N.Korean Economy 'Cracking Under Sanctions Strain'

North Korea's economy is reaching its limits amid crippling international sanctions. The Asan Institute for Policy Studies on Wednesday said that North Korea's economy is expected to crack "sooner than expected."

North Korea's imports plunged 40 percent and its exports 90 percent this year. The UN Conference on Trade and Development estimates foreign direct investment in North Korea in 2017 stood at US$63 million, down 32 percent compared to 2016. But rather than tightening its belt, Pyongyang boosted imports of daily necessities and smuggled in more oil.

The institute said North Korea resorted to these measures "to stabilize its internal economy," allowing open-air markets to stay open, while black-market exchange rates and prices of daily necessities remained stable.

The North was apparently expecting sanctions to be eased much sooner once it started nuclear negotiations with the U.S. But the policy is unsustainable because the North's current account balance and foreign currency reserves will deteriorate exponentially.

The institute said it will take "considerable time" for sanctions to be eased even if Washington and Pyongyang reach some sort of agreement in denuclearization talks.

The think tank forecast that judging by the U.S.' behavior in the Iran nuclear deal, it could ease only nuclear-related sanctions in the event of a breakthrough in talks while maintaining other bans.

North Korea's demands, which had focused on a declaration of an end to the Korean War and the signing of a peace treaty following Kim Jong-un's summit with U.S. President Donald Trump on June 12, have shifted since September to the easing and lifting of sanctions.

That suggests it is on the point of cracking under the strain. Kim made 43 on-site inspections of economic projects this year and only eight to military installations. The official Rodong Sinmun daily said the Workers Party "declared war" on bureaucratic inefficiency and corruption, judging that such factors are serious threats.

One former Unification Ministry official here said, "It looks like [North Korea] is preparing to stem potential public unrest due to economic deterioration. There is a strong chance that some corrupt bureaucrats will be made to take the fall for North Korea's economic deterioration."

Meanwhile, Statistics Korea said North Korea's economy shrank 3.5 percent last year, its worst performance since 1997, when it shrank 6.5 percent. South Korea's economy grew 3.1 percent in 2017, increasing the difference between the two to 43 times, up from 11 times in 1990.

North Korea's per-capita gross national income stood at W1.46 million in 2017, a fraction of South Korea's W33.6 million (US$1=W1,128).

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