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Wednesday, March 10, 2021

March 10, 2021

Lucas Leiroz, research fellow in international law at the Federal University of Rio de Janeiro.

Undoubtedly, North Korea is the most socialist and illiberal country in the world, being one of the last national communist projects still in operation. However, having reached an economic position that allowed them “to risk", the Koreans, years ago, bet on some liberalizing reforms to boost the market potential of their economy. The aim was to make Korea an economic power, exploring the country's capabilities beyond the political and military issue. With that, some reforms were carried out in order to build a more open socialism, creating a path to follow the Chinese example.

The major mark towards a slightly open economy was the rise of President Kim Jong Un, in 2011. Gradually, the role of the State in the Korean economy has been slowly decreasing and giving way to a space of some economic freedom, with incentives for entrepreneurship and private initiative, without, however, giving up any ideological principle. Korean inspirations were China in the 1980s and Vietnam, which managed to reach a balance between a socialist state and an open market with wide circulation of capital. The 2016-2020 five-year economic plan further materialized Kim's intentions, which created an economic growth strategy that gave the private sector some prominence. However, in 2021, the North Korean leader acknowledges that his plans have failed.

The failure of the five-year plan was the main topic of the 8th Congress of the Workers' Party earlier this year. Kim admitted the flaws in his economic project and announced reforms in the opposite direction to what has been the hallmark of his economic policy until today: seeking greater restrictions and greater state leadership as pillars of the national economy for the next five years.

Up to the present moment, it has not been informed which reforms will be specifically implemented, however, even without details, we can predict which points will certainly change in the national economy. In the agrarian sector, Kim Jong Un stood out for giving families more freedom to assume the role of protagonists in food production. Previously, the State took most of the production to implement the rationing and distribution measures. In recent years, however, the percentage acquired by the State has become much smaller, giving families economic freedom, who, retaining most of their production, sold it in their local businesses and thus managed the rural economy.

In the same vein, state interference in the national business community has significantly decreased, with Korean companies gaining some administrative and decision-making power, thus creating their own initiatives on the part of investors and no longer pointed out by government officials. All of that will certainly change. The tendency is that in the rural sector, the State will collect a much larger amount of family production and resume rationing policies to guarantee food security, which will mean less economic power for rural producers. Likewise, companies will again be fully controlled by the state bureaucracy, which will guide investments according to the interests of the government.

It is true to say that such measures will be a shock to a good part of the Korean population, which was already getting used to a country with greater economic freedom. The reasons why Kim's plan failed are many. The Korean president says the main causes for the collapse of the project were international sanctions and natural disasters that have hit Asia in recent times. However, the global economic crisis generated by the new coronavirus pandemic cannot be ignored.

Korea planned to create a favorable internal structure for its insertion in the world market, following the Chinese example, but it could not count that something like a pandemic would affect the whole world economy and make this the worst possible moment for any country to try to enter the global market. From this point of view, the Korean attitude of taking a step back and investing again in protectionist economic structure seems quite natural for the country’s leadership.

However, another factor must be considered when analyzing this case: the imminence of the crisis. The Korean government has admitted on several occasions, such as at the party's congress, that the current crisis is one of the worst moments in the country's history. The sum of sanctions and the pandemic has been tragic for Korea and the expectations for the future with Biden in power in Washington are the worst, as the international blockade is likely to increase and all recent diplomatic achievements may regress. The country suffered an estimated drop of 8.5% of its GDP in 2020. The total closure of the borders severely damaged trade. Its relations with its biggest ally, China, fell by about 80% between January and November last year. With the worsening of the pandemic and the second global wave, Korea is likely to maintain a strong policy of isolation to prevent sanitary collapse.

If Korea is not able to enter the global market and cannot deal with its economic problems alone, the middle ground is to strengthen its relations with its historical allies and seek to rebuild itself through measures of mutual benefit. China, being Korea's biggest partner, has a key role in this process. The most viable route to Pyongyang is to resume relations with China as much as possible and try to restore the integrity of bilateral trade - with due health precautions taken - to boost the national economy in complement to the new economic plan, which envisages significant state investments in chemical, mining and consumer goods sectors.

Bilateral relations between Korea and China can create an alternative scenario to global insertion and isolation as Beijing can and will certainly try to insert Pyongyang into the Asian regional market, with the Chinese taking a leading role. It remains to be seen, however, whether Kim's plans to recover a severe and bureaucratic economic socialism will be open to this type of cooperation and regional insertion. If the Korean stance is too protectionist and isolationist, the possibilities for regional cooperation will be few and this will only worsen the internal crisis.

Source: InfoBrics

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