Squeezed by sanctions, North Korea experiences worst downturn since 1990s famine

How much are sanctions hurting Kim Jong-un? North Korea’s economy has not been in such bad shape since his father was battling floods, droughts and a famine that some estimates say killed as much as 10 per cent of the population.

The South Korean central bank’s annual report on its northern neighbour – due for release later this month – will provide a fresh look at the impact of US President Donald Trump’s pressure campaign just as the two sides prepare to restart talks. Although North Korea’s isolation, secrecy and dearth of official statistics make estimates difficult, the economy probably contracted more than 5 per cent last year, according to Kim Byung-yeon, an economics professor at Seoul National University.

“As long as sanctions remain, time is on the US side,” said Kim Byung-yeon, who also wrote the book Unveiling the North Korean Economy. “Sanctions are the most effective means to draw North Korea into negotiations, so they should not be lifted or eased without major progress on denuclearisation.”

A decline of 5 per cent would mean international curbs on North Korean trade – measures crucially backed by China – have put the country on its weakest economic footing since 1997. Back then, the isolated nation was reeling from policy missteps under Kim Jong-il and a famine so bad some defectors reported rumours of cannibalism.

The Bank of Korea estimated a 3.5 per cent contraction in 2017, leaving North Korea an economy roughly the size of the US state of Vermont. Park Yung-hwan, a BOK official in charge of North Korean growth data, declined to comment on the central bank’s latest calculations since the work was still underway.

One thing sanctions are not doing: stopping Kim from developing the nuclear arsenal that prompted his showdown with Trump. The cost of launching the more than 30 ballistic missiles Kim Jong-un has tested since taking power in 2011 comes in at about US$100 million, according to estimates by South Korea’s defence ministry.

Nevertheless, Trump is counting on the economic pressure to compel Kim to compromise after the two leaders agreed in a historic meeting at the Demilitarised Zone last month to resume working-level talks. The president had earlier rejected the North Korean leader’s offer to dismantle his ageing nuclear complex at Yongbyon in exchange for the removal of the toughest sanctions.

“We will look forward, of course, to resuming those negotiations, and we hope to talk about all ways that we can advance progress on these commitments,” US State Department spokeswoman Morgan Ortagus told a briefing on Tuesday in Washington.

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North Korea is heavily reliant on China, which accounts for about 90 per cent of the country’s trade. Beijing’s decision to support tougher international sanctions against North Korea following its sixth nuclear test in September 2017 has put severe pressure on the economy.

Sanctions imposed by the UN Security Council hit everything from North Korea’s exports of raw materials, minerals and clothes to the movement of manual labourers and software engineers. The drying up of hard currency due to plunging trade is potentially creating an “economic crisis” for Kim, the state-run Korea Development Institute in Sejong, said earlier this month.

China’s imports from North Korea have slowed to a trickle, falling about 90 per cent year on year to just US$195 million in 2018, according to the Korea International Trade Association. Meanwhile, exports of food and fuel from China to the North have also tumbled.

Before sanctions were in place, North Korea imported about 3.9 million barrels of oil in 2015, according to the CIA’s The World Factbook. Sanctions capped the country’s imports to a 500,000 barrels of oil last year.

But Kim’s regime has found ways to evade the sanctions, using illicit high seas transfers to obtain oil and export its goods, the US and its allies have said. The country’s ports received at least 263 tanker deliveries of refined petroleum, according to US estimates, enough to bring as much as 3.78 million barrels of fuel.

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The fuel crunch has exacerbated decades of economic stagnation. North Korea’s oil consumption has fallen by about 80 per cent from 1991 to 2017, according to the UN World Food Programme, one of the few international bodies with access to on-the-ground reporting and statistics in the country.

Less fuel has meant less diesel to run farm tractors and irrigation pumps, hitting farms already affected by droughts last summer. Last year, farmers had a little less than 90 millilitres of fuel a day to farm an area about the size of two soccer fields, according to calculations based on WFP data.

The sanctions have led to shortages of other necessary agricultural items, including machinery and spare parts, and farm output has dropped in the provinces that make up North Korea’s southern and western breadbaskets, the World Food Programme and Food and Agricultural Organisation of the United Nations said in a May assessment.

Paddy production declined at least 17 per cent last year in South Hwanghae and North Pyongan provinces, regions that together account for half of North Korea’s rice.

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“The unintended negative impact sanctions can have on agricultural production, through both direct and indirect impacts, cannot be ignored,” the report said.

In April, Kim replaced his prime minister and leading technocrat Pak Pong-ju with Kim Jae-ryong, a veteran overseer of one of North Korea’s most impoverished provinces whose reputation for weathering tough times suggests leader Kim may also see a need to dig in rather than experiment should the sanctions continue.

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