As North Korea returns to self-reliance to maintain its faltering state-run economy, experts said sanctioning the financial lifelines of regime leaders might put added pressure on Pyongyang to give up its nuclear weapons program.
“Washington and its allies should be calibrating sanctions that target the regime/party elites’ financial lifeline,” said Matthew Ha, a research analyst at the Foundation for Defense of Democracies (FDD). “The critical entity that would affect change amongst North Korea’s leadership are banks and financial institutions.”
Ever since leader Kim Jong Un said at a party meeting in December that North Korea must cope with sanctions with self-reliance, Pyongyang has been mobilizing to reinforce self-sufficiency.
“There is no need to hesitate with any expectation of the U.S. lifting of sanctions,” said Kim. He urged the nation to make a “frontal breakthrough to foil the enemies’ sanctions and blockade by dint of self-reliance.”
Self-reliance, or Juche, is North Korea’s official ideology. It calls on the regime to be self-sufficient economically, and politically independent of foreign reliance by mobilizing its people socially to work for the regime, forcing them to put their own interests behind that of the country.
North Korea’s official newspaper Rodong Sinmun on Wednesday issued a report calling upon citizens to revive the “spirit of self-reliance” to “build a powerful and prosperous country of Juche on this land.”
Bradley Babson, a former World Bank adviser and an advisory council member of the Korea Economic Institute of America, said North Korea has been complaining about sanctions because they restrict the regime from fully operating its state-controlled industries.
Sanctions “are really constraining the ability of the state to function in the state-directed economy in the way they would like to,” said Babson. “And that’s why they complain about sanctions. I think they’re complaining that the state really has to give ground to the private sector in order to survive.”
According to Babson, sanctions are keeping North Korea from operating its import-dependent state enterprises at the full capacity needed to be successful domestically and earn foreign exchange abroad.
International sanctions placed on North Korea, particularly those issued since 2016, restrict the regime from importing the fuel needed to run its domestic industries.
Sanctions also ban the regime from exporting commodities such as coal, iron ore, textile, and seafood that brought in foreign income that could support its nuclear weapons program.
While these sanctions restricted North Korea from running its state-controlled industries, experts told VOA Korean the sanctions fail to put enough pressure on Pyongyang’s party leaders who still make money for the country by running operations abroad.
“When we talk about sanctions pressure, we really need to be targeting where strategic decisions can be made to really adjust the calculus of [the regime’s] leaders,” said Ha. “In a dictatorship, it’s the elites that are going to be more likely to make a change in decision.”
Ha said sanctions should target North Korea’s overseas bank accounts that its regime leaders maintain to run overseas operations to bring in foreign revenue.
“There are [local overseas] middlemen that are literally pushing the money through for a lot of [North Korean] individuals and the companies that they run to help provide financial revenue for the regime,” said Ha.
Joshua Stanton, a Washington-based attorney who helped draft the North Korea Sanctions Enforcement and Policy Enforcement Act in 2016, said, “Maximum pressure will really be maximum pressure when there are nine-digit penalties against Chinese banks that’s laundering North Korean money.”
Targeting financial lifelines of the regime’s elites, comprised of government and military officials, would likely pressure Kim, because he needs their loyalty to stay in power, according to Ha.
“He must keep his people happy, especially the elites,” said Ha. “He needs to be able to gain the loyalty of elites. I think if they see their situation compromised, it’ll be a problem.”
On Jan. 14, the U.S. Treasury Department issued new sanctions on two North Korean entities that it said continue to export laborers overseas, undermining U.N. resolutions including the one passed in 2017 requiring all North Korean workers return by a Dec. 22, 2019, deadline.
“It’s a step in the right direction,” said Ha. He added that one of the sanctioned entities, Namgang Trading Corporation, “is likely run by a [North Korean] government official who is helping finance the government, the regime needs.”
After President Donald Trump denied Kim’s request to lift sanctions at the Hanoi Summit in February, North Korea resumed missile tests in May and continued until December in apparent protest against sanctions that it described as “hostile policy.” And sanctions are a major reason denuclearization talks between Washington and Pyongyang have remained stalled since the working-level talks in Stockholm broke down in October.
Babson said U.N. sanctions restricting “the oil imports have really negatively affected things like fertilizer production and industries that are very dependent on oil, not only the power sector but in other industries.”
He added, “So their effort to substitute for imported oil with gasification of coal which they have in abundance [has] been one of the responses” to deal with sanctions.
As if to emphasize his regime’s utilization of coal, Kim visited several North Korean factories, including a fertilizer factory under construction north of Pyongyang in Sunchon after announcing the return to Juche.
Kim also showed Pyongyang could tap tourism to create a foreign income flow, especially from China, by visiting the hot spring resort in Yangdok in December, just before it opened for tourists a month later. The sanctions do not ban making money from tourism.
But the outbreak of coronavirus in China forced North Korea to shut its borders to Chinese tourists.
Experts said even though North Korea tries to sustain its economy through self-reliance, there is little prospect that its efforts will succeed.
Troy Stangarone, senior director of the Korea Economic Institute, said a new mountain resort North Korea opened in Samjiyon County in December has been “a showpiece” to stress that “the regime can be self-reliant domestically.”
However, he continued, “Even North Korea has hinted that the human cost has been enormous to complete the project, suggesting that it is far from a sign of success.”
Babson said, “The senior leadership has come to understand that without trade and investment, you can’t do that all on your own.”
Another complication comes from the North Korean people who are unenthusiastic about the return to Juche when many have been earning money in private markets after losing jobs at state-run factories.
“People don’t really particularly like being told they have to go back into forced labor, type of a mobilized labor, to get the economy moving, when they’d rather make money on their own,” he said.
In this sense, Babson thinks what the 18th-century Scottish philosopher Adam Smith called “the invisible hand,” an unfettered market force and self-interest that help a country reach an optimum level of economic prosperity, has been at play in North Korea. Smith is often called the father of modern economics.
“The incentive to create private wealth through private initiative has been growing in North Korea and in that sense, ‘the invisible hand’ is at work,” said Babson.
Babson added that the growth of the market and the desire of people to seek their own economic interest have undermined the old concept of self-reliance.
“That concept really has been undermined by the growth of the market economy,” said Babson. “People feel that they’re able to pursue individual interest on [seeking] economic benefit even if it doesn’t benefit the whole. So there’s a breakdown in the understanding of what it means to be self-reliant.”
However, with recent resurgence toward self-reliance, the regime is seemingly trying to reverse the course of its economy.
Stanton said, “With North Korea, the argument is two steps forward and one step backward, or one step forward and two steps back.”
Pyongyang is also apparently facing how to reposition self-reliance in a modernized economy.
“There is a real dilemma for the government and for public policy about how [to] integrate the concept of self-reliance in the modern and the way the economy and society have developed since the famine [of 1990s] and the breakdown of the old model,” Babson said.
This report originated with VOA’s Korean Service.
Photo: Artworks featuring U.S. President Donald Trump and North Korean leader Kim Jong Un are displayed at a gallery in Hanoi, Vietnam, Feb. 28, 2019.