Is the Dear Leader losing his grip?
By Andrei Lankov
SEOUL - Contrary to oft-stated accusations, Pyongyang leaders are neither
irrational nor ideology-driven; they are a bunch of brilliant Machiavellians,
very apt at exploiting the fears and controversies of their enemies and their
Their country's economy is in a sorry state, to be sure, but survival of the
population has never been a major item on their agenda. They just want to stay
in control and not be overthrown by popular insurrection or by a coup - they
are very good at this game.
Their former peers, "liberal" and "open-minded" leaders of the communist bloc,
were overthrown 20 years ago and by now are largely remembered by school
textbook writers (who tend to have an unfavorable opinion of the former
communist strongmen). The
Pyongyang leaders are still in full control of their country, happily sipping
cognac and sending their mistresses to Switzerland for some retail therapy.
However, over the past year or so, something strange has begun to happen in
Pyongyang. The North Korean leadership has taken some actions that have clearly
damaged the interests of the ruling clique. It seems that the once formidable
manipulators have for some reason lost their ability to judge and plan.
The recent currency reform is the best example of such weird and self-defeating
policy decisions. For years, the Pyongyang government has waged campaigns
against the unofficial and semi-official markets that have played a decisive
role in North Korea's economic life since the collapse of the state-run economy
in the 1990s. As another move in this ongoing (and, perhaps, unwinnable)
struggle, last November the government initiated currency reform that was meant
to undermine the power of black-market merchants.
The reform was modeled on confiscation-oriented currency reforms once used in
the Soviet Union and other communist countries. One morning, the populace
suddenly learned that old bank notes were null and void and had to be changed
for new ones within a week. The exchange rate was set as 1:100, so, for
example, 1,000 "old" won should be exchanged for 10 "new" won.
Accordingly, all retail prices and fees were also reduced one hundred times.
Harsh exchange limits were introduced: only the equivalent of US$30 in cash
could be changed by one person. The use of foreign currency, which had become
very common in North Korea's retail economy, was banned.
The measures are standard for communist-style currency reform, since such
reform usually pursues the double goal of fighting inflation and reducing the
power and influence of the unofficial black economy.
However, North Korea's planners also did something unexpected: they claimed
that nominal wages and salaries would not change. In other words, a person who
prior to the reform received a monthly salary of 3,000 won, would still receive
3,000 won, but paid in the new currency. Effectively, it meant that all wages
in the country suddenly increased 100 times. To assure consumers, the
government issued stern warnings against profiteers who dared to raise prices
of goods and services.
For a brief while in December and early January, North Korean customers felt
rich and consumers expected that even such luxuries as, say, Chinese bikes (a
North Korean equivalent to a Porsche) were now within their reach.
The actual result was less impressive. The dramatic increase in salaries
launched an equally dramatic round of inflation, so in the past three months
the price of rice (and the black market exchange rate) has increased 50 times,
from the official required 20 "new" won per kilogram to 1,000 "new" won. The
government's "stern warnings" were ignored. In the near future, prices are
likely to return to pre-reform levels. The reform has failed completely and it
only succeeded in making people irritated and in demonstrating the government's
inability to control a situation.
The unprecedented decision to raise wages doomed the entire affair from the
start. But why was it done? Why was an otherwise standard package of
well-tested measures saddled with this self-defeating (and, frankly, stupid)
In the realm of diplomacy, North Korea is not faring much better. For decades,
Pyongyang has demonstrated uncanny skills in manipulating its neighbors from
whom it squeezed unconditional aid and unilateral concessions. The usual
tactics consisted of three stages. In the first stage, the North Koreans raise
tensions. Secondly, they launch missiles, test nuclear devices and make
threatening statements. Finally, once tensions are sufficiently high for the
world to feel uneasy, there are negotiations in which Pyongyang extracts aid
that is essentially a reward for calming a crisis the North itself
This time, both stage one and stage two were seriously mishandled. First, the
North Koreans used both their trump blackmail cards - a nuclear test and a
missile launch - almost simultaneously (analysts expected space of at least a
few months before these two events). They also showered Washington with
especially bellicose rhetoric, even though the Barack Obama administration was
initially relatively soft on the North Korean issue.
As a result, the excessive activity of the North Koreans backfired: the US
foreign policy establishment finally realized that North Korea would not
surrender its nuclear program under whatever circumstances. This reassessment
of the situation (or belated realization) meant that the US was now far less
willing to shower Pyongyang with concessions. In the past, gifts were presented
as incentives to surrender nuclear weapons, and since such surrender is now
seen as unlikely, such generosity is not necessary. (See
US finally wise to Pyongyang's ways, Asia Times Online, November 12,
The North Koreans are now beginning to realize that the old trick is not
working. They have only themselves to blame. Had they been slightly more
careful last year, a significant part of the US establishment would still
nurture the illusionary dream of "denuclearization through negotiations".
The third stage of asking for aid was also handled badly. The unnecessarily
aggressive rhetoric of the past was replaced by unusual softness in a short
time - previously, the switch took months. Since August, North Korea has
essentially begged to restart negotiations with the US and, especially, South
Pyongyang is demanding to restart cooperation projects. It is quite remarkable,
since two of the three major projects - tours of Keumgang Mountain and Kaesong
city tours - were abruptly stopped by North Korean authorities a year ago.
Needless to say, the South Korean government is not too eager to restart
negotiations. After all, so-called intra-Korean cooperation is essentially
unilateral South Korean aid in disguise and Seoul sees no reason why it should
hurry with the resumption of money transfers to Pyongyang. North Korean
softness is (wrongly) seen by Seoul hardliners as a victory of the hard line
they are advocating, so they say that an even harder approach will probably
bring greater success.
Meanwhile, the North Korean government also did something it has never done
before: it said "sorry" to the people. In January, Nodong Sinmun, a government
mouthpiece, reported that Dear Leader Kim Jong-il felt bad for being unable to
provide his subjects with the level of material affluence they were once
The promise was moderate, to be sure. In the 1960s, Kim Il-sung, the founding
father of the country and also father of the current dictator, promised that
eventually all Koreans would eat rice (not corn or barley) and meat soup, live
in houses with tiled roofs (not thatched), and wear silk clothes.
Every North Korean knows that even this moderate paradise has failed to
materialize. However, the fact has never been admitted openly. In the past,
economic difficulties and hardships, if mentioned at all, were always explained
as they should be explained in a solid dictatorship, that is, by references to
scheming enemies, above all US imperialists.
This time, Kim's remark indicated that the system itself might bear some
responsibility for economic problems.
In accordance with the new mood, a high-level official allegedly expressed his
regret about the chaos created by the currency reform while addressing a large
group of the party faithful. This might appear like normal behavior, but in a
dictatorship that claims the possession of absolute truth and an infallible
leader, such statements are very unusual - and, indeed, dangerous. They are
likely to be seen as signs of fallibility and weakness, and every dictator
knows that such signs should not be shown.
In other words, something has changed in Pyongyang recently - seemingly, after
Kim's illness in late 2008, when he reportedly suffered a stroke. The most
likely explanation seems to be biological: the increasing inability of the
ailing dictator to pass reasonable judgments and control people around him.
One can easily imagine how the Dear Leader (perhaps even driven by genuine
sympathy to his long-suffering people) would look through a currency reform
plan and say: "And what about poor wage-earners? Should we not reward the
people who remained loyal to the socialist industry and did not go for black
markets? Why not increase their salaries, so they will become affluent, more
affluent than those anti-socialist profiteers of the black market?" Few, if
any, officials would dare to explain the dire economic consequences of such
It is also possible that the deteriorating health condition of Kim has led to
growing rivalry between factions so the North Korean leadership is now
increasingly disunited, with rival groups pushing through their own agendas.
At any rate, something unusual seems to be happening in Pyongyang and it's
probably the time to think about the future a bit more seriously. We are
heading towards serious changes, and unfortunately nobody seems prepared.
Andrei Lankov is an associate professor at Kookmin University in Seoul,
and adjunct research fellow at the Research School of Pacifica and Asian
Studies, Australian National University. He graduated from Leningrad State
University with a PhD in Far Eastern history and China, with emphasis on Korea.
He has published books and articles on Korea and North Asia.