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Wednesday, October 27, 2004

North Korea Justs Keeps Hanging On

Nicholas Eberstadt has an interesting piece in Policy Review looking at how North Korea continues to exist as a state. Some good tidbits:
But how was this reported trade deficit financed? After all, North Korea is a state with a commercial creditworthiness rating of approximately zero, having maintained for a generation its posture of defiant de facto default on the Western loans it contracted in the 1970s.
Historically, the dprk relied upon aid from its communist allies — principally, the Soviet Union and China — to augment its imports. After the collapse of the ussr, China perforce emerged as North Korea’s principal foreign patron, and Beijing’s largesse extended beyond its officially announced subventions for Pyongyang. The dprk’s seemingly permanent merchandise trade deficit with China constitutes a broader and perhaps more accurate measure of Beijing’s true aid levels for Pyongyang (insofar as neither party seems to think the sums accumulated in that imbalance will ever be corrected or repaid).
Implicit Chinese aid, however, cannot account for North Korea’s import upsurge of 1998-2003. To the contrary: China’s implicit aid to North Korea — i.e., its reported balance of trade deficit — fell during these years, dropping from about $340 million to about $270 million. (The total was back up to $340 million in 2003 — meaning that China’s implicit aid to Pyongyang was no higher than it had been five years earlier.) North Korea’s non-Chinese balance of trade deficit, by contrast, apparently soared upward (see Figure 4). Whereas in 1997 the dprk reportedly only managed to obtain a net of $50 million more merchandise from abroad than its commercial exports would have paid for — after factoring out China — by 2002 the corresponding total was well over $900 million.
Indeed, if we remove China from the picture, the line describing North Korea’s net imports of supplies from abroad rises steadily upward between 1997 and 2003. It is this graphic that captures the economic essence of North Korea’s shift from its “Arduous March” period to its Kangsong Taeguk epoch.
And how was this jump in non-Chinese net imports financed? Unfortunately, we cannot be precise about this, since many of the sources of funds involve illicit transactions. North Korea’s international counterfeiting, drug trafficking, weapons, and weapon technology sales all figure here, although the sums raised from those activities are a matter of some dispute.
Nor do we yet know exactly how much of the South Korean taxpayers’ money was furtively channeled from Seoul to Pyongyang during this period. One set of prosecutorial investigations has convicted former President Kim Dae Jung’s national security adviser and several other aides of illegally transferring up to $500 million to Kim Jong Il’s “Bureau 39” (a unit of the ruling party specially charged with funding Kim’s royal court) on the eve of the historic June 2000 Pyongyang summit. The possibility of other unreported official Seoul-to-Pyongyang payoffs during the 1998-2003 period cannot be ruled out — nor, of course, can the potential volume of any such attendant funds be determined.

How about this:
It may be perplexing and counterintuitive to see the United States — the dprk’s longtime principal opponent and antagonist in the international arena — described as a major backer of the North Korean state. Yet this is now in fact the case. Figures compiled by Mark Manyin of the Congressional Research Service provide the details (see Table 1). In the 1996-2002 period, Washington awarded Pyongyang just over $1 billion in food aid, concessional fuel oil, and medical supplies. (Interestingly enough, nearly $350 million of these resources was transferred in the years 2001 and 2002 — under the purportedly hostile aegis of the George W. Bush administration.)

Hmmm...drugs, weapons, under the table payments from South Korea and US aid - what a way to keep your country afloat. But it gets better. North Korea believes in a "self-sustaining national defense industry!"
This is a fascinating and revealing formulation. In most of the world today, a country’s defense outlays are regarded as a weight that must be shouldered by the value-adding sectors of the national economy (hence the phrase “military burden”). North Korea’s leadership, however, evidently entertains the concept of a “self-sustaining” defense sector — implying that Pyongyang views its military activities as generating resources rather than absorbing them. In the enunciated view of Pyongyang’s leadership, the dprk’s military sector is the key to financing the recovery of the national economy.
It does not require a great deal of imagination to spell out the operational details of this approach. While forswearing any appreciable export revenues from legitimate commerce with advanced market economies, North Korean policy today seems to be banking on the possibility of financing state survival by exporting strategic insecurity to the rest of the world. In part, such dividends are derived from exports of merchandise (e.g., missile sales, international transfer of wmd technology). But these revenues also depend heavily on what might be described as an export of services: in this case, military extortion services (or, perhaps better yet, “revenue-sensitive threat reduction services”) based upon Pyongyang’s nuclear development and ballistic missile programs.

Simply amazing. Read the whole thing. Great work Professor Eberstadt!

Hat tip: NRO's the corner

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