north korea opens marcus noland peterson institute september 2008
TRANSCRIPT
North Korea Opens
Marcus NolandPeterson InstituteSeptember 2008
Key messages Transformation better understood as an
unintended response to state failure than as a top-down reform.
Policy has been ambivalent—at times ratifying (2002) and at others reversing this process (2005),
Again on the precipice of a humanitarian disaster.
Outcomes conditional on external relations Nuclear, aid deals linked, like it or not Greater external security could encourage reform Six Party Talks, NEAPSM, and the economic
component
Decline and recovery Economy bottomed
out late 1990s Grassroots
marketization Growing external
trade, increased integration with China and South Korea.
Chronic deficits.
Ratio of balance of payments transactions to licit merchandise exports
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
ratio
South Korea
China
Observed North Korean Commercial Merchandise Trade
0
500
1000
1500
2000
2500
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Mill
ion
US
D
Exports
Imports
Chronic balance of payments deficits increasingly financed by aid
South Korean assistance has exceeded China’s since 1999; Lee government may represent real break
Role of illicit exports probably exaggerated in public discussion
Official transfers (current and capital) as a share of commercial goods imports
0
10
20
30
40
50
60
70
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
percent
range
best guess
note: $350 million summit payment from 2001 is considered as three separate transfers of $117 million over 2000-2002 in this figure
China and South Korea aid and exports to North Korea
0
100
200
300
400
500
600
700
800
900
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
million US$
PRC Aid - Range
ROK Total Exports
ROK Non-Commercial Exportsand Economic CooperationROK Non-Commercial Exports
PRC Aid - Best Guess
Re-emergence of pre-famine conditions
Origins Evidence
Quantity Price Direct observation
Conclusions Hunger-related
deaths are occurring Dynamic in motion to
carry crisis into 2009 Should not grow into
1990s-style famine
Origins On the back of increasing
harvests, rising aid government undertook reckless actions in 2005
Internally Banning private trade in
grain Seizures in rural areas Shut down of relief
agencies in the hinterland
Externally: 2006 missile, nuclear tests
Bad weather
Evidence I: Quantities
North Korean Grain Balance
-2000
-1500
-1000
-500
0
500
1000
1995/96 1998/99 2001/02 2004/05 2007/08
metric tons '000s
Haggard-Noland-Weeks Estimate
UN System Estimate
North Korea Food Balances 1995/96-2007/08
0
1000
2000
3000
4000
5000
1995/96 1999/00 2003/04 2007/08
metric tons '000s
Aid
Imports
Domestic production
Adjusted Total Demand
Evidence II: Prices
1. 10/01/2005: Ban on private trade in grain & revival of PDS 2. 07/14/2006- 07/15/2006: Flood 3. 10/09/2006: Nuclear Test & UN Sanctions 4. 08/15/2007- 08/31/2007: Flood 5. 12/01/2007: Introduction of Chinese Export controls, partial ban on trading activities 6. 04/01/2008: Tightened control on trading activities 7. 05/14/2008: Military stocks reportedly ordered released & US aid announcement on the 16th. 8. 06/30/2008: Arrival of first aid shipment
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FAO-Rice 50% Corn 50% NK-Rice 50% Corn 50%
North Korean Grain Prices
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.2.3
.4.5
.6.7
.8C
orn
-Ric
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rice
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North Korean Corn-Rice Price Ratio
Evidence III: Qualitative Reported crack
down on markets, internally, externally
Direct observation documents reemergence of famine-era pathologies Demand side Supply side
Options Long-run solution is industrial revitalization
Government sensitive to political implications of reform
Improved external security could encourage reform; no guarantee, though
Six Party Talks, NEAPSM: not all forms of engagement equally desirable
Short-run need food and fertilizer and other inputs Aid is welcome but Without fertilizer, coming harvest likely to be low
implying continued crisis into 2009
Thank you for your attentionFor further information: Haggard and Noland,
Famine in North Korea, on sale at Columbia University Press
Additional tables and figures taken from Haggard and Noland working papers and policy briefs at www.petersoninstitute.org
Figure 1. North Korea Food Balances, 1995/96 to 2007/08
0
1000
2000
3000
4000
5000
6000
1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
Thousands of Metric Tons
UN Uncovered Import Requirement Estimate
Aid
Imports
Domestic production
Adjusted Total Demand
Total Demand
Adjusted Human Demand
Human Demand
010
0020
0030
0040
00P
rice
07/01/04 07/01/05 07/01/06 07/01/07 07/01/08
Price of Corn Price of Rice
Corn & Rice Price Observations
Table 1. ANOVA of Corn and Rice Price on Time Periods and Regions
First Period January-April 2008Second Period May-August 2008Cities included Hamheung, Pyongyang, Sineuiju, Wonsan
CORNNumber of obs 33Root MSE 314.939R-squared 0.2649Adj. R-squared 0.0953
Source Partial SS df MS F Prob > FModel 929445.779 6 154907.63 1.56 0.1981Second Period 715170.97 1 715170.97 7.21 0.0125Region 218847.40 3 72949.1342 0.74 0.5403Interaction term of Second period & Region 181409.05 2 90704.5257 0.91 0.4132Residual 2578851.19 26 99186.5842Total 3508296.97 32 109634.28
RICENumber of obs 62Root MSE 472.388R-squared 0.4185Adj. R-squared 0.3431
Source Partial SS df MS F Prob > FModel 8670814.59 7 1238687.8 5.55 0.0001Second Period 6262779.83 1 6262779.83 28.07 0Region 1028109.61 3 342703.203 1.54 0.2157Interaction term of Second period & Region 300377.749 3 100125.916 0.45 0.7192Residual 12050112.8 54 223150.237Total 20720927.4 61 339687.335