North Korea will go about ‘business as usual’

Adriene Hill Dec 19, 2011

Adriene Hill: For almost two decades, Kim Jong-Il kept North Korea — and its economy — isolated. The GDP of North Korea is just $40 billion a year — which is just a fraction of South Korea’s $1 trillion economy. Much of the economic life in North Korea takes place in illegal markets.

Joining me now is Marcus Noland. He’s a North Korea expert and a deputy director of the Peterson Institute for International Economics. Good morning.

Marcus Noland: Good morning.

Hill: North Korea is an incredibly isolated economy, but as I understand it, the country does have a sizable illegal economy. Can you tell me a little about that?

Noland: Well, it really has two kinds of illegal economies. It has an illegal economy that is engaged in illicit activity — things like counterfeiting and drug smuggling. And then it has a kind of market economy in which people buy and sell things, but are not sanctioned or authorized to do so. The markets are very significant; they are the principle means by which a typical North Korean family accesses most of their food, for example.

Hill: What else is happening in these markets economically — outside of these markets?

Noland: North Korea has gone through a pretty bad patch over the last couple years. Two years ago, they did a surprise currency reform, and this set off very high levels of inflation. I estimate that since that occured two years ago, inflation has been averaging between 100 and 200 percent a year.

The situation really appears to be deteriorating with respect to food. Normally, after the harvest, food prices fall — but this year, rice and corn prices have continued to rise after the harvest, signaling a real worsening of the situation internally.

Hill: With the death of Kim Jong-Il, should we expect any significant economic changes?

Noland: Not in the short-run. He is stepping into power in a relatively weak position, so I think it is unlikely that the North Korean government will show bold initiatives in the economic sphere or foreign policy or anything else.

After a period of consolidation of political power lasting one, or two or three years, perhaps we may see a greater initiative out of this government. But in the short run, I think it’s going to be business as usual, which means misery for the bulk of the North Korean people.

Hill: Marcus Noland is deputy director at the Peterson Institute for International Economics. Thanks so much.

Noland: My pleasure.

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