As Kim Jong-un rode his armoured train back to Pyongyang from Hanoi last month, the North Korean leader reportedly grumbled to his top diplomatic aide, Choe Son-hui: “Is there any need for us to make this kind of trip again?” Kim’s summit with US President Donald Trump had collapsed, international sanctions against the North were still in place and there was no sign of progress on the horizon. For many in the West, the complaint, relayed by Choe at a Pyongyang news conference last week, suggested that the days of engagement were over and Kim was preparing to resume the nuclear brinkmanship of the past. But others said it could point to a bigger preoccupation for the 35-year-old leader – lost hopes for a beleaguered economy that could threaten his regime. After failing to get Trump to agree to drop US economic sanctions, Kim may simply have been expressing despair over his inability to turn around a system that remains heavily dependent on China and could undermine his own legitimacy, they said. Kim is under intense pressure to deliver on the economy. He may be lauded in state media as the “supreme leader who makes no mistakes and never fails”, but Kim has tied the future of his administration to economic growth. In April last year he announced that Pyongyang was moving away from its twin-track byungjin policy of developing nuclear weapons and the economy simultaneously to focus exclusively on rebuilding the economy. Pyongyang mulls halting talks with US: North Korean diplomat The public declaration came two months before Kim met Trump for the first time in Singapore, raising hopes of relief from tough United Nations sanctions that even China – the North’s biggest ally – was backing. The sanctions sought to cut off Pyongyang’s export income by banning sales of North Korean seafood, iron and iron ore. The clock was also ticking on a UN Security Council order for all North Koreans working overseas to return home by the end of 2019, a deadline that would mean the end to another big source of foreign income. Observers said that in Hanoi Kim needed Trump to promise relief from the sanctions to press ahead with his economic programme but the debacle in Vietnam put paid to that possibility – at least for now. For the North, that could mean a return to the juche ideology of self-reliance. On March 16, the state-run Rodong Sinmun quoted Kim as saying: “You can achieve nothing when you depend on others and wish for them to give you some help.” Taking its cue from the leader, the newspaper said: “Chairman Kim’s comments mean that we must possess a spirit of self-reliance and autonomy to solve problems ahead of us”. But the question is: how long can the North muddle through on its own under such economic pressure? The short term According to some reports, North Korea’s trade is showing early signs of structural collapse under the weight of sanctions. In 2018, the North’s exports to China – which accounts for the bulk of North Korean trade – plunged 87 per cent from a year earlier, according to data compiled by South Korea’s Korea International Trade Association. The fall in exports has led to myriad other economic problems, including a growing trade deficit and a drop in foreign reserves and liquidity. Conditions were so poor that the Korea Development Institute (KDI) said in February that North Korea had suffered a “near-collapse” in trading. With Bolton leading the charge, the US seeks to upend international law A source familiar with the situation said North Korea had managed to offset the economic impact of sanctions early on by relying on resources stocked in advance. But as the impact of prolonged sanctions was felt more sharply, Pyongyang has had to import more to buy more time. In 2017, imports rose 1.8 per cent to US$3.8 billion despite its economy shrinking by 3.5 per cent in real terms, according to South Korea’s central bank. The rise in overall imports reflected Pyongyang’s aggressive effort to buy necessities and to stabilise its markets and prices, the South’s National Assembly Research Service said in a report. Those imports – mostly of consumer goods from China – helped North Korea keep the impact of UN sanctions on the people to a minimum, the report said. By keeping the price of necessities stable, North Korea has managed to minimise the impact of sanctions on its markets – and avoid a market panic. So much so that according to a South Korean parliamentary report, the price of rice remained at 60 to 65 US cents per kilogram for 12 months from December 2017. The stabilisation of prices means the UN sanctions’ impact has been limited to trade, and has yet to spill over into the domestic market, unlike in Iran where similar sanctions have fuelled inflation. The KDI said the approach might be enough for North Korea to maintain “the minimum criteria to run the economy” and continue its short-term efforts to get through the sanctions-related economic challenges. Although it is a heavily controlled country and does not encourage free trade, it has long relied on jangmadang , markets that popped up during the famine of the 1990s when the state could no longer provide for the people. While roughly 2 million people starved to death, many of those who survived became entrepreneurs out of necessity, bartering or trading goods in cash. Today, the jangmadang form a backbone of the economy and flourish particularly at the border with China. But the transactions are still carried out beyond the reach of the banking system – and the effects of financial sanctions. Pyongyang’s strategic imports – supplemented by smuggling – have enabled it to manage the impact of sanctions so far, according to the KDI report. But Ko Yu-hwan, a professor of North Korean Studies at Dongguk University in Seoul, said the benefits of the measures to Pyongyang are “only temporary”. North Korea would not be able to sustain the stability of its markets in the long term, Ko said. “Pyongyang is bringing goods from China and Russia to show that they are still well-off despite the sanctions. But if the sanctions continue, [North Korea’s] backbone industries would be directly hit by the impact, which would lead to a further decrease of exports, depletion of foreign reserves and thus possibly facing a new level of economic hardship,” he said. “The muddle-through can’t be sustained in the long run, and of course without the lifting of sanctions, Kim’s economic ambition cannot be realised.” The long term If the UN sanctions were to remain in place, North Korea’s real foreign currency supply and purchasing power would plunge and ultimately destabilise its markets, the KDI said. Sanctions – which prohibit North Korea from “supplying, selling and transferring of food and agricultural products” – would also mean North Korea facing a major food shortage this year, according to reports. The isolated state already is facing a shortfall of about 1.4 million tonnes this year and has been forced to nearly halve rations. Officials blamed high temperatures, drought, floods and UN sanctions for the dearth of food, Reuters reported. The UN Food and Agriculture Organisation also said in a report last month that food security in North Korea was expected to worsen this year, and that the country already suffered from “extensive” and “chronic food insecurity and malnutrition”. Lee Yun-keol, a former bodyguard for North Korea’s ruling family who defected to the South in 2005, said he believed North Korea could endure its food and nutrition problems for a long time, helped by the smuggling of rice. “The scale of the smuggling from China is so extensive – it’s beyond one’s imagination,” said Lee, now the chief of the North Korea Strategic Information Centre in the South. “Rice is being transported by small ships, and about 100 of those ships are coming into North Korea every day.” Lee said “about 500,000 tonnes of rice can be smuggled annually, stabilising prices and markets”. “With already established solid retail routes, new items can easily be found in jangmadang within a week,” he said. “As ordinary North Koreans do not have high expectations for their standard of living, North Korea has the capacity to muddle through the situation.” US envoy says ‘diplomacy still very much alive’ with North Korea Pyongyang, however, “also knows that being heavily dependent on China has its limitations”, Lee said. “That’s perhaps why it desperately wants to normalise its relations with Washington.” Zhao Tong, a fellow from the Carnegie Nuclear Policy Programme at the Carnegie-Tsinghua Centre for Global Policy, said North Korea’s economy “seemed stable, with no sign of an immediate economic crisis”. Pyongyang may be able to maintain economic stability “by deepening internal reform, relying more on trade and assistance from neighbouring countries like [South Korea], Russia and China, and finding new ways to circumvent existing sanctions,” Zhao said. “An alternative explanation is that it has so far maintained economic stability by quickly using up its previously stockpiled strategic resources and hard currency. In the latter case, economic stability won’t be sustainable.” But efforts by China and other countries to prop up North Korea’s economy “will remain limited, as long as they do not want to openly violate UN Security Council resolutions”, he said. “The failure of the Hanoi summit is a major lost opportunity for North Korea as the United States still holds the key to any significant sanctions relief,” he said. “As long as the sanctions remain in place, Pyongyang will have strong incentives to continue engaging with Washington.”
