Yashika Gupta asked: How does North Korea support its military regime input costs along with series of nuclear tests, even while defying sanctions and an economy that barely produces anything?

Titli Basu replies: North Korea adopted the Byungjin Line in 1962 which essentially articulated the twin policy of simultaneously developing the economy and the national defence capabilities. Building on Kim Il-sung’s slogan ‘a gun in one hand, and a hammer and sickle in the other’ and the Byungjin policy of 1962, country’s current supreme leader Kim Jung-un announced his Byungjin strategy focussing on ‘economy and nuclear weapons’ during the plenary session of the Party Central Committee in March 2013. He argued in favour of building a strong and wealthy nation while enabling economic growth and improving the quality of life. As per various estimates, the private sector reportedly contributes around 30 to 50 per cent of North Korea’s GDP.

Kim Jung-un has already introduced market-oriented reforms. The aim of the ‘May 30 Measures’ of 2014, which was approved by the Workers’ Party Central Committee, was to initiate economic liberalisation. It underscored lessening of state control over the economy and undoing of central planning. North Korea has established several Special Economic Zones (SEZs) in an attempt to attract foreign investments. Kim Jung-un had also instituted agricultural reforms in 2013, enabling family farming for the market instead of the state, which yielded positive results. The harvest in 2013 and 2014, despite drought, registered a higher production. In fact, food production was the main focus of the budget report presented in April 2015 by Prime Minister Pak Pong-ju. The Hyundai Research Institute has predicted around seven per cent growth in Pyongyang’s economy in 2015. However, much will depend on the effective implementation of economic reforms in the coming years.

North Korea sources foreign currency through labour exports to several countries including China, Russia, Myanmar, Mongolia, and to the West Asian region. The Seoul-based North Korea Strategy Centre along with Korea Policy Research Centre in a report published in 2012 estimated that Pyongyang earns $150 million to $230 million annually from its citizens working overseas. According to the same report, between 60,000 to 65,000 North Koreans are working in 40 different countries. Besides, North Korea increasingly depends on earnings from coal, minerals, garments and fishery exports to China. It has effectively improved North Korea’s mining, coal and garment industry. In addition, there are several reports suggesting that North Korea has been selling its gold reserves to sustain the economy.

Despite all these developments, numerous challenges continue to affect North Korea’s efforts to overhaul its economy. It hardly has any access to global financial institutions due to international sanctions. As North Korea continue to nurture its nuclear weapons programme, and given its known antagonism towards the West, it is unlikely to draw international capital anytime soon.

Posted on October 29, 2015