NORTH KOREAN ECONOMIST ON "ABNORMAL" DPRK ECONOMY

UNCLAS SEOUL 003028

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON PREL KN
SUBJECT: NORTH KOREAN ECONOMIST ON "ABNORMAL" DPRK ECONOMY


1. (SBU) SUMMARY: Cho Myungchul, Head of the
International Cooperation Team for Korean Unification at
the Korea Institute for International Economic Policy in
Seoul, who defected from the DPRK in 1994 and is a
prominent commentator on the DPRK, said that the DPRK
economic situation is very dangerous because the DPRK
government realizes that further openness and reform are
needed to increase output, but is deadset against any such
moves because they could threaten regime security. In this
"abnormal" economy, increasing productivity in industry and
manufacturing does not translate into an improved standard
of living for average North Koreans, and there are no
reliable statistics with which to accurately gauge economic
conditions. END SUMMARY.

POVERTY HOLE
--------------


2. (SBU) At an August 29 meeting in his office in the
Korea Institute of International Economic Policy (KIEP),
Cho Myungchul said that North Korea was in a
"poverty hole," because it did not have the resources or
know-how to improve economic output. He said that the DPRK
government realized further reforms (beyond those enacted
in 2002) were needed, but balked because it perceived
further openness and reform as a threat to regime security,
which remained paramount. The resulting difficulty facing
North Koreans trying to get by was "difficult to describe
in words." Asked what he thought about trends in economic
conditions facing ordinary North Koreans, Cho said that
economic reforms that the DPRK put in place in mid-2002 --
such as allowing for market-determined prices, some private
income-producing activities, and plant-level production
decisions -- had led to increased output and improved
productivity for some sectors. But because of the DPRK's
"abnormal" economy, it was not certain that these gains
translated into gains for workers or ordinary North
Koreans.


3. (SBU) Ordinary North Koreans, facing severe privation,
had four alternatives, Cho said: to try to change the
government; to persuade the government to open the economy
further; to conduct informal trade or hold extra jobs to
get by; or, to flee North Korea. Most opted for what they
saw as the easiest alternative. Many who lived near the
border had fled to China. Those farther from the border
relied on informal trade or extra work. It was now
considered legitimate to have an extra part-time job,
something that was taboo earlier. Changing the government,
or changing government policy, was seen as next to
impossible. Such an effort would amount to "giving up your
life." Cho said the conditions in the DPRK were similar to
those that Chinese peasants faced until China enacted
economic reforms. He also cited leaders' decisions as
being crucial to reform and system collapse in Eastern
Europe, but saw no such prospects in North Korea.

NO RELIABLE NUMBERS
--------------


4. (SBU) Cho said that his best estimate was that the DPRK
experienced negative economic growth from 1991-1998 but
that since 1998 there had been some real expansion of the
economy. Given the lack of any reliable statistics (even
about that growth pattern),Cho said that it was impossible
to tell whether output was increasing because of reforms or
because of increased foreign aid, especially from China.
Shaking his head, Cho said that his biggest challenge was
to gather reliable statistics on North Korea's economy.
His best sources were Chinese and Russian trade data, as
well as conversations with Chinese businesspeople who have
dealings in the DPRK. He suggested that the USG cooperate
with the ROKG to gather reliable economic data about the
DPRK, suggesting that U.S. satellite imagery could cast
light on agricultural conditions, for example.


5. (SBU) Cho said he had no direct information about July
floods in the DPRK, suggesting that the most reliable
documentation of the damage would come from the DPRK's
insurance claim to a UK insurance company (not specified).

ROLE OF ACADEMICS
--------------


6. (SBU) Noting that our hour-long session with him was
interrupted ten times as he briefly fielded telephone
calls, we asked how his advisory role in Seoul compared
with his previous experience as an economics professor in
Pyongyang's Kim Il Sung University. Cho answered that in
South Korea he gets about four calls a day from government
ministries asking for input. In Pyongyang he got about two
such calls a year, and the DPRK government only
consulted academics to solicit justification for its
policies.
STANTON