North Korea’s economy has been on the verge of collapse since the beginning of the second nuclear crisis in 2002 because of the international community’s growing sanctions and pressure. The future of North Korea, with its tightly controlled authoritarian regime, seems even bleaker owing to the breakdown of its central planning system, persistent food shortages, and continuing nuclear crisis.
The mounting economic hardship eventually rendered the North Korean regime’s centrally planned economy and controlling mechanism incompetent and led to the promotion of elements of a market economy in 2002, known as the July 1 Economic Management Improvement Plan. Many North Korea watchers expected some sort of economic reform in North Korea after that; however, North Korea’s current policy is focused on strict self-containment from the influence of outside world. This reluctant reform is often called “mosquito-net style,” that is, let the benefits come in but keep out the bad capitalist effects.
There is no doubt that, for North Korea, one of the most effective ways to guarantee a successful economic reform is to get outside assistance. Self-reliance—an autarkic planning system—cannot solve the problem. North Korea needs financial aid from the international community, which has a long history of providing developmental aid to transitional economies. For North Korea to be eligible for such assistance, several political and economic conditions must be met. The bottom line is that such aid will become possible only after a successful resolution of the nuclear crisis and after some degree of normalization of the relationship between North Korea and the rest of the international community. In that circumstance, the international community would likely begin to help the North Korean government pursue its economic transition in a way similar to China’s and Vietnam’s.
This paper explores the major political and economic barriers for North Korea in its desire to receive financial assistance from international financial organizations.