The crisis of the 1990s had its origins in a complex set of external and inter- nal developments that began to unfold in the late 1980s. Notwithstanding its claims to self-reliance, North Korea had in fact long been dependent on out- side assistance, with first the Soviet Union and later China playing the role of patron. Not only did the Soviet Union finance North Korea’s recurrent current account deficits, but Soviet pricing of coal and oil exports reflected additional subsidies (Eberstadt, Rubin, and Tretyakova 1995).
Facing economic constraints of its own and perhaps frustrated by North Korean unwillingness to repay accumulated debts, the Soviet Union began to cut aid and reduce its support beginning in 1987.4 In 1990 the Soviet Union initiated a diplomatic breakthrough with South Korea and simul- taneously demanded that North Korea pay world market prices—and in foreign exchange—for Soviet goods. The Soviets also began to terminate technology transfer in the military sphere; this proved important because the export of arms based on Soviet designs constituted an important source of foreign exchange.
This fundamental change in North Korea’s external relations not only rep- resented a profound political shock (see Oberdorfer 1997:chaps. 9 and 10); the end of barter and debt financing, and the subsequent collapse of the Soviet economy, constituted a profound economic shock as well. The decline in imports from Russia in 1991 was equivalent to 40 percent of all of North Korea’s imports. By 1993 imports from Russia were only 10 percent of their 1987–90 average and subsequently declined to irrelevance (figure 2.1; Eberstadt, Rubin, and Tretyakova 1995). In the face of this massive trade shock, the North Korean industrial economy began to implode.
Under these conditions, the regime faced two basic options, and although we tell the story with respect to food, it applied to consumption more gener- ally.5 The country could either reduce domestic consumption to bring it into line with shrinking domestic supplies, or it could relieve the domestic supply constraint by importing food from abroad. The latter strategy in turn could be achieved through three non–mutually exclusive means: increasing exports to pay for needed imports, sustaining the ability to borrow on commercial terms, or seeking foreign aid.
The regime began to repress demand, initiating a “let’s eat two meals a day”
campaign in 1991.6 In 1987 the government also substantially increased food imports and became a net food importer (S. Lee 2005:6). But the government proved unable to sustain the needed level of imports into the 1990s. Perhaps
FIGURE 2.1. Trade with USSR/Russia, 1985–2004
Source: Eberstadt 2003 for 1985–2001; IMF 2006 for 2002–2004. Note: Eberstadt data reported as exports from the Soviet Union/Russia. 10% c.i.f./f.o.b. adjustment made.
because of the country’s unrelenting emphasis on autarky and self-reliance, the political leadership seemed strangely unable to grasp the epochal nature of the changes around it and took only limited and woefully inadequate steps to boost exports or reestablish access to commercial borrowing.
Efforts with respect to expanding exports were not auspicious. During the cold war, North Korea’s fraternal allies complained bitterly about the low quality of the North Korean manufactures they were forced to accept as part of politically determined barter trade. Arms sales, particularly to both Iran and Iraq during their decade-long war in the 1980s, had been an important source of revenue, a kind of franchise granted to North Korea by the Soviets.
But entering the 1990s, North Korean arms exports fell victim to declin- ing global demand, intensified competition from Eastern Europe, and the increasing obsolescence of Soviet-era designs as the new Russian government became less and less willing to support Pyongyang with the transfer of cur- rent technologies.
In 1991 the government took its first, tentative step toward mimicking the export processing zones that had sprung up throughout the Asia Pacific since the 1960s. Yet nearly every aspect of this effort—from the geographical location of the first zone in the isolated Rajin-So˘nbong corridor to the lack of a clear
The Origins of the Great Famine 29
and credible legal foundation for the zone7—reflected lack of North Korean understanding of the needs of foreign investors. Not until the mid-1990s, when the famine was in full swing, would the leadership attempt to revive the virtu- ally dormant Rajin-So˘nbong zone, and not until the late 1990s would it begin to explore other locations that made more economic sense, such as along the Chinese border (Sinu˘ iju) or more proximate to South Korea (Kaeso˘ng). Given the options investors had to choose from, it is not surprising that missions sent abroad to attract foreign investment into the zone in 1995–96—at the height of the famine—proved largely fruitless. North Korea attracted little investor interest beyond some speculative Hong Kong money, and the bulk of that was devoted not to manufacturing but to a resort and casino designed to attract Chinese tourists.
It could be argued that the export sector was vulnerable to the same con- straints as those facing the economy as a whole, including the decline of reli- able power supplies and the collapse of the transport infrastructure. There is certainly truth in this argument, yet these constraints were precisely what early export processing zones—whether in Korea and Taiwan in the 1960s or China in the 1980s—were trying to circumvent. Estimates vary, but between 1990 and 1995 North Korea’s merchandise exports fell by 50 to 60 percent (Noland 2000). Over the same period, Vietnam, which suffered a similar trade shock with the collapse of the Soviet Union, nearly tripled its exports by reforming with alacrity and making itself attractive to foreign investors.8 External shocks alone cannot explain these differences.
In the short run, the alternative to earning foreign exchange through exports would have been to borrow money on international capital markets.
Financial markets are even less forgiving than other foreign investors, how- ever, and North Korea had thoroughly burned its bridges in this regard. In the 1970s, the North Korean government contracted loans extended from foreign, mostly Japanese and French, banks as well as a flood of suppliers’
credits extended by Western companies eager to do business. Erik Cornell (2002:5–6), Sweden’s first ambassador to North Korea, describes how expen- sive machinery was left to rust in warehouses because of failure to coordi- nate its purchase with factory construction or power. Expensive prototypes were built largely to demonstrate technological capability, and great sums were squandered on luxurious cars for the nomenklatura and fancy electrical equipment for theaters and museums. Payments quickly lapsed, and North Korea effectively defaulted on its obligations Rarely, Cornell concludes, “have trading relations been established, and contracts and agreements of this scale
and magnitude entered into, between parties wallowing in such monumental delusions with regard to each other’s principles, intentions, priorities, produc- tion capacity and social mores” (2002:6).
The government had also accumulated a substantial foreign debt during the 1970s and 1980s to the Soviet Union and China. Virtually all that debt had fallen into arrears as well.9 Reestablishment of access to Western financial markets was no doubt further constrained by growing tension over the regime’s nuclear ambitions, which began to surface in the second half of 1992. As a result of its past behavior and mounting political tensions, the capacity of the govern- ment to borrow was limited to little more than trade credits, and even such short-term credits required substantial courage on the part of the lender. For many transactions, North Korea was reduced to paying cash out of dwindling foreign exchange reserves.
The aid option was also constrained, although again North Korea’s own political and policy choices were an important component of that failure as well. As we have seen, the Soviet Union had already tired of providing end- less, unrequited support. Once the transition to a new foreign policy occurred under Gorbachev and particularly with the coming of democratic rule through- out the Eastern bloc, support for North Korea quickly became an anachro- nism, championed in Russia, for example, by a dwindling faction of disaffected nationalists. Even China, as we will discuss in more detail in chapter 4, tired of providing assistance. North Korea lacked diplomatic relations with the West outside of the Scandinavian countries, foreclosing bilateral aid; not until the second half of the 1990s did it pursue an active diplomacy to build these ties and secure assistance through them. Nor was North Korea a member of the international financial institutions such as the World Bank, Asian Develop- ment Bank, and International Monetary Fund (IMF) that could have served as sources of assistance on concessional terms. Again, it was not until the after- math of the famine in the mid-1990s that the country would begin exploratory contacts with these organizations.
Responsibility for North Korea’s failure to gain entry into the international financial institutions lies in part with the advanced industrial states. Even in the late 1990s and early 2000s, North Korean efforts in this regard were blocked by the United States and Japan.10 Even if these political constraints had not existed, however, the regime showed little willingness to subject itself to the conditionality, transparency, and monitoring associated with membership in the international financial institutions; to attribute North Korea’s isolation to foreign actors alone is at least somewhat disingenuous. IMF staff report that during a 1996 informational mission—still the high-famine period—the North
The Origins of the Great Famine 31
Korean delegation lost interest when it became apparent that IMF funds would not be immediately forthcoming. At a roundtable on agricultural recovery con- vened by UNDP in 1998, discussed in more detail in chapter 3, North Korean representatives made it clear that they were unwilling to entertain any funda- mental institutional changes in the system of cooperative farming. The purpose of the meeting in their view was simply to secure support for their rehabilita- tion efforts. Indeed, during one 1998 UN meeting on agricultural recovery, the North Korean delegation walked out when one of the foreign participants mentioned the word “reform.”
A particularly revealing example of the challenges associated with North Korean participation in the IFIs concerns the availability and quality of data.
In May 1997, when North Korea’s membership fees to the United Nations were being assessed, North Korea dramatically lowered data on per capita GNP provided to the UN Budget and Finance Committee in order to decrease mem- bership dues. A year later, to acquire UNDP and IMF support, the government reported very different statistics. In both cases, the data came from the same source: the Choso˘n Central Bureau of Statistics (KIEP 2004:25–26).
Instead of expanding legitimate commercial transactions or international borrowing, the 1990s witnessed an intensification of illicit activities, includ- ing smuggling and counterfeiting. These sorts of illicit activities, together with legal, though diplomatically contentious, missile sales, accounted for perhaps one-third of North Korean foreign exchange earnings and would later become the focus of U.S.-led interdiction activities and sanctions under the administra- tion of George W. Bush (we provide a more detailed outline of these activities in appendix 1).
The difficulties North Korea faced in earning foreign exchange and its inability to borrow from commercial or international public sources had important implications for its capacity to import. Table 2.1 tracks North Korean grain imports by source in the first half of the 1990s and shows the dangerous instability of the country’s commercial grain transactions. Cana- dian and Thai imports were volatile, and imports from other sources declined sharply in 1992.
Of particular interest is the course of North Korea’s grain trade with China, a crucial episode that we take up in more detail in chapters 4 and 6. China qui- etly followed the Soviet Union by establishing diplomatic relations with South Korea in 1992. In the period immediately following the collapse of the Soviet Union, however, China had stepped into the economic breach and became North Korea’s primary supplier of both oil and food, most of it almost certainly on “friendship” or concessional terms.11 By 1993 China supplied North Korea
TABLE 2.1. Grain Imports, 1991–97 (thousands of metric tons)
1991 1992 1993 1994 1995 1996 1997
China 300 620 740 305 153 547 867
Syria – – – – – 140 34
Thailand 90 20 78 52 162 30 38
Canada 350 80 160 – – – –
Japan – – – – 370 132 –
EU – – – – – – 115
Other 550 110 115 133 277 201 576
Total 1,290 830 1,093 490 962 1,050 1,630
Note: Other includes imports from other countries and food aid from international organizations.
Source: Cho and Zang 1999.
with 77 percent of fuel imports and 68 percent of food imports (Cho and Zang 1999:26, table 1). But in that same year, China began to demand that it be paid in cash as well, a demand that was increasingly difficult given the tightening of sanctions during the nuclear crisis. China also pulled back on crucial exports of corn to North Korea. In 1994 there was a second, sharp reduction in North Korean imports from China. Preferential relations were reestablished in the wake of the U.S.-DPRK Agreed Framework of that year, and North Korea got some assistance in the form of heavy oil shipments from the United States under the agreement. Nonetheless, North Korea’s food situation was already extraordinarily precarious at this point. If there was a single proximate external trigger to the North Korean famine, Chinese trade behavior during these cru- cial years is a plausible candidate.
One way to grasp the extent and effect of these external shocks is to con- sider the decline in the availability of fertilizer. The Ministry of Agriculture has estimated that the annual requirement of fertilizer nutrients (nitrogen, phos- phorus, and potassium, or NPK) needed to maintain adequate levels of pro- ductivity is around 700,000 tons. As can be seen in figure 2.2, the availability of fertilizer showed a steady decline over the first half of the 1990s, reflecting a decline in imports of both fertilizer and the petroleum feedstock needed by North Korean plants. By 2000, when total availability had recovered some- what, to 210,000 tons, only 28,300 tons was supplied by domestic production;
the remaining 181,700 tons came from commercial imports and particularly bilateral and multilateral fertilizer assistance.
The Origins of the Great Famine 33
FIGURE 2.2. Fertilizer (NPK) Consumption, 1989–2004 Source: FAO/WFP 2004.