Kim Yun-tae says, the succession is only mentioned within the ruling Workers' Party.

Critical Voices

Outside the party, meanwhile, signs of opposition to government policies are growing, says Kang Chol-hwan, a journalist at South Korea's Chosun Daily. He co-authored The Aquariums of Pyongyang, about the decade he spent in a North Korean labor camp before defecting to the South in 1992.

He says that under the threat of harsh punishment, North Koreans' only way to defy their government is through passive resistance.

"To express their resentment against the government, North Koreans stopped obeying official orders," Kang explains. "This became widespread in the 1990s. This time, with the currency reform, North Koreans have gone from refusing orders to speaking critically about the government."

For now, that criticism is spoken in private and in hushed tones. But the voices appear to be growing louder and bolder.

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