Tag Archive | "development"

Drought in North Korea — What Should Be the Response?

By Robert R. King

Just a few days ago, the UN Food and Agriculture Organization (FAO) issued a report that North Korea is facing its worst drought in 16 years.  The report, prepared by the FAO in cooperation with the European Union’s Joint Research Center, concludes that the period April through June of this year was particularly dry, which has delayed planting and stunted plant growth in key crop-growing areas.  Food security in the DPRK has been precarious since the famine of the late 1990s and early 2000s, and now the UN agency is warning that “cereal output may decrease significantly.”

The other shoe that has yet to drop this year are floods.  North Korea frequently faces late summer monsoon rains and occasional typhoon rains in September that complicate farm production.  Because North Korean government policies limit private farming on good farm land in the flatter bottomlands, farmers end up over-cultivating hillsides.  Then when the late-summer rains come, they can accelerate the runoff, causing devastating damage to the hillsides through erosion.

The late August 2016 floods along the Tumen River on the northern DPRK border with China and Russia were caused by Typhoon Lionrock.  In North Korea, the floods killed over 500 people, left over 100,000 homeless, and did major damage to farmland in the area.  Flooding such as this is an all too common occurrence, and exacerbates existing food scarcity.

Unfortunately, food shortages in the North are not unusual.  Even in an average year, the country has to stretch to meet the food needs of its 25 million people.  The government provides only limited resources for agricultural inputs and equipment, farming methods are not the most modern or effective, and central planning generates further inefficiencies.  Some improvements have been made in recent years with better farming practices that reward individual efforts to encourage greater efficiency, but shortages are still serious.

In the 1980s, annual grain production (principally rice and corn) averaged around 8 million tons.  During the famine (1996-2003), annual production averaged 3 million tons, with some years considerably lower.  For the last five years, it has averaged just below 5 million tons.  Furthermore, gaps between regions and a poor transportation system make it difficult to adjust for regional differences.

The suffering of the North Korean people is certainly not their own fault.  They have little, if any, ability to influence the decisions of the tyrants that control their fate.  The food shortages are the responsibility of the regime.

In fact, the regime provides ample food and luxuries for the elite in Pyongyang, and the military leadership and elite military units will have sufficient food.  Resources that could provide much-needed inputs for agricultural production will be spent for nuclear and missile development and maintaining the military, and of course the supply of luxuries will continue to flow to the privileged.

Certainly UN agencies will appeal to member states to help North Korea. However, humanitarian assistance from the UN, particularly the World Food Program, will likely be difficult to secure.  There are great demands on UN humanitarian resources in other parts of the world right now, and in recent years special appeals to provide aid to the North Koreans have secured only limited help.  North Korea has lavished resources on missile and nuclear capabilities, despite the urgent humanitarian needs of its own people and the condemnation of its military actions by the UN Security Council.  Thus, aid to North Korea will be a particularly difficult case to make to elected political leaders.

In addition, the U.S. government is unlikely to be responsive.  A sharply divided Congress, preoccupied with healthcare, taxation, and other divisive domestic issues, will find it very difficult to support humanitarian aid to a country which has announced that its nuclear and missile programs are aimed at Washington.  Furthermore, the Trump Administration has indicated its intent to significantly cut back on all U.S. foreign assistance.

The new government of the Republic of Korea is likely to give the most serious consideration to the humanitarian needs of the North.  These suffering Koreans are their cousins, and many Koreans in the South have roots in the North.  In fact, Seoul has put forward an initial proposal for engagement with Pyongyang.  Based on previous experience, the North will likely expect to be paid to engage, and in the past humanitarian aid has been a place to start.

Another avenue for assistance in coping with the effects of drought is private humanitarian groups.  A good number of them are American Non-Governmental Organizations (NGOs), which have a good record and experience in aiding the North.  Unfortunately, these NGOs face serious difficulties raising funds.  These groups are well-organized and managed, do extremely good work, and have dedicated and compassionate leaders.  The DPRK, however, has become such an international pariah because of its nuclear and missile programs, its periodic provocations, and crude verbal outbursts that large and small donors alike are reluctant to be involved.

In considering a possible response by governments, international organizations, and private non-profit organizations to the growing signs of an impending food shortage in the DPRK, two considerations are important.

First, they must assess the need for help.  Our satellite imagery is remarkable, and we can make reasonable estimates about the extent of the need from afar.  But on-the-ground assessment is essential to determine the reality.  What crops and which regions are most affected?  What steps is Pyongyang taking to deal with this problem?  What are the transportation issues?  Does the North have the capacity to move aid from ports to affected areas?

Second, agreements must be reached to allow on-the-ground monitoring by designated representatives of the country or organization providing the aid.  In the past, South Korean and international organizations delivered food aid to the border or to the ports, and Pyongyang determined where the aid was sent.  Some was apparently sold on the black market and the payments may have helped fund the military. Other funds subsidized the lifestyles of the rich and infamous.  If aid is provided, foreign donors and the international community need to be assured that humanitarian assistance is going to those most in need.

The longsuffering North Korean people have limited alternatives for humanitarian help.  Unfortunately, the bad decisions and self-destructive policies of its own leadership, over which they have little or no control, make it very difficult to find help for them.

Robert R. King is a Non-Resident Fellow at the Korea Economic Institute of America.   He is former U.S. Special Envoy for North Korea Human Rights.  The views expressed here are his own.

Photo from (stephan)’s photostream on flickr Creative Commons.

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Deepening South Korea’s Relations with the Middle East

This is the sixth in a series of blogs looking at South Korea’s foreign relations in the run up to the next Korean administration taking office on May 10. The series also includes blogs on relations with North Korea, the United StatesChina, Japan, Russia, the European UnionASEANAfrica, and Latin America

By Juho Choi

The active relationship between South Korea and the Middle East Area is relatively young. Since South Korea established its government after the Korean War, most exchanges with Middle East nations had been based on oil and overseas construction. While there is significant geographic distance and cultural differences, the relationship has evolved significantly in recent years.

Korea’s active economic ties with the Middle East go back many years as Korean companies have often looked to the region for construction projects. However, ties have grown closer in the 21st century. As oil prices soared, many oil-supplying nations needed additional oil-related facilities and social infrastructure.

Middle East Blog Table

Out of the top 10 countries where Korea has construction work, 6 are in the Middle East including the top 4 countries. Under the two former presidents (Lee Myung Bak and Park Geun Hye), ties with Middle East nations were significantly expanded. Both presidents toured the Middle East and signed hundreds of memorandum of understanding (MOU) in various fields. In fact, some of them led to contracts such as plant building and operation contracts, including ones in the UAE for a $20 billion deal to build four nuclear power plants and $49.4 billion contract to operate the plants over 60 years.

Lifting sanctions on Iran also helped Korea’s economy advance and brought hundreds of millions of dollars in contracts. Daelim Industrial landed a $2 billion deal with the Esfahan Oil Refining Company and Hyundai Heavy Industries clinched a $700 million deal to build 10 ships for Iran’s state-owned shipping companies. Also, Turkey, which is called a brother nation in Korea, signed a $3 billion contract with SK E&C to construct the world’s longest suspension bridge.

In addition to economic ties, cultural exchanges have dramatically increased. According to Korea Customs statistics, Korean confectionery exports to UAE and Saudi Arabia have risen 60.8 percent and 141.8 percent, respectively, compared with 2011. The popularity of Hallyu (K-Wave) is also remarkable. Starting with the success of ‘Dae Jang Geum’ which recorded a 90 percent rating in Iran, many Korean TV shows have aired successfully in the Middle East. The growing popularity of K-pop is also considerable. The first music and culture convention ‘KCON Abu Dhabi 2016’ was a huge success with 8,000 fans and many idol groups have had concerts in the Middle East. State level effort also has continued to share cultural value in depth. Two Korean Cultural Center are running in the Egypt and Abu Dhabi and different events has been offered by Korean embassies around the Middle East.

This K-Wave trend has led to a boost in tourism. According to the Korea Tourism Organization (KTO), the number of tourists from the Middle East has soared over the past few years. In 2016, nearly 200,000 tourists from the Middle East visited South Korea, double the number of tourists in 2011.

Beyond cultural exchange, South Korea has also contributed to keeping peace in the Middle East. The Cheong-hae naval unit has been deployed for international maritime security and to counter the spread of terrorism. They also carried out an operation called ‘Dawn of Gulf of Aden’ which was successfully rescued 21 crew members of a Korean ship hijacked by Somali pirates. In addition to the Cheong-hae unit, the Dong-Myung unit has been engaged in rebuilding in Lebanon and the Ake unit has helped to train soldiers of the Persian Gulf state in UAE.

However, several obstacles such as fluctuating oil prices, unstable regional security, cultural, and religious difference still remain. In particular, armed conflict and unstable political situations in the Middle East need worldwide cooperation and focus to move forward. Considering Korea’s growing interest in the regions, it’s possible to play an important role by cooperating with Middle East nations in depth. According to Korea Institute for International Economic Policy (KIEP), many oil-supplying nations are promoting economic diversification for falling oil prices, it will lead to increased investment in non-oil based industries such as medical care, tourism, finance and others. South Korea has mainly enhanced its business tie with Middle East in construction and resource related industries. South Korea is also endeavoring to follow this diversification especially medical care. However, Korea should diversify investment in accordance with this phenomenon and prepare the post-oil era with the Middle East to greet the real ‘Second Middle East Boom’

Juho Choi is an intern at the Korea Economic Institute of America and a student of the Dong-A University in Busan. The views expressed here are the author’s alone.

Photo from Gordon’s photostream on flickr Creative Commons.

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Samsung’s Troubles Demonstrates How Different North and South Korea Really Are

By Troy Stangarone

North Korea and South Korea are different, but sometimes it takes a crisis in each country to draw those differences out. In many ways, the flooding in North Korea in September and the recent crisis at Samsung help to illustrate how different the two countries have become since they were divided after the Second World War.

For a North Korean living in the flood ravaged north of the country, life was already perilous before floods damaged or destroyed 35,500 homes. Now, with the onset of winter approaching, life has become even more perilous. In contrast, the crisis around Samsung, South Korea’s star economic performer, will not place the lives of South Koreans in anywhere near as perilous a fate. Instead, Samsung faces a reputational crisis as a result of a flaw in the Galaxy Note 7 that has led some phones to catch on fire.

For many countries, while challenging, the domestic resources would be available to deal with a calamity similar to the floods in North Korea. For those nations lacking in the resources, international aid would be available to help deal with the needs of those short of food and housing.  North Koreans are not as fortunate. The state does not have the capacity to deal with the challenge, and while international organizations such as the World Food Program, UNICEF, and Save the Children have made appeals for aid totaling $28 million to help some 600,000 in need of assistance. Years of food shortages from a state that is more interested in developing nuclear weapons than ensuring that its citizens are cared for have made international donors less willing to help. To date only a quarter of the $28 million has been raised.

In contrast, South Korea’s Samsung Electronics is also facing its own onset of difficulties. After turning around two years of declining profits in the first half of the year, the troubles of the Galaxy Note 7 have shaken Samsung. After an initial recall, replacement phones have also reportedly caught on fire. In an effort to prevent the damage from spreading and protect Samsung’s reputation, the decision was made to permanently discontinue the Note 7. Initially Samsung revised its quarterly operating profit down by $2.3 billion, but in its recent quarterly statement the figure had grown to a $4 billion net decline in the 3rd quarter profit.  Some analyst expect the recall to cost Samsung anywhere from $6.2 billion to $17 billion.

What makes these two crises so interesting is not just that Samsung’s loss, and, by extension actual profits, will significantly exceed the sum of international aid requested for North Korea, but that the losses of one South Korean company represent such a significant portion of the estimated GDP of North Korea itself. The CIA estimates that North Korea’s GDP is approximately $40 billion, on a purchasing power parity basis. That makes Samsung’s initial revision of its quarterly profit a little less than 6 percent of North Korea’s GDP. Its actual decline in reported 3rd quarter profit, $4 billion, represents 10 percent of North Korea’s estimated GDP. If the ultimate loss rises to the $17 billion estimate it would represent 42.5 percent of North Korea’s GDP.

In essence, South Korea’s economy is now so much larger than North Korea’s that the failure of a single product at one company is much greater than the resources Pyongyang needs to address the recent flooding and a significant portion the productive output of the North Korean economy itself. In a sense, the Note 7’s failure represents a stark contrast to the real catastrophe in terms of lives and wellbeing that North Korea’s economic and political choices have had for its people.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from the European Commission DG ECHO’s photostream on flickr Creative Commons.

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South Korea’s Overseas Peacekeeping Activities – Part II: The Implications for South Korea

By Hojun Song

On July 26, 2016, the Republic of Korea (ROK) Army held a send-off ceremony for deployment of the 18th rotation of the Dongmyeong Unit. This contingent will depart for the United Nations peacekeeping operation (PKO) in Lebanon in early August, renewing its record as South Korea’s longest overseas peacekeeping mission. The Dongmyeong Unit represents South Korea’s growing role in international peacekeeping, where it is now the 12th largest donor to the United Nations peacekeeping budget and has dispatched some 13,500 troops to 18 United Nations PKO missions as of 2015.

Despite the expected costs, most South Koreans are supportive of South Korea’s involvement in overseas peacekeeping missions. In 2010 and 2011, the Jeju Peace Institute (JPI) conducted poll, which showed that 65.1 percent and 64.6 percent of survey participants, respectively, were supportive of South Korean overseas military deployment to United Nations PKO missions. Regarding the results, a JPI research fellow Seong-woo Yi stated that South Koreans generally support contributing to the international community. More recent views of overseas peacekeeping activities remain positive. According to surveys conducted by Hankook Research Ltd. in 2015 and 2016, respectively 75.5 percent and 74 percent of respondents supported the overseas deployment of the ROK Armed Forces.

Peacekeeping Table

Moreover, peacekeeping activities bring various fruitful benefits to South Korea. First, South Korea’s peacekeeping activities enhance its reputation among the international community. South Koreans are proud of the fact that South Korea, which was once a beneficiary of international assistance and has now become a donor country, contributes to world peace. In 2014, the then Secretary of National Defense of the Philippines, Voltaire Gazmin, conferred on the Araw unit a “Bakas Parangel” award, which is a special recognition given to individuals or agencies who demonstrate remarkable courage and heroic deeds during a time of natural disaster.

Second, South Korean troops deployed overseas can provide immediate protection to South Koreans in the foreign countries in times of emergency such as civil war or a terrorist attack. For example, the Cheonghae unit which operates in the waters of Somalia conducted evacuation operations for South Koreans in Libya during the Libyan revolution in 2011 and the Libyan civil war in 2014. In 2015, the Cheonghae unit also evacuated South Koreans in Yemen when the conflict between government forces and Houthi rebels deteriorated. On the other hand, the Hanbit unit in South Sudan conducted a rescue operation for South Korean NGO workers threatened by South Sudanese armed robbers in 2013.

Third, South Korea’s overseas military deployments give the ROK Armed Forces opportunities to have field experience and improve its warfighting capability. The deployment to the UAE allowed the Akh unit chances to enhance its operational capability in an environment with desert terrain and high temperatures. The UAE was also a better location for parachute training than South Korea due to its sunny weather. Another benefit for the Akh unit to use the high-tech training facilities such as a high-priced virtual reality combat system which the UAE had purchased from the U.S. defense industry firms. The anti-pirate operations of the Cheonghae unit were also helpful in improving the ROK navy’s actual combat capability.

Fourth, South Korea’s military cooperative activities promote the national interest through increased bilateral cooperation with a partner states. The deployment of the Akh unit enhanced the diplomatic relations between South Korea and the UAE, which provides 14 percent of South Korea’s oil imports and is the second largest importer of South Korean goods in the Middle East. The Akh unit may also have had a positive role in the UAE choosing South Korea for a $20 billion contract to build four nuclear power plants in Abu Dhabi. Similarly, South Korean firms won a $31.5 million contract of operational consulting of a new Erbil airport and a $3.5 billion package deal of oilfield and social overhead capital development in Basra as the Zaytun division was deployed in Iraq over 4 years. Likewise, as the Hanbit unit won the hearts of local South Sudanese through civil affairs operations, it is expected to be positive for South Korean firms looking to engage in business once the security situation is stabilized.

Lastly, South Korea’s contributions to peacekeeping activities are also believed to have the benefit of building good will with states in the event of a second Korean War or another crisis where there may be a need for foreign governments to provide military support to South Korea. On the previously mentioned poll conducted by Hankook Research Ltd in July 2016, 85.6 percent of respondents expected that South Korea’s overseas military deployment will lead to more military support from other countries in time of emergency.

Admittedly, there are some criticisms from South Koreans regarding the overseas deployment of the ROK Armed Forces. As the security condition in Lebanon and South Sudan has recently deteriorated, South Koreans are more concerned about security of their soldiers deployed overseas. Also, a recent slow-down in economic growth in South Korea might make public opinion less favorable to continuing to pay for peacekeeping activities on foreign soil. However, considering the active public support and possible benefits, the balance sheet seems favorable to the deployment.

South Korea continues to show consistent support overseas peacekeeping activities, as all existing dispatches were extended with strong support from the National Assembly. With support from both the South Korean public and policy makers, South Korean soldiers deployed overseas will continue to represent South Korea and promote universal values for the world peace and prosperity.

Hojun Song is an intern with the Korea Economic Institute and a graduate student at the Fletcher School of Law and Diplomacy at Tufts University.

Photo from Expert Infantry’s photostream on flickr Creative Commons.

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Unfriending North Korea…With South Korea’s Help

By Jenna Gibson

On June 16, Uganda officially kicked North Korea to the curb, asking approximately 60 DPRK troops and state security officials to leave the country. Uganda was playing host to the North Koreans as part of a military exchange program – the UN recently reported that the North Koreans were providing police training to their Ugandan counterparts, including lessons on the use of AK-47s and pistols.

Why kick them all out now? It may be yet another sign that South Korean President Park Geun-Hye’s so-called Summit Diplomacy is working.

According to 38 North, South Korea described President Park’s recent international trips as “part of diplomatic efforts to enlist the international community to the effort to bring about change in North Korea on all fronts.”

Uganda is a perfect example of the strategy’s success. Ugandan President Yoweri Museveni first promised to cut military ties with the DPRK after his summit meeting with President Park. During her visit to Uganda, which was the first visit by a South Korean president to the African nation since 1963, President Park also signed 10 agreements to cooperate on defense, health, rural development and communications technology.

While South Korea has long invested in development aid in sub-Saharan Africa, the timing of this visit and Uganda’s subsequent split with Pyongyang is noteworthy, in part because it is hardly the first country that has recently given preference to Seoul after a visit from the Korean president.

In fact, Park’s 2016 itinerary almost reads like the most recent UN General Assembly vote on North Korean human rights. Uganda – abstain. Ethiopia – abstain. Kenya – abstain. Iran – no. It seems clear that President Park’s administration is focusing on those who still support North Korea, whether actively or by staying silent.

Take Iran, for example. In one of the most high-profile diplomatic moves of her administration, Park recently travelled to Tehran for the first bilateral summit between South Korea and Iran since the two countries established diplomatic relations in 1962.

Iran has long been seen as a friend to North Korea, purchasing arms and backing the Kim regime in the international sphere. In 2002, U.S. President George W. Bush famously linked the two as part of the “axis of evil,” along with Iraq. To see Iranian President Hassan Rouhani stand next to a South Korean President and declare his opposition to nuclear development on the Korean peninsula is no less than a sea change.

 In a recent KEI podcast that examined the historic trip, Iran expert Alex Vatanka clearly saw an opportunity for South Korea to make inroads with Iran.

“Much of what Iran has done in recent years in terms of outreach to certain countries around the world was driven by an almost ideological desire to as they would put it, challenge the global system,” Vatanka said. “Rouhani is very different. This Iranian president’s view, and why he was elected in 2013, is those countries are great, but they actually have nothing to offer us. They can’t contribute to the most important thing we are trying to fix, which is the Iranian economy.”

South Korea, in contrast, has much to offer Iran economically. In fact, Park Geun-hye left Tehran with promises to triple trade between the two countries from $6 billion to $18 billion annually. Using this leverage to her advantage, Park has been able to turn a former DPRK ally away from Pyongyang.

Across the world, the pattern may be repeating itself again in Cuba. Earlier this month, Foreign Minister Yun Byung-se visited Havana, despite a lack of formal ties between the two countries. Cuba has long supported its fellow communist country, making this visit particularly key for Seoul. “For an exceptionally long 75 minutes, our talks were very friendly, serious and candid,” Yun told South Korean reporters after the meeting. “We had a broad exchange of views on bilateral, regional and global issues.”

This strategy is hardly limited to high-level visits, though. Seoul has announced they will provide $1.5 billion in development assistance to Vietnam from 2016-2020, for example. And the South Korean administration has been working to turn Myanmar away from the North with infrastructure projects and trade deals since the country began opening to the international community in 2011.

These moves have not gone unnoticed in Pyongyang. In response to Park’s recent trip, the DPRK sent Kim Yong Nam, the country’s nominal head of state, to Africa as well. There, he met with leaders from nine countries, including Chad, Gabon, Congo, Burundi and Mali. Another high-level official visited Vietnam and Laos in June.

“Pyongyang tries to maintain positive relations where it can, with countries less closely tied with its rivals,” John Grisafi, NK News director of intelligence, said in a recent NK News article. If South Korea can continue to narrow the list of countries willing to side with Pyongyang, they may be able to successfully remove what remains of North Korea’s room to maneuver in the international sphere.

And it seems like that’s exactly what Seoul is doing. It’s too soon to tell how widespread and long-lasting these shifts will be. But for now, it seems North Korea’s isolation may finally be cemented, allowing sanctions to take their full effect.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Korea.net’s photostream on flickr Creative Commons.

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South Korea’s June 9 Surprise: Economic History Worth Replicating in North Korea

By William Brown

September, 1961 was not a happy time in South Korea, at least according to the US Intelligence Community.  See how CIA described the dismal situation soon after junta commander Park Chung-hee’s coup d’état, in a declassified National Intelligence Estimate.

“The greatest threat to South Korea, at least in the near term, comes from within South Korea. The country lacks a sense of national purpose and faces both tremendous economic problems and a brittle political situation. The military junta seeks to provide the drive and stability which was lacking in the previous civilian government but is subject to internal factionalism and lacks general public support in confronting these enormous problems. … U.S. aid will probably succeed in preventing economic collapse. However, even under the most favorable circumstances, progress will be slow and South Korea will continue to require large-scale foreign aid for the indefinite future if it is to remain an independent nation allied with the West.”[i]  

The longer-term threat was North Korea, seen then as a vibrant economic entity, pu­­­lling the frustrated South into the communist orbit.   

“One thing seems fairly clear; both the South Korean people and the leadership face many disappointments, frustrations, and failures in the years ahead.  In such a situation, the desire for economic progress and for an end to hopeless temporizing, rising interest in unification, and continued enticements offered by the [more prosperous] North Korean regime could lead to some movement in the south toward an accommodation with the north.” 

National Intelligence Estimate 14-2/42-61, 12 September, 1961.[ii]

Within months, South Korea had set forth on what now must be seen as one of the world’s most remarkable economic and political development paths. And within about a dozen years, North Korea would default on foreign credits and begin a long decline into famine.

Not known for its prescience in such matters—just eleven years earlier the brand new CIA had boldly said China would not enter the then flaming Korean War[iii] — this pessimistic Estimate may have served as a useful warning to the Kennedy Administration which went on to put some of its best minds together to change the nature of U.S. assistance to Seoul.  Instead of commodities aid—free food—that was ruining South Korean agriculture, the aid program focused on fixing the overvalued monetary system and developing exports. Who did this and why would be a good topic for historians to revisit and our countries to honor. But I’d like to look at the take-off from the perspective of peering back into the past with an eye toward the future. How did this intelligence forecast turn out so incredibly wrong, and wonderfully so? And what can we learn in order to convince North Korea to make a similar about-face.

An excellent new book, The Korean Economy: From a Miraculous Past to a Sustainable Future, by Eichengreen, Lim, Park, and Perkins[iv], provides what is probably the school view of South Korea’s remarkable turnaround.  In looking for an up-to-date book for my ­Georgetown University course on the two Korean economies, I was pleased to discover this work, not the least because it includes a chapter on North Korea. But I must say I was disappointed in reading what it has to say about what caused the economic take-off. This is not to say that they might not be right; it just doesn’t fit with my pre-conception and I’d like to see a new, more full, academic discussion.  Perhaps objective economists in South Korea, that is academics not predisposed to punish Park for his authoritarian rule, can help with this.

At its essence this is a chicken and egg discussion.  Eichengreen and others say that it was Park’s shifting the economy from import substitution to export-led industry that allowed savings and investment to blossom, raising the productivity of Korean workers.  Exports, from a subsistence-level economy, were possible only because foreign aid provided the surplus needed to attract investment.  The pull from abroad thus lifted the economy.

In contrast, I have thought it was reforms to the money and banking system that provided incentives to save, even out of very low incomes, that created an exportable surplus which then pulled in the foreign investment that jump-started the economy. In other words, an outward push from inside Korea provided the lift.  Foreign aid was less important. An arcane, perhaps, but I think important distinction, especially as we look towards North Korea’s current predicament and to its penchant for nationalist self-reliance.

My view stems from a personal memory—admittedly a dangerous source of analytical vigor. I was a young American boy living in Kwangju, capital of South Chulla province, during this time—fortunately, my Presbyterian missionary parents had not read the secret CIA document. Early one rainy season morning in 1962, my mother got me up to search our neighboring American doctor’s house for a stash of hwan cash. The doctor and his family were away but had rung up (that is the way the old phone system worked) to say he had a bunch of South Korean money that needed to be turned in; he just couldn’t remember exactly where it was, probably in his library. Exciting in a way I’ll never forget, I found the stash of cash, in cut-away books just like you see in spy novels. The bigger story, of course, and unknown to us at the time, was the change to the monetary system and to Korea’s economy that this currency reform signaled.  The initial phase was not completely successful; apparently not enough new won notes had been secretly printed in England and brought by ship to Korea, but within months the new cash had taken hold.  So if I was to make a point estimate, June 9, 1962 was the day that made modern South Korea. It should be a holiday. Everyone was given a few days to take their hwan money, at least up to a pretty high limit, and go down to the Cheil bank and exchange it for newly printed won notes at a 10-to-one ratio; after that hwan would be useless.  Larger amounts of money had to be deposited for a year at a high interest rate but most of the hwan was converted and prices changed accordingly.  And to encourage the public to deposit and save their new won, something like 20 percent annual interest rates were offered.  Even in days before calculators, I remember figuring out how fast the money would grow and how soon I could be a millionaire—forgetting the problem of inflation that this new policy was meant to address.

I wasn’t the only one thinking this way and very quickly South Koreans shifted from being just about the worst savers in the world to being the best. Poor people stopped spending on weddings and funerals and instead saved money, and the banks used these saved resources to lend to farmers to buy small tractors, assembled from kits made in Japan, revolutionizing agricultural productivity.

The tractor that replaced the cow. Park’s Memorial Museum, Seoul

Elimination of U.S. food aid, and government support to higher agricultural prices, as well as subsequent deals with Japan and the World Bank helped, but the driving force was a decent money and banking system that gave the right incentives to the Korean public to save and invest in the future. At least that is the way I have remembered and taught the story.

Textile workers support exports. Park’s Memorial Museum, Seoul

Eichengreen and the other authors, however, use the data to paint a slightly different picture.

“Domestic savings remained in the single digits (share of GDP) in the first half of the 1960s, the takeoff period. … The most dramatic change was, in fact, the rapid growth in exports. Exports at constant prices grew by 35 percent per annum from the end of 1963 to the end of 1969.[v]

The data shown in their text, however, are at five-year intervals so I question the interpretation of the leads and the lags.  Looking at annual household savings data, (graphic below) it seems that the savings growth kicked-in in 1962 and 1963, simultaneously with the money change and a year before exports began their upward spiral from a tiny base.[vi] Admittedly 5 percent household savings are not much but it is the change from nothing that arguably sparked Korea’s real revolution.

Household Savings Graph

As I say, a chicken and eggs argument. If my memory serves, it was human hair (wigs), plywood, and leather goods that started the export push, not products that required foreign investment.  But clearly Eichengreen is right about what happens next; general and soon-to-be “president for life” Park got on the export bandwagon and the rest is history. Export growth soared giving the economy a huge boost even as savings and investment rates rose, allowing the import of capital goods for South Korean industry.  Park’s most controversial policy was then to shift from light industrial exports, especially textiles and footwear, to heavy and chemical industry, despite what appeared to World Bank and U.S. economists as a comparative advantage in labor intensive products.  By now it would be hard to argue that Park wasn’t correct but, whatever the case, on the basis of this surge in investment, South Korea’s comparative advantage has shifted, for the time being, to heavy industry.  I say for the time being since China looms as a tough competitor in all of these products and is investing even more heavily than did Korea.  Another important step, as is hinted at in the old NIE, was Park’s creation of an objective and expert Economic Planning Board that supervised the creation and publication of data that his and subsequent governments could use as the road map and guide for economic policy making (and which makes possible our current analysis of what caused the economic takeoff).  The U.S. role was critical as well.  Despite missteps with respect to aid, the U.S., soon after liberation from Japan, had supervised the fundamental change in Korea from a tenant based agricultural economy to a capitalist one with massive land reform giving land to the tenants, and, of course, by providing the security shield that protected the country from the Communists.  While initially skeptical of the currency reform—U.S. officials had not been notified in advance even though the U.S. was financing about half of the South Korean budget—U.S. balance of payments support that followed allowed the new won to achieve credibility.

But the real genius of the Park administration, it seems to me, was those early courageous and risky steps in changing the money and using the change to create a sound currency and a high-interest banking system that encouraged savings and that recognized the high returns on capital if used only in high productivity endeavors.  Now seen as a textbook solution to be sure but one that must have been complicated and risky for the generals to manage. Subsequent Seoul governments have relied too much on banking and not enough on more efficient direct capital markets—stocks and bonds—but all of that is a different story, well told in Eichengreen.

The parallels to North Korea today are interesting and I would hope officials and scholars in Pyongyang are carefully studying Park’s success.  I say carefully since they tried something similar to the South Korean currency reform in 2009 but bungled it badly.   On paper what is known as the 2009 currency redenomination must have looked similar but with critical differences. Citizens were told to change about a third of their cash into a redenominated currency of the same name at a 100-1 ratio. That ratio doesn’t matter but the fact that only a small share of cash could be converted, and the absence of a name change, are important.  North Koreans immediately saw most of their money devalued by 99 percent over the span of a few days and naturally associate that disaster with the North Korean won notes.  It isn’t clear what was supposed to happen with their bank accounts but these were artificial anyway since cash can’t be withdrawn from a bank except with special permission—maybe like a 401k that never matures—and that policy has not changed.  By sharply reducing the money supply, the move might have been designed to bring black market prices down close to the fixed ration price levels and end the arbitrage that was and continues to destroy the planned, fixed price, economy.  That didn’t work since market prices immediately soared, leading to an even larger gap between official and market prices.

Whatever the reasons for the redenomination, it backfired—even strongly socialist PRC commentators called this a theft of the people’s money.  The Kim Jong-il government executed the party finance chief and, a first, offered an apology to the public.  But once done such a deal cannot be undone and North Korean won quickly became essentially worthless, with foreign money, U.S. dollars and RMB, seeping into the circulation in large amounts. Pyongyang by now has stabilized the won at prices significantly above the pre-2009 level but the foreign money circulates without impediment, an astonishing development in a so-called Marxist and “self-reliant” economy.  To hire a taxi, you now need something like two U.S. dollars.  To buy an apartment, you need $30,000 US.

In these respects, the situation now is probably not so different than South Korea in 1961.  At least a market now exists and the command economy seems to have lost some of its sting.  Entrepreneurs make dollars buying and selling in the street markets, and former (maybe current) officials and military officers might be hoping to make it big, using their government connections and licensing abilities to make millions of dollars by building apartment buildings and selling the flats, carefully keeping enough dollar cash handy to pay off the authorities.

In fact, it is interesting to think that the 1961 NIE might work well today, simply exchanging “North” for “South” Korea. Land reform that gives farmers’ ownership rights; stopping the inflow of disrupting foreign aid that discourages export development; and an export push all are within the capabilities of even a sanction-limited Pyongyang government. But most important is creating a money and banking system that allows the North Korean people to do their own saving and investing.  If Kim Jong-un wanted to link such a policy to his grandfather, all of this could be placed in a “juche” nationalist and self-reliance context.  Clearly, against the advice of many non-Koreans, Park Chung- hee managed to change South Korea from a beggar, aid-dependent country to a self-reliant lending and aid giving powerful and well-liked country.  One would think the young Kim would like to do the same. But before any of this can work, he needs to fix his rapidly dollarizing monetary system and adopt capitalist tools to raise savings and create private incentives to invest in the future. A decent bank and a decently positive real interest rate would do wonders.  And like Park, Kim might be able to use a little American and Japanese help to get this done.

So, where is the briefing book that we can give the young General that will properly explain what he needs to do?  I’m pretty sure the junta leader’s daughter can give the lecture.

William Brown is an Adjunct Professor at the Georgetown University School of Foreign Service and a Non-Resident Fellow at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photos courtesy of the author.

[i]  http://www.foia.cia.gov/sites/default/files/document_conversions/89801/DOC_0000661631.pdf

[ii]  ibid

[iv]  Barry Eichengreen, Wonhyuk Lim, Yung Chul Park, Dwight Perkins; The Korean Economy: From a Miraculous Past to a Sustainable Future,  Harvard Press, 2015

[v] Ibid. p. 64.

[vi] http://kosis.kr/eng/statisticsList/statisticsList_01List.jsp?vwcd=MT_ETITLE&parentId=L#SubCont

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Five Surprising Ways South Korea and the United States are Working Together

By Jenna Gibson

This week, South Korea became the first Asian country to sign a space cooperation pact with the United States, the first step for the two countries to collaborate on projects like Mars exploration, launching a moon lander, and expanding possible uses of the International Space Station. This announcement strengthens what is already a robust relationship between South Korea’s space program and NASA, which KEI has discussed extensively through our podcast and other research projects.

This announcement may come as a surprise to those who see the U.S.-Korea relationship mostly in terms of security cooperation. However, there are many arenas where the United States and South Korea work together outside of the military alliance. Here are five surprising places where these two countries collaborate.

 1.      Improving maternal and child health

The United States and South Korea have a long history of cooperation on development assistance, beginning with American help in the wake of the Korean War to South Korea’s entry into the donor community in the 1990. South Korea’s development assistance agency, which celebrated its 25th birthday recently, has close ties with USAID. A joint project launched in 2013 focuses on combatting maternal, newborn and child health concerns across sub-Saharan Africa. Another new project will look into ways to promote sustainable development in Southeast Asia through science and technology.

2.      Developing wireless charging technology for electric cars

A grant from the US Department of Energy is helping fund a project to develop wireless charging capabilities for electric vehicles. The Hyundai-Kia America Technical Center (based in Ann Arbor, Michigan) and American company Mojo Mobility are collaborating on the project, which aims to improve the speed and convenience of charging for electric vehicles.

3.      Curing cancer

In 2015, the Korean National Cancer Center signed an agreement with the U.S. National Institutes of Health to share information and work together on cancer treatment and prevention. According to the Korea Herald, “The NCC seeks to set up a database of medical records of its 1.2 million patients who have suffered or survived cancer. Once the database is complete, the NCC plans to analyze the ‘big data on cancer’ for preventive measures and post-recovery treatment of the disease.”

4.      Stopping wildlife traffickers

South Korea and the United States have been working on a range of environmental issues, from climate change to sustainable fishing. But one interesting area of collaboration is on wildlife preservation. According to a Work Program adopted by the two governments in 2013, they are working to “Improve collaboration and communication among judicial, law enforcement, customs, and border security personnel in seizing illegal shipments of wildlife products, investigating wildlife crime, prosecuting wildlife traffickers, and dismantling transnational organized criminal networks.” In a related field, the Work Plan also includes a provision to engage in information exchange and dialogue with the goal of fulfilling wildlife management responsibilities, with an emphasis on the preservation of waterbirds and their habitats, and the restoration of habitat. This includes birds that migrate between the United States and the Republic of Korea, and threatened and endangered species of birds.”

5.      Cooperating on nuclear energy technology

In 2015 the United States and South Korea signed a new nuclear cooperation agreement, or 123 Agreement to replace the original agreement that had been in place since 1984. The two countries have already began to cooperate on “shared objectives such as spent fuel management, assured fuel supply, promotion of cooperation between our nuclear industries, and nuclear security.” An extensive KEI report written last year by former Department of Energy and Department of State official Dr. Fred McGoldrick delves into the details of this new agreement.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from K putt’s photostream on flickr Creative Commons.

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The Korea International Cooperation Agency Turns 25

By Jenna Gibson

Twenty five years ago today, South Korea established the Korea International Cooperation Agency (KOICA), officially cementing its unprecedented transition from aid recipient to donor.

It’s a story that Koreans are rightly very proud of – in the 1960s, still reeling from the Korean War, the country’s per capita income was less than $100. It is now more than $25,000.

Part of the story is the famous Miracle on the Han River, which emphasized industrialization and manufacturing, creating an export-oriented economy that propelled Korea into the developed world.

But part of the story was the crucial development assistance provided by the international community in the wake of the war. In today’s dollars, South Korea accepted $44 billion in grants and loans throughout its development process (1945-1999). Korea was officially removed as a recipient of international aid in 2000, and it joined the Organization for Economic Co-operation and Development’s Development Assistance Committee as a donor in 2009.

Established in 1991, KOICA became the face of Korea’s emergence as an aid donor. The organization distributed $10.7 billion in official development assistance from 2001 to 2013. They supported 213 projects in 54 countries around the world in 2015. And after Korea played host to hundreds of Peace Corps volunteers in the 1960s and 70s, KOICA now runs the World Friends Korea program, a Peace Corps-inspired volunteer project that has dispatched more than 10,000 volunteers since its inception in 2009. (If you are interested in hearing more about Korea’s development and aid, click here to listen to our interview with two Peace Corps volunteers who served in post-war South Korea).

Other projects include providing training for policymakers and officials from other countries to learn about Korea’s development successes, as well as provide funding for infrastructure and capacity-building projects. They even have a taekwondo program, in which taekwondo instructors serve as trainers for bodyguards, soldiers and police officers around the world as well as participating in cultural events and showcases. One volunteer, dispatched to Peru in 2008, coached the country’s national team and helped Peru bring home its first international Taekwondo medals.

With the UN’s new Sustainable Development Goals in mind, KOICA has set its sights on improving access to education for girls, fighting infectious diseases, and combatting climate change. “We envision becoming a development cooperation platform that works to initiate a new era of global happiness,” its mission statement reads. It’s a lofty goal, to be sure, but considering how far Korea has come, it may not be out of reach.

Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from newflower’s photostream on flickr Creative commons.

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The Seoul G-20 Five Years On: Development

By Kyle Ferrier

Five years have passed since South Korea served as the G-20 host in 2010, yet contributions from its presidency of the multilateral economic forum are crucial to this year’s talks. This week’s G-20 summit in Antalya, Turkey is underpinned by months of dialogue between a range of government officials from all parties involved, including invited countries and international organizations. Moreover, it is also built on the contribution of agenda items added by rotating host countries at each previous G-20 meeting since Seoul. This year the Turkish government has included what it deems as the three “I’s” of its presidency: inclusiveness, implementation, and investment for growth. In 2010 the Lee Myung-bak administration chose to concentrate on development and global financial safety nets. The continued importance of the former will be examined below, while the latter will be separately analyzed in my next blog post.

Development may have been officially added to the G-20 agenda in Seoul, but its origins within the forum can be traced to the Toronto summit that took place during South Korea’s chairmanship of the G-20.  The inclusion of development on the agenda symbolized the organization’s shift from primarily managing the global financial crisis to global economic governance. At the Toronto summit in June 2010 the G-20 Development Working group was formed, chaired by South Korea and South Africa. Through this leadership role Korea proposed ideas such as a nine-pillar development agenda[1] to address the areas most vital for sustainable growth and a multi-year action plan to implement these ideas, which would form the framework for the Seoul Development Consensus for Shared Growth adopted that November.

Despite some early difficulties, G-20 work on development has played a key role in addressing core issues that have proven too divisive in other multilateral economic institutions. The precarious sovereign debt crisis in Europe overshadowed all other agenda items at the next meeting of leaders in Cannes, yet an agreement on increasing food security and reducing volatility in food prices were the most prominent initial successes for the G-20 development agenda. These issues were brought more to the forefront in Los Cabos in 2012 as the market downturn in Europe was increasingly under control and as Mexico’s chairmanship focused the agenda on food security, infrastructure and inclusive green growth. The 2013 St. Petersburg summit highlighted the work of the multi-year action plan for the original nine pillars outlined in Seoul Development Consensus and inclusive green growth. Out of the 67 original commitments made in 2010, roughly half were assessed as completed, half ongoing, with only one area concerning environmental safeguards considered as stalled. Also issued was the St. Petersburg Development Outlook delineating the course of the development agenda to focus on five core issues,[2] building on the work advanced in Seoul. Last year in Brisbane a Food Security and Nutrition Framework was adopted, leaders committed to reducing the costs of remittances, and developing countries were more engaged in Base Erosion and Profit Sharing (BEPS) talks intended to close gaps in international tax rules benefiting multinational corporations at the expense of local government revenues.

Addressing challenges facing low income developing countries and a monitoring mechanism to ensure accountability were at the core of this year’s agenda. As part of Turkey’s priority for inclusiveness, youth unemployment has featured prominently . Countries hoped to reduce youth unemployment through encouraging growth of SMEs and their integration into global value chains. The remaining “I”, investment, saw the development of country-specific investment strategies to attract private sector funds, including reforms to improve the investment climate. Talks this year have further advanced past initiatives such as BEPS and food security, with the first meeting of G-20 Ministers of Agriculture since 2011.

On its own merits South Korea’s addition of development to the G20 agenda has clearly been crucial to talks since, yet its importance may be best demonstrated in relation to the steep challenges faced by other institutions when attempting to resolve development concerns.  The continued inability of the WTO to close the Doha Development Round (DDA), originally intended to be finished by January 2005, is directly attributable to the divide between advanced and emerging economies on development issues such as the special and differential treatment for developing countries and agriculture, both of which are being progressed in the G-20. The split on these issues and the organization of WTO rounds defined by a singular undertaking, in which nothing is agreed until everything is agreed, along with the sovereign equality in voting for its large, diverse membership has made any agreement quite elusive. This has catalyzed a shift in the shaping of trade norms away from the multilateral level to bilateral and plurilateral agreements.

The last attempt to create a comprehensive multilateral agreement on investment was conducted in the OECD in the late 1990s. Despite being a selective plurilateral institution, the OECD attempted to multilateralize its own liberal investment norms by reaching an agreement between a critical mass of countries, constituted by its own membership, which would then result in a cascade of adoption of these policies among other countries. However, the intentional omission of developing countries from the talks to engender a more ambitious agreement was ultimately its undoing in 1998. Though there are some investment-related multilateral agreements, such as the agreements on Trade-Related Aspects of Intellectual Property Rights and Trade-Related Investment Measures, much like trade, the momentum has shifted away from multilateralism. Sustained work on investment in the G-20, especially as it relates to infrastructure, plays a significant role in fostering global cooperation on this issue, which also poses a challenge in the WTO.

Although institutions such as the WTO and OECD continue to be vital to global economic governance and norms, the structure of the G-20 allows it to make headway on development issues where other institutions cannot. The G-20 not only represents the vast majority of OECD states, with a number of states falling under EU membership, but also key emerging economies whose leadership of developing country coalitions in the WTO, such as the G-20 developing countries and G-33, has contributed to the deadlock in the DDA. By presenting the leaders of the largest emerging markets the opportunity to voice their concerns and addressing the issues piecemeal, the G-20 has been an ideal forum for pushing through work on economic norms as they relate to development. In this regard, the addition of development to the agenda at the Seoul summit should be regarded as one of the most significant legacies of the G-20.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from the U.S. Mission to the United Nations Agencies in Rome’s photostream on flickr Creative Commons.

[1] The nine issue areas are infrastructure, private investment and job creation, human resource development, trade, financial inclusion, growth with resilience, food security, domestic resource mobilization and knowledge sharing.

[2] These are food security, financial inclusion and remittances, infrastructure, human resource development, domestic resource mobilization


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How a Northeast Asian Development Bank Could Succeed

By Kyle Ferrier

In a 2014 speech in Dresden attempting to apply lessons from German unification to the Korean Peninsula South Korean President Park Geun Hye introduced the possibility for a Northeast Asian Development Bank. Still in the nascent stage of planning, it would serve as a multilateral development bank (MDB) to attract investment in Northeast Asia, specifically intending to incentivize the DPRK to denuclearize through access to external capital for development. Though the origins of the concept for a Northeast Asian Development Bank can be traced as far back as 1991, President Park’s remarks were of great consequence as they signify the beginning of Seoul’s first attempt to materialize the idea. Over the past several weeks South Korea has explicitly sought the support of potential key members for the initiative in the following forums:

  • September 2, after meeting with President Park, Chinese Premier Li Keqiang stated China would seriously consider jointly setting up the bank with South Korea
  • September 5, Finance Minister Choi Kyung-hwan spoke with his Chinese counterpart at the G-20 conference
  • September 9, President Park received the first president-designate of the Asian Infrastructure Investment Bank (AIIB) at Cheong Wa Dae.
  • September 15, Vice Finance Minister Joo Hung-hwan met with the U.S. Treasury’s Under Secretary for International Affairs at the Inter-American Development Bank special governors’ conference

With a campaign for U.S. and Chinese approval underway, the upcoming Park-Obama summit next week seems like the natural progression for the ROK to pursue higher support for this endeavor. However, after last month’s landmine incident and the potential for a DPRK provocation, the breakthrough in inter-Korean relations required to initiate the proposed MDB would seem to be quite out of reach in the near future. This may make the Northeast Asian Development Bank appear to be more idealistic than practical, but the merits of such a proposal from a different perspective should not be understated.

The late Robert Scalapino, a highly influential U.S. political scientist, referred to Northeast Asia as a “natural economic territory,” emphasizing the latent economic growth in the Tumen River Basin area. The ability to fully reap the economic gains from this politically divided area is heavily dependent upon cooperation between the governments of China, Russia, South Korea, North Korea, and Mongolia. The United Nations Development Program (UNDP) helped establish the Tumen River Development Program, later evolving into the Greater Tumen Initiative (GTI), with the above countries minus North Korea to facilitate this economic cooperation. The original UNDP estimate in 1991 of $30 billion of infrastructure investment required over 20 years may be quite modest, as some experts estimate the annual infrastructure needs of Northeast Asia to be as high as $63 billion, inclusive of the DPRK.

Though there are several Asian Development Bank (ADB) projects within the greater Tumen area in China and Mongolia, they are relatively small. The introduction of the AIIB will certainly bring more capital for infrastructure, but the estimated $250 billion of institutional capacity expected by 2020 will be stretched thin as infrastructure demand is estimated to reach $8.3 trillion in 2020 within the boundaries of AIIB’s mandate. Furthermore, North Korea is ineligible to receive loans from existing MDBs as it is not a member of the ADB or the World Bank and was rejected by the AIIB earlier this year because of the absence of reliable economic data. North Korea’s absence from regional development initiatives and the underwhelming progress of its Special Economic Zones severely hampers economic growth in the region.

By attempting to ex ante tie formalized development assistance to denuclearization, the ROK hopes to simultaneously capitalize on its security interests, promote the Park Administration’s Eurasian Initiative, and allay the cost burden in certain unification scenarios. However, Seoul has already proposed numerous inter-Korean and regional development projects aimed at incentivizing Pyongyang to abandon its nuclear program without any noticeable success. The most promising factor differentiating the Northeast Asian Development Bank from previously proposed projects is that it would formalize regional economic cooperation between the other GTI members who are also part of the Six-Party Talks: China and Russia.

The key means to influence Pyongyang over the nuclear issue via a Northeast Asian Development Bank proposal is not access to external capital for internal development but the potential for an altered incentive structure to affect Russian and Chinese approaches towards the DPRK. For Beijing, developing the three provinces bordering North Korea and Russia nicknamed the “Rust Belt” is a high priority just as developing the Russia Far East (RFE) region is for Moscow. Tying the institutionalization of cooperation for regional development and the mobilization of funds that it entails with denuclearization would increase the incentive for these countries to utilize their substantial political influence within the DPRK to pressure the Kim Jong-un regime to be more engaged in nuclear disarmament talks. The costs of DPRK disengagement would be much larger in the form of forgone growth to the Rust Belt and RFE. Since the fall of the Soviet Union, Pyongyang has found support in Beijing, which is arguably waning after the execution of Jang Song Taek in 2014. Nevertheless, as U.S. National Security Advisor Susan Rice stated prior to the Xi-Obama summit, China remains a “fulcrum” of influence on the DPRK. The growing rift between these communist neighbors has led Russia to benefit from a rapprochement with North Korea.

The deadlock on the nuclear issue in North Korea has driven Pyongyang to Moscow and Beijing as they are willing to offer support, though to a varying degree, in order for better relations and regional stability, prolonging the current state of affairs. Although growth in the Rust Belt and RFE are of major concern to their respective capitals, both countries also ascribe to the notion that conflict on the Korean Peninsula would create an influx of refugees to these regions that would further deteriorate the local economic situation. In other words, in relation to security strategies, economic considerations have not challenged the status quo. Proposed infrastructure projects, such as connecting a trans-Korean railway to the Trans-Siberian Railway and a trans-Korean gas pipeline to Russia, are intended to work within the existing political economic framework and have seen limited progress. A Northeast Asian Development Bank tying together security and economics may engender a paradigm shift wherein economic factors could motivate Russia and China to take stronger stances for peaceful denuclearization to meet their infrastructure and security interests.

A long-standing supporter of linking the abandonment of nuclear weapons with foreign aid, the United States should pledge its support to a Northeast Asian Development Bank if raised by President Park next week. Though the diplomatic buildup suggests the Northeast Asian Development Bank is likely to be discussed, the possibility for it to further complicate the Obama administration’s response to the AIIB could result in its omission in the media. Yet this possible public relations predicament could easily be managed because the U.S. may be more involved in establishing the structure of the proposed bank from the onset as opposed to observing the AIIB’s creation. There is significant potential for the Northeast Asian Development Bank to bring about long term stability and growth in the region through affecting Russo-DPRK and Sino-DPRK relations and should be seriously considered by any prospective members.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from  Jason Rogers’ photostream on flickr Creative Commons.

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The Peninsula blog is a project of the Korea Economic Institute. It is designed to provide a wide ranging forum for discussion of the foreign policy, economic, and social issues that impact the Korean peninsula. The views expressed on The Peninsula are those of the authors alone, and should not be taken to represent the views of either the editors or the Korea Economic Institute. For questions, comments, or to submit a post to The Peninsula, please contact us at ts@keia.org.