hankyoreh

2007 (Central News Agency

On July 1, North Korea marks the fifth anniversary of its effort to develop a market economy. Five years ago, North Korea introduced a set of measures, dubbed the ‘‘July 1 Economic Management Improvement Measures,’’ mainly by readjusting wages and consumer prices, largely based on the market system, while promoting its incentive system.

Overall, some observers have estimated that such measures have helped North Koreans to increase their individual incomes by converting their unofficial, underground markets into official ones. However, this has resulted in a number of side effects, as the pace of normalization in North Korean plants has been slow, despite the growth of its overly developing retail markets. Another unwelcome issue for the North Korean authorities is their growing reliance on China.

On July 1, 2002, North Korea hiked its wage, consumer price and foreign exchange rates by 25 times, 18 times and 70 times, respectively, in order to shift the firmly-controlled economy to one that was more market-friendly. In order to encourage workers to increase productivity, North Korea began to base performance assessments of companies or individuals on profit-based income, not production volume.

Following this move, the North Korean economy was estimated to expand by 1.2 percent in 2002, 1.8 percent in 2003, 2.2 percent in 2004 and 3 to 4 percent in 2005. Individual incomes also rose. According to a survey of 335 North Korean defectors, conducted by Bank of Korea researcher Lee Yeong-hun earlier this year, per-capital monthly income in North Korea increased to US$20 after the July 1 measures, compared with US$6 before the measures had been implemented.

However, the rise in North Korea’s per capita income is not likely to be sustainable in the long term because the increase is based on revitalization in retail markets rather than on the development of the manufacturing industry. Lee’s survey showed only 5 percent of the North Korean defectors relied on wages, while 88.1 percent said they were dependent on ‘‘sales income.’’ Yang Mun-su, a University of North Korean Studies professor, said, ‘‘Individuals earn their incomes from secondary jobs in stores, rather than from regular wages. North Korea supplements its national budget by collecting fees for market use or by collecting real estate tax from individuals. It’s somewhat atypical.’’

With North Korea failing to meet the demand for goods, Chinese consumer goods account for 70 to 80 percent of the North’s market. That means North Korea is unlikely to set up a more normalized national economy, with production and consumption in harmony, without a massive influx of foreign capital raised through the normalization of diplomatic ties with the United States and Japan.

What’s worse, concern is growing over the gap between rich and poor, as a newly-wealthy class has begun to emerge from the expansion of the market economy. This new class is mainly comprised of the sons and daughters of top-flight officials, who dominate a large portion of the overseas trading industry. Backed by their parents’ political power, the new wealthy class is well-educated, fluent in foreign languages and knows the capitalist market economy well.

Cha Chol-ma, who has taken control of foreign currency acquisitions for the Presidium of the Supreme People’s Assembly, is a son-in-law of Lee Je-kang, a deputy minister for the North’s Workers’ Party. Cha, whose income mainly comes from trade with China, is believed to have raised the bulk of his fortune, valued at more than US$10 million, on his own.

The head of Chosun Bugang company, Chun Seung-hun, in his mid-40s, is the eldest son of Chun Myung-soo, in his 50s and the former North Korean ambassador to China. Chun’s second son, Chun Yong-hun, in his early 40s, is believed to have raised a huge amount of money by monopolizing the North’s imports of diesel oil. Oh Yung-hwan, in his early 30s, who lives in Italy and is under the control of North Korean leader Kim Jong-il’s office, has raised money by supplying goods for Kim and his family.

Please direct questions or comments to [englishhani@hani.co.kr]