Using satellite images to look at activity in mines, construction and agriculture. Peat how often smoke comes out of the chimneys of important factories. Deducting amounts for natural disasters and missile tests. With this data, among other things, the North Korea Economy Team of the South Korean central bank tries to determine the size and development of the North Korean economy.
As complex as that task is, the head of this team directly downplays his role at the Bank of Korea. “This bank is also concerned with the global economy, job creation and innovation, so I don’t exactly have the most coveted position here,” laughs Cho Tae-hyoung (53). His office overlooks the heart of Seoul and the green Namsan Park.
The economist has been working on North Korean economic issues for some time and has been leading the team since April 2017, according to himself after receiving a sign from God to accept the position. Cho’s organization publishes public papers on the central bank’s website and collaborates with various economic institutions. She also produces classified reports for, among others, the National Intelligence Service and the Ministries of Economy, Finance and Reunification. That secrecy is related to the sensitivity of the relationship with North Korea.
The North Korea Economics Team has existed in its current form since 2014. Its predecessor was set up in the early 1990s, inspired by the fall of communism in Eastern Europe, and in particular German reunification. “Because of the German example, there was a feeling in South Korea that the country would soon become one again,” says Cho. “With this team, we wanted to prepare ourselves as best as possible.” In the decades that followed, former German politicians who were involved in the reunification of West and East Germany were regularly invited to share their knowledge and experiences in South Korea.
While Korean reunification is delayed, the Economics Team examines the North Korean economy. That is not easy, since ‘Pyongyang’ has stopped publishing economic statistics since the mid-1960s. Moreover, Kim Jong-un’s regime is not known for being reliable, his publications are not as truthful. As a result, all economic indicators must be determined from outside.
How do you get an image?
That works like putting together a puzzle. South Korean ministries, research institutions and private organizations provide all kinds of data that are used to get a picture of the North Korean economy as a whole. Sometimes the smallest clues are looked at: water flows at a dam, smoke from a chimney, how many houses are being built, how much coal the country exports to China, activity in factories and other economic sectors. Much is done on the basis of satellite images. Simulations are also performed to estimate, for example, the size of the land’s harvest. Cho: “And once you have received all that data, you also have to determine which data is missing and take that into account in the calculation.”
Unlike in the Netherlands, where Statistics Netherlands keeps track of the size of the national economy, South Korea’s gross domestic product is determined by the Bank of Korea. Because of this specialist experience — “a highly technical process” — her economists are also tasked with determining that figure for North Korea. “We have a computer program that uses all relevant economic data to determine South Korean GDP,” explains Cho. “On that basis, we made a version for the North Korean economy.”
From these calculations come estimates of North Korean GDP, which are published once a year. “In 2020 we saw an economic contraction of 4.5 percent compared to the previous year, in 2019 there was 0.4 percent growth.” Last month it was announced that the North Korean economy has contracted again slightly in 2021, by 0.1 percent.
For Cho’s team, the growth or contraction of North Korean GDP is more important than determining it. “That’s more relevant to us because it says more about how the North Korean economy is developing.”
Descending a flight of stairs
The economist likens North Korea’s economic development in recent years to descending a flight of stairs. Standing still is followed by a sharp decline, followed by further contraction and zero growth.
“We use South Korean systems. They can reasonably determine the growth, but the size less,” says Cho. South Korea’s free-market economy, the tenth largest in the world, has a different structure than the ailing North Korean economy.
And then the South Koreans also make their calculations for North Korea in won, the South Korean currency. Cho: “Our system is based on that. But how are you going to convert that? The use of exchange rates seems debatable to me.” In developing countries, such an exchange rate simply says little about purchasing power parity; the difference in purchasing power between countries. And at the same time, North Korea, with its modern weapons of mass destruction, is no longer a typical developing country. Furthermore, it is difficult to determine prices and quantities in the closed country from outside.
Cho estimates the GDP per North Korean at about a thousand dollars, an amount that is already questionable because of that exchange rate. “I think the best way to say something about the North Korean economy is to first determine the purchasing power parity and then convert it into US dollars.” But it remains complex guesswork.
North Korea has been experiencing economic problems almost non-stop since the 1990s. They mainly affect the 25 million citizens. In the second half of that decade, the country was ravaged by a famine that killed hundreds of thousands of people. At the turn of the millennium the worst seemed over, but a majority of the population still suffers from malnutrition.
Lack of reforms in the centrally controlled economy hinders development and growth. Scarcity, corruption and UN sanctions create additional problems. And then there’s the elephant in the room: Kim Jong-un would rather spend public money on expensive nuclear weapons, missile tests and the luxurious lifestyle of the elite than on his needy population.
“North Korea is a socialist dictatorship in which the Kim family are worshiped as gods. The regime is very skilled at controlling all the behavior and thoughts of the citizens,” explains Cho. According to him, one in five households is involved in policing other citizens – a workforce that could be better exploited.
Black market
That doesn’t mean time stands still in North Korea. The hardships of the 1990s changed a lot, according to Cho. “The planned economy collapsed.” After that, a kind of dual economy arose, with remnants of the planned economy next to a tolerated black market on which citizens traded in items smuggled from China. „This led to a possessing class, the donju [meesters van geld], which could provide loans. In addition, a large-scale culture of paying bribes and bribery emerged.” As a result, punishments could sometimes be bought off or authorities turned a blind eye when citizens indulged in overly capitalist activities. In both 2020 and 2021, North Korea topped the corruption index of Trace International, an organization that charts international bribery.
After Kim Jong-un took office at the end of 2011, according to Cho, trade in North Korea increased and modest forms of market forces were tolerated. That initial optimism ended with new, tougher UN sanctions against the country and the outbreak of the corona pandemic.
United Nations sanctions have been modified over the years, and have had varying effects on the economy. Cho: „The first [nadat Noord-Korea in 2006 met kernproeven begon] focused mainly on sectors that enabled the weapons of mass destruction program. Those sanctions didn’t have that much of an impact on the wider economy.”
Strict restrictions
Breaking point was the punitive measures of 2017, during the escalating conflict – when Trump threatened “fire and fury– between Kim Jong-un and US President Donald Trump. “Those sanctions really targeted North Korea’s top exports: clothing, coal, iron ore, fish and seafood, and more.” The country also had to withdraw its forced laborers from abroad. That hit the North Korean economy in the heart.
The Covid pandemic had a similar effect. Since January 2020, the North Korean borders have been closed and all imports and exports have been shut down for a long time. The country thus imposes even stricter restrictions on itself than the UN sanctions impose. “The tolerated black market has been hit particularly hard. Kim Jong-un is once again fully committed to a centrally led administration.”
Is the North Korean economy on the brink of collapse? Cho laughs. This has been predicted endlessly since 1990 – and it has never come true. “It’s hard to predict anything like that anyway, and not at all with North Korea. That country defies all common theories to predict economic progress, it turns out time and again.” Still, Cho thinks Pyongyang will be forced into foreign cooperation in due course. “The regime needs to relax controls in order to maintain power.”
For South Korean President Moon Jae-in, who resigned in May, rapprochement with North Korea was the spearhead of policy. Critics say he went too far. His endless efforts failed to yield more than some iconic photo opportunities. Even to the offer to provide Covid vaccines and other medical aid, Pyongyang has only responded with silence.
Yet Seoul remains ready to help its communist neighbor if the North Koreans open up to it. Cho: “When they give up their nuclear weapons, we can give them anything they want. There are warehouses full of computers here that can go straight across the border, and many citizens want to go to North Korea to provide help where it is needed. If it becomes possible, I will take my children to North Korea every Saturday to help where I can.”
A version of this article also appeared in the newspaper of August 15, 2022