North Korea on the Precipice of Famine
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N U M B E R P B 008-6 7 - 4 M A M RA C HY 22 0 0 0 0 8 7 for• policymakersDomestic food should prices be show to reduce the kind the ofrisks extreme of a crisis, price which infla- NorthGlobal Korea Imbalances: on the Precipice couldtion produce that is atypical world ofrecession pre-famine and or disruptions famine settings. to the global trading• The system. domestic For policythat, theresponse global to economy the crisis requires while arguablyofficial ofTime Famine for Action sponsorshiprational offrom a credible, the perspective comprehensive of a regime adjustment seeking to program.maintain Thispower policy and brief control outlines is exacerbatingsuch a program. the situation. StephanAlan Ahearne, Haggard, William Marcus R. Noland,Cline, Kyung and Erik Tae Weeks Lee, Yung Chul Park, Section 1 presents why the current situation is unsustain- Jean Pisani-Ferry, and John Williamson able.The Adjustment North mustKorean take food place crisis, and now will wellrequire into significant its second movementsdecade, presents in exchange a difficult rates. set Section of ethical 2 argues choices. that adjustmentThe very ruth- Stephan Haggard is the Lawrence and Sallye Krause Professor at the Uni- inducedlessness ofby the policy regime actions and theis more numbing likely repetitiveness to be orderly of than its food one versityBruegel, of theCalifornia, Korea Institute San Diego for InternationalGraduate School Economic of International Policy, and Relations the Pe- initiatedproblems bymake financial it difficult markets. to mobilizeWe view humanitarianthe current stalemateassistance. terson Institute for International Economics held a joint workshop in Wash- and Pacific Studies. He is the author ofThe Political Economy of the Asian regardingThe promise policy of large-scaleactions as dangerous,American assistanceas financial-market will help over partic the- ington on February 8 and 9, 2007, on how to achieve an orderly reduction Financial Crisis (2000) and coauthor of The Political Economy of Demo- in global imbalances. Thirty of the world’s leading experts presented analyses ipantslong run. are Butlikely in tothe change absence their of vigorousminds at action some bystage South about Korea the cratic Transitions (1995) and Famine in North Korea: Markets, Aid, and and evaluations of the requirements for such an adjustment. The discussions sustainabilityand China, the of twoimbalances countries unless capable they of see delivering that the maintimely players assis- (Columbia University Press, 2007). He is a member of the Advisory Reformcentered on two sets of contributions: (1) country papers that provided a aretance, able hunger to agree is likely on the to oncedirection again ofclaim desirable innocent policy victims. changes. Committee of the Institute. Marcus Noland, senior fellow at the Peterson perspective on the underlying factors behind surpluses and deficits and the SectionThe 3 presentsNorth Koreanestimates regime of the willexchange weather rate this implications challenge Institutescope for foradjustment International in the Economics,current account has been and associated(2) multicountry with the simulation Institute ofpolitically global current by ratcheting account upadjustment repression, from scrambling a variety forof models.foreign sincepapers 1985. that producedHe was a seniorestimates economist of the changes at the Council in policy of variablesEconomic and Advisers the cor in- assistance, and guaranteeing supplies to core supporters in the theresponding Executive exchange Office rateof the adjustments President of that the are United consistent States withand scenarioshas held research for a Section 4 describes the policy implications the authors of this orreduction teaching in positions current account at Yale imbalances.University, Thisthe Johns policy Hopkins brief, by University,six experts fromthe briefarmy, drew security from apparatus, these results and and party. the Aworkshop resolution discussions. of the nuclear Universitythe organizations of Southern that hostedCalifornia, this workshop, Tokyo University, reports on Saitama the results University and the stand-off could also pave the way for increased aid and possibly workshop discussions and outlines an adjustment package that would address (now the National Graduate Institute for Policy Studies), the University of WHYeconomic THE reform. CURRENT SITUATION the global imbalances. Ghana, the Korea Development Institute, and the East-West Center. Noland is IS UNSUSTAINABLEBut even though the current crisis is unlikely to be of the Alan Ahearne has been a research fellow at Bruegel since August 2005. theWilliam author R. of ClineKorea isafter a senior Kim fellowJong-Il jointly (2004) at and the PetersonAvoiding Institute the Apocalypse: for Inter- magnitude of the great famine of the mid-1990s, the possibility of Thenational Future Economics of the andTwo the Koreas Center (2000), for Global which Development. won the 2000–2001 Kyung Tae Ohira Lee Therewidespread has been social a greatdistress deal and of evendiscussion political recently instability of global cannot current be Memorialis the president Award of theand Korea coauthor Institute of Famine for International in North Korea:Economic Markets, Policy, chairAid, accountruled out. imbalances. The problem Much is notof thesimply attention in the shorthas focused run: Shortages on the andof the Reform APEC Economic(Columbia Committee, University and Press, member 2007). of Erikthe Presidential Weeks is aEconomic research historicallyof crucial agricultural large US current inputs accountsuch as fertilizer deficit, arewhich, setting according the stage to assistantAdvisory atCouncil. the Peterson Yung Institute Chul Park for International is a research Economics. professor and director of thefor continuingUS Bureau offood Economic problems Analysis, well into reached 2009, $857and thebillion regime’s (6.5 the CenterThe Smithfor International Richardson Commerce Foundation and provided Finance research at the Graduate support forSchool this percentresponse of to GDP) the crisis in 2006. is once The again counterpart revealing toa deepthis ambivalencedeficit can be project.of International The authors Studies, would Seoul like National to thank University. Allan Song Jean for Pisani-Ferryhis efforts; Davidhas been the director of Bruegel since January 2005. John Williamson is a on its part toward economic reform and opening. Hawk, Daniel Pinkston, and Susan Shirk for comments; and Jihyeon Jeong, found mainly in Asia and the oil-exporting countries. Accord- senior fellow at the Peterson Institute for International Economics. The viewsviews The five major parties with an interest in North Korea— Soo Kim, and William Pike for research assistance. ing to the International Monetary Fund (IMF), China’s surplus presented in this policy brief are those of the authors and do not represent the swelledSouth Korea, to an Japan,estimated China, $184 Russia, billion and (7.2 the percentUnited States—needof GDP) in opinions of the other individuals who participated in the workshop or their © Peter G. Peterson Institute for International Economics. All rights reserved. 2006,to think1 while creatively Japan not recorded only about an estimated the nuclear surplus issue of and $167 the billion ongo- institutions. (3.7ing humanitarianpercent of GDP) challenge last year.but alsoHigh about oil prices the possibility propelled ofthe a North© Peter G. KoreaPeterson Instituteis once for International again headed Economics. Alltoward rights reserved. widespread food surpluspolitical forcrisis countries in North in Korea. the Middle East to $282 billion last shortages, hunger, and famine. As of this writing, the prospect year. We begin with an analysis of the big picture: trends in the of hunger-related deaths occurring in the next several months is supply and demand for food (section I) and the constraints on approachingOne of the principal certainty. dangers This expectation currently facing is based the worldon four economy pieces of aid and commercial imports (section II). We then turn to the evidence,arises from which the welarge outline and unsustainablein this policy brief:imbalances in current 1dizzying. This estimate domestic appears foodconservative. price China’sincreases, trade surplusa strong in goods sign was of $178 pre- billion in 2006, with imports reported on a cost, insurance, freight (c.i.f) basis. account positions. Some observers argue that these imbal- Whenfamine the conditionsimport data are (section adjusted toIII). free Sectionon board (f.o.b.),IV considers the trade inthe goods fray - •ances Food will balancesunwind aregradually as precarious and nondisruptively, as at any time since while the others great surplusing of will the likely institutions come in at aboutof the $215 domestic billion. Based food on economytrends in the andother the emphasizefamine. the risks of a sudden change of sentiment in financial itemsdomestic in the first-halfpolicy response balance of topayments, the crisis. Nicholas The Lardy conclusion estimates that provides China’s surplus last year was $240 billion (see Nicholas Lardy, Toward a Consumption- •markets Access that to could aid or result commercial in an abrupt imports and is damaging limited by adjustment. diplomatic Drivenmore Growthdetailed Path policy, Policy recommendationsBriefs in International Economicson how PB06-6,to alleviate Washing the- No onetensions knows and which the world scenario food willcrisis. materialize, but a priority