The Peninsula

Will the World Bank Come to Pyongyang?

By Kyle Ferrier

David Malpass, President Donald Trump’s nominee to replace the recently-resigned Jim Kim as head of the World Bank, pledged last week to provide development assistance to North Korea if the country commits to denuclearization. But, the extent to which he can make good on his promise depends entirely on Kim Jong-un’s confidence in the ongoing summitry with Donald Trump.

The vow came after a meeting between Malpass, currently serving as the U.S. Treasury Undersecretary for International Affairs, and South Korea’s Minister of Economy and Finance Hong Nam-ki in Seoul on February 11. President Moon Jae-in stated last year that Kim Jong-un expressed interest in joining international financial institutions (IFIs), such as the World Bank and the IMF. Speaking at the UN General Assembly last year, Moon characterized North Korea’s peaceful denuclearization as a prerequisite to joining IFIs.

Moon’s vision for North Korea also aligns with the prevailing opinion in both the World Bank and the White House. According to South Korea’s Minister of Strategy and Finance Kim Dong-yeon, the World Bank and other multilateral development banks have recently contacted his office to discuss ways to assist North Korea’s development. Additionally, President Trump earlier this month reiterated his belief that a successful outcome from ongoing negotiations will turn North Korea into an “economic rocket.”

However, North Korea has long ways to go before it can capitalize on this growing international enthusiasm.

Foremost, to receive loans from the World Bank, Pyongyang would first need to join the IMF.

The IMF’s core function is to ensure the stability of the international monetary system. As part of this mission, the IMF monitors economic and financial policies of individual member countries and recommends policy adjustments. Effective monitoring relies on governments disclosing macroeconomic data in a transparent and timely manner. The information gathered by the IMF is used by the World Bank to calibrate its developmental assistance package.

Alongside its severe restrictions on foreign currency exchange, the North Korean state’s rogue actions have long deterred Pyongyang from pursuing IMF membership. Disclosure of economic data would not only reveal sensitive information about the regime’s activities at home, but also the scope of their sanctions evasion and other illicit activities.

The ongoing sanctions regime is essentially incompatible with IMF membership. Nonetheless, the Moon administration is reportedly helping North Korea prepare for IMF accession at a later date – offering to train the North Korean bureaucracy to collect key economic indicators.

However, disclosing these statistics could also generate economic instability as long-time economic partners may break relations with North Korea to avoid the international spotlight and scrutiny.

Given this dilemma, the quickest path to multilateral economic assistance for North Korea is probably some sanctions relief agreement tied to denuclearization. It is only after the immediate economic pressures on the country are lifted that the leadership in Pyongyang is likely to contemplate reforms necessary for IMF accession. Even then, this endeavor will depend on how much Kim Jong-un is willing to denuclearize and whether his concessions are sufficient for the international community.

If Malpass is confirmed by the World Bank’s Board of Executive Directors, he will join a chorus of leaders encouraging Kim to embark on a new path to transform North Korea’s economy. But Kim’s choices are ultimately constrained by security realities and how much confidence he has in Donald Trump’s process.

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.

Picture from user Victorgrigas from Wikimedia Commons