North Korea's Economy Is In Need Of An Overhaul

As North Korea prepares for the funeral of leader Kim Jong Il, attention is being focused on the country his son, heir apparent Kim Jong Un, will inherit. Like almost everything to do with North Korea, the picture of how the country's economy works is cloudy.

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North Korea is preparing a grand funeral tomorrow for Kim Jong Il, the leader who died last week. It's one of those occasions when diplomats and journalists will watch every move of the country's surviving leaders for clues to who's really in charge. Kim's third son and designated successor is seeking to consolidate his grip on power. Now, changing leaders in a dynasty can be costly, raising questions about whether this desperately poor country can afford the strain. NPR's Anthony Kuhn reports from Seoul, South Korea.

ANTHONY KUHN, BYLINE: Mourners continue to flock to Pyongyang's Kumsusan Memorial Palace, where Kim Jong Il's body lies in state. Kim's body will be embalmed and displayed there, joining the remains of his father, North Korea's founder, Kim Il Sung. On April 15 of next year, North Korea will mark Kim's centenary with much fanfare, says Park Hyeong Jung, a North Korea expert with the Seoul-based think-tank The Korea Institute of National Unification.

PARK HYEONG JUNG: In North Korea, it is usual that on big festival day, such as 100th birthday of Kim Il Sung, the regime must distribute a huge amount of presents to the officials. And we have statistics that import of luxury goods has suddenly increased.

KUHN: Park says that by lavishing gifts and newly built apartments on Pyongyang's elites, the regime is essentially purchasing their political support. Therefore, Park adds, the question of how North Korea will pay for all this becomes a matter of regime survival. One way they can get the currency, Park says, is to export coal and other resources to China, or they can resort to drug trafficking, weapons proliferation and counterfeiting, as they've previously been accused of doing. Or, says Park, they can just print the money regardless of the inflation that follows.

JUNG: North Korean authorities printed so much North Korean money in order to exchange into foreign currency. And when you compare the price of rice in November 2009 and now, the price of rice has risen about 200 times.

KUHN: Park says the government often has to buy hard currency on informal private markets, where North Koreans go to purchase everything from food and clothes to movies.

(SOUNDBITE OF MOVIE, "THE GENERAL'S SON")

KUHN: Japanese and Koreans duke it out in the 1990 South Korean movie "The General's Son." Owning a copy of this popular flick in North Korean can land you in jail for years, says Suio Nam(ph), the alias of a 28-year-old North Korean who pedaled bootlegged video discs in North Korea until he defected to the south in 2008. He says that in a good month he could sell up to 10,000 video discs. Without these informal markets, or jamadong(ph), he says, most North Koreans couldn't survive.

SUIO NAM: (Through translator) If the jamadongs were closed, 70 percent of the people would have nothing to eat. The jamadong has everything. You can buy. You can sell. It's like a lifeline. If the jamadong are closed for a week, everyone will go hungry, even the local officials.

KUHN: Some observers argue that North Korea will eventually have no choice but to free up the markets and implement Chinese-style economic reforms. But John Park, a North Korea expert at Harvard University's Belfer Center for Science and International Affairs, says that North Korea's leaders have little interest in such reforms. And even if they did, they may not have the institutional capacity to make them work.

JOHN PARK: I think North Korea does not have the capabilities to do economic reform as many people envision along the lines of China. Every time North Korea has launched economic reforms, it's always led to turbulence that the North Korean regime hasn't been able to navigate or handle well.

KUHN: North Korea has also been able to hang on by making minor concessions in exchange for foreign food aid. Pyongyang had just agreed to stop enriching uranium in exchange for U.S. assistance when Kim Jong Il died, putting the deal on hold. Anthony Kuhn, NPR News, Seoul.

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