December 20, 2011: New North Korean ruler Kim Jong-un pays his respects to his father and former leader Kim Jong-il lying in state at the Kumsusan Memorial Palace in Pyongyang. (Reuters)
SHANGHAI -- Tentative economic reforms in North Korea may languish as its next leader focuses on consolidating support in the wake of Kim Jong Il's death, experts said.
North Koreans are turning inward as they observe an 11-day mourning period following Kim's death Saturday, with business and commerce largely at a standstill, according to reports from Pyongyang. The transition to a new era of leadership under son and successor Kim Jong Un could last longer if he extends his official period of mourning as his father did when his father, North Korea founder Kim Il Sung, died in 1994.
North Korea has inched toward reform in recent years, particularly since making the economy a priority in 2009 as part of a goal to build a "great and prosperous nation" befitting the April 2012 centenary of Kim Il Sung's birth.
One sign of a shift in economic policy came in 2008 with a surprising decision to allow 3G cellphones in a deal with Egyptian telecoms company Orascom, which claims 809,000 subscribers in North Korea.
In other positive signs, a Chinese state-run company, Shangdi Guanqun Investment Co., agreed to invest $2 billion in building infrastructure, power plants and oil refining facilities in the Rason
Free Trade Zone, near the border with China and Russia. China and the North also agreed to jointly develop Hwanggumphyong, an island along their border, into a tourism, logistics and manufacturing center.
If not derailed by Kim's death, a proposed gas pipeline between Russia and the Korean peninsula would help form the basis for significant infrastructure development, says Kenneth S. Courtis, a former Goldman Sachs vice chairman who visited Pyongyang in May to assess business opportunities for clients of his private investment company.
The project, to pipe natural gas from Siberia to South Korea via the North, had stalled over the nuclear issue but regained momentum earlier this year, with Russian President Dmitry Medvedev reportedly saying, following a visit by Kim Jong Il, that the North would agree to a deal in exchange for receiving $100 million a year in transit fees.
"Around this pipeline, North Korea could start to rebuild its industrial base, and chemical and particularly fertilizer plants," said Courtis. He said he found North Korean officials "seem to want to engage."
However, experts said the situation in the North, always unpredictable, has grown even more uncertain with Kim Jong Il's sudden death.
His son, who is in his 20s, emerged as his father's choice as successor only 15 months ago.
The leadership may want to continue or accelerate reforms started by Kim Jong Il but progress could be delayed, said Cai Jian, a deputy director of Korea Research Center under the Institute of International Studies in Fudan University.
Kim Jong Il observed a three-year period of mourning after his father died before formally taking control.
"It will be difficult for North Korea to focus on the economy in the short term, as they are in the midst of a transition. It will be almost impossible to have many dealings with other countries for at least several months," said Cai.
Kim's death came as the government was seeking to attract more foreign investment from China, Europe, Southeast Asia and the Middle East.
North Korea has struggled with decades of economic mismanagement, outdated farming methods and little arable land. Its determination to keep developing its nuclear and missile programs has also meant a loss of foreign aid from the West, South Korea and Japan, as well as strengthened sanctions.
Its per capita gross domestic product is $1,800, according to the U.S. State Department, compared with $4,400 in China and about $23,000 in democratic, capitalist South Korea -- though the two Koreas were on a par for two decades after their 1950-53 war.
For years, North Korea's industries and other infrastructure were "nearly beyond repair," according to the U.S. Central Intelligence Agency. Its latest report notes that less than 3 percent of its roads are paved and less than half its airfields have sealed landing strips.
The food crisis has deepened following several seasons of harsh weather, with a quarter of the 24 million North Koreans needing outside food aid, the U.N. said. The World Food Program called for help feeding the most vulnerable populations, saying malnutrition is surging, especially among children.
China, the North's longtime ally and biggest source of food and fuel assistance, has often helped to water down or deflect sanctions, and its support remains vital for Pyongyang.
China has shown strong interest in gaining access to North Korea's abundant mineral wealth, including the huge Musan iron ore mine. Trade through North Korea's ports could help spur growth in China's landlocked northeastern region.
North Korea's main international investment entity, the Taepung International Investment Group, is led by a Chinese-born ethnic Korean, and Chinese companies often act as agents for European and other foreign investors in North Korea.
But while Kim Jong Il visited China several times to observe its economic transformation, during most of his rule he was suspicious that changes would bring ideological challenges, said Nicholas Eberstadt, an expert at the American Enterprise Institute in Washington, D.C.
Special economic zones along the country's borders with Russia and China languished for 20 years before the most recent initiatives.
The North seized South Korean assets at Mount Kumgang after the South Korean government suspended a joint tourism project after a tourist was shot to death while wandering into a restricted military area in 2008.
Reforms have sometimes backpedalled: After allowing some markets in 2002, permitting farmers to trade produce to help bridge food shortages, the authorities recentralized those controls before again easing them.
A revamp of the country's currency, the won, to curb inflation and reassert the government's hold on the economy effectively confiscated the savings of many North Koreans, who faced limits on the amount of old North Korean currency they could exchange for new bills.
Such arbitrary changes in rules add to the risks of investing.
"The first thing to watch for is if North Korea decides it is not 'treasonous' for foreigners to make money and take it out of the country. The first decision has to be made to let foreigners make money," said Eberstadt.
He does not rule out a possible major shift in policy if the leadership deems the transition a dangerous period calling for drastic measures.
"Before Kim Jong Il died there had been signs of a departure from previous standard operating procedures," he said. "The problem with a closed society is you never know what's happening from outside until afterward."
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