North Korea could be threat to world peace

Kim Jong Il's death could upset regional economy in Asia

By itself, North Korea's economy is too puny to matter. But if its chronic food shortages and other problems worsen, it could create more political and military instability

LA Times,

19 November, 2011

The unexpected death of North Korea's cult-like leader has added a new layer of risk in Asia, a region that has generally been a bright spot in a slowing global economy.

Underscoring that concern, stock markets in South Korea and elsewhere in Asia sank on the news Monday that Kim Jong Il had died at age 69, ending two decades of rule marked by devastating famine at home and skirmishes with South Korea, the U.S. and other countries over North Korea's nuclear weapons program.

Although experts expect Asian stocks to recover fairly quickly, some also warned of more potential financial shocks as North Korea, one of the world's poorest and most repressed countries, embarks on a dicey dynastic transition from "Dear Leader" to his young and inexperienced son, Kim Jong Un.

"I think we will be entering a period of heightened uncertainty, a possibility of more bad things happening … like another nuclear test, and those could disrupt regional markets," said Marcus Noland, an economist and North Korea expert at the Peterson Institute for International Economics in Washington.

By itself, North Korea's closed and backward economy is too puny to matter. Based on official exchange rates, the country's gross domestic product was estimated by the CIA at $28 billion in 2009, roughly the size of Bakersfield's and only about 3% of South Korea's GDP.

But if North Korea's chronic food shortages and other entrenched economic problems worsen — and there are signs that the country is straining under higher grain prices — and the new leader has trouble consolidating power, it could touch off events creating more political and military instability. And that could upset the whole regional economy.

Noland said, for example, there are indications that North Koreans are switching to corn from rice, the more expensive and preferred staple. "It's a signal things are getting tighter [and] households are having to conserve," he said.

The increased risks in the Korean Peninsula come at a time when the global economy is relying more on Asia as the traditional powers of Europe and the U.S. struggle with high debts and unemployment.

With China and India leading the way, the developing economies in Asia are projected to grow 8% next year, according to the latest forecast by the International Monetary Fund. That compares with 1.9% for the U.S., Europe and other advanced economies. Even that projection may be too optimistic, given the Eurozone's still-festering debt problems and a U.S. economic outlook clouded by political gridlock.

"Markets hate uncertainty, and Kim Jong Il's death adds uncertainty to an already uneasy global economy," Keith Ducker, the San Francisco-based chief investment officer at technology operator TORA, told MarketWatch.

Adding to the concern, Japan's economy is still grappling with changes wrought by the March earthquake, tsunami and nuclear crisis. The country's economy grew slower than expected in the third quarter and faces a steep decline in exports to Europe.

China, the world's second-largest economy, is just as vulnerable in terms of exports. Meanwhile, Beijing is struggling to deflate the nation's property bubble without derailing economic growth.

The geopolitical question of stability in the Asia-Pacific region has long been a priority for the U.S., both economically and militarily. In the last year the Obama administration has made a concerted effort to solidify relations with allies such as South Korea and Japan, while sending a clear message that the U.S. intends to remain an influential party in the face of a rising China.

China has been North Korea's biggest benefactor, and some analysts don't think Beijing will allow things to deteriorate so much in Pyongyang that China's self-interest in the region is threatened. What's more, China is facing a highly sensitive political transition at home next year, and problems in the Korean Peninsula will make that more complicated.

"China, from a foreign perspective, will keep North Korea on a short leash," said Barry Bosworth, a global economics expert at the Brookings Institution. As a result, he said, North Korea "is not going to go off the reservation too much. [China] won't tolerate that."

Noland agrees that China has a vested interest in maintaining stability in the region. At the same time, he said, Beijing has far less control over North Korea than many people might think.

What's more, Noland cited an example from the 1990s in which rising global grain and food prices strained China's own economy, forcing it to impose an export embargo that badly affected North Korea.

"China has its own internal politics as well," he said. As such, "it's an imperfect insurance policy."

Gordon Chang: North Korea’s Power Vacuum Is Dangerous And Destabilizing

the Daily Ticker,

190 December, 2011

The power vacuum in North Korea following the sudden death of leader Kim Jong Il could destabilize the region and draw China and the United States into more direct conflict, says Gordon Chang, a Forbes contributor and an expert on the country.

Kim Jong Il's death at 69 came as a surprise to Chang and other North Korea watchers. And it could throw the country into chaos.

Kim Jong Il's son and chosen successor, Kim Jong Un, has only been groomed to take over the country for a year. To say he is not ready to assume command of the country's political system, 

economy, and military, therefore, is probably an understatement. To maintain his family's grip on power, Kim Jong Un will likely have to purge the party and military of anyone he feels might undermine his authority. This could cause turmoil and, potentially, a coup.

Meanwhile, North Korea sits between South Korean ally the United States and North Korean ally China. Any sign that the North Korean regime is crumbling could prompt one or both sides to act to protect their interests, which could create further friction between the U.S. and China.

The bottom line, according to Chang, is that no one knows what will happen in North Korea, but the situation is dangerous and destabilizing--not just for North Korea, but for the region and world.

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