▲ The 2009 currency redenomination as ‘economic terrorism’
In North Korea, markets emerged spontaneously as a result of the famine between 1994 and 1999. These new markets made the greatest possible contribution to ending the famine. To employ a metaphor; past economic reforms attempted to rein in the wild market horses. This is illustrative of the character of “reforms” that occurred in the past.
Kim Jong Il thought it was dangerous for the herd of wild horses to be roaming around freely in the hills of North Korea. In 2002 once the famine had ended, Kim Jong Il fenced in the wild horse in an attempt to tame them with his own ideas. This resulted in the ‘July 1st Economic Management Reform Measure’ of wage and price reform.
However, the wild horses easily jumped over that fence and instinct led them to travel all across the country. Kim Jong Il and Kim Jong Eun became angry at this, and so tried to wipe out the wild horses with clubs in what is known as the ‘currency redenomination’ of November of 2009.
However, the wild horses kicked off their bareback riders and survived. Slowly, the herd has persisted and continues to dominate thanks to its own bravery and guile. However, changing tack, Kim Jong Eun has decided to use carrots to try and lure the troublesome steeds back to the state’s ranches.
The authorities hoped that the ‘currency redenomination’ would eradicate the informal markets and lead to a return to the rationing system of old. This anachronistic act was thoroughbred economic terrorism. Kim Jong Il and Kim Jong Eun waged a reckless war against the informal markets, but were defeated in three months flat. In the resulting chaos, they lost much of their public support.
▲ Why Kim Jong Eun’s reforms will fail
Kim Jong Eun’s 6.28 Policy is aimed at recovery after the failure of the currency redenomination. However, it is nothing more than a reiteration of the July 1st, 2002 measures which acted to suppress market growth. Although it will not be as destructive as the currency redenomination, the 6.28 Policy will likely have a larger impact upon the markets than its predecessor of 2002. The policy will eventually be revealed as a fraud, one where the state sets prices and interest rates. Call it a ‘state loan-sharking project’ if you will, for the difference is minimal.
There is another problem in attempting to predict the effects of the new economic policy. Will the implementation of the‘6.28 Policy’ be carried out smoothly? This in itself is doubtful. Here's why:
The class that dominates North Korean politics and economics, the Kim family and key cadres, never have to face difficulties regardless of the country’s economic situation. So, even when the survival of the regime itself is actually questionable, they do not want to transition to a market economy. The regime has a strong aversion to unfamiliar environments. They prefer to stay on familiar ground for psychological comfort, even in the face of economic collapse. This new anti-market economic policy will be a step backwards for North Korea.