(EDITORIAL from the Chosun Ilbo on Dec. 3)

dailies-editorials (3)



N.Korea Must Reform to Survive

North Korea replaced its practically worthless currency at a rate of 100:1 on
Tuesday. The North's last currency reform was 17 years ago, when it replaced old
won with new at a rate of 1:1. The announcement sent North Koreans scurrying to
exchange their won into U.S. dollars or Chinese yuan.
The reform appears to be aimed at suppressing soaring inflation. The communist
country implemented partial market reforms back in 2002 that resulted in rising
in prices of food, manufactured goods, homes and electricity fees, while wages
increased 18 to 25 times. The North also adopted a system of incentives in
proportion to labor productivity to overcome shortages in food and daily
necessities.
Money supply rose as a result, but shortages in energy and raw materials
compounded by an ailing infrastructure and other structural limitations
interfered with supplies of food and daily necessities leading to skyrocketing
consumer prices. Inflation has grown so bad recently that a 2 kg bag of corn is
worth a month's wage. North Korea's central bank is virtually useless since it is
incapable of implementing monetary policies and has no way of mopping up excess
liquidity in the markets. That is why the North Korean government has virtually
confiscated cash from its citizens by replacing the currency.
Some experts say the currency reform resembles the market-opening steps taken by
Vietnam. From 1979 to 1981, Vietnam implemented similar steps to raise wages and
the prices of goods to levels seen in capitalist countries and then replaced the
currency at a ratio of 10 to 1. If North Korea is to overcome its economic
difficulties, it has no choice but to pursue market reforms by liberalizing
prices just like Vietnam.
Others, however, say the intention is to strengthen the planned, socialist-style
economy by getting rid of economic imbalances created after private
farmers'markets mushroomed and widened the gap between rich and poor. Since
April, North Korea has been rounding up citizens and sending them to communal
farms to take part in state efforts to boost production and revive the economy.
But the real intention, experts say, is to bolster the regime's control of the
public.
Regardless of the intentions, the North must boost the supply of goods to succeed
in its currency reform, and that is possible only through economic cooperation
and support from South Korea, the U.S., China and other countries. That means
there is a strong possibility that North Korea will take a more accommodating
stance in talks with Seoul and Washington. If not, the North's economy could get
even worse following the currency reform and make living conditions for its
people intolerable. One thing is clear: North Korea's economy stands at a
crossroads.
(END)