This North Korean woman could soon be working in a united Korean economy. Photo Credit: Cassandra Nelson/Mercy Corps

When officials from North and South Korea convene in Pyongyang for an August 28-30 summit, their discussions will mark a historic meeting of minds—only the second summit between the countries since 1953, when the Korean War's frontline froze into a bitter cold border. This summer's summit will focus broadly on efforts to establish a permanent peace ¹ between the two Koreas, following decades of North Korean isolation examined in-depth in this CFR.org Crisis Guide ². Preparatory discussions, intended to set the groundwork for the talks, seem to indicate the meetings will not ignore the nuclear issues that animate officials in Washington, but may focus more specifically on economics ³.

Ahead of the summit, details emerged of a plan to pump millions of dollars of South Korean capital into North Korea's crumbling infrastructure. Officials in Seoul say they will unveil a plan for injecting "social overhead capital" ⁴, which means funds will target social infrastructure like schools and hospitals, rather than focusing on more direct aid like rice and fertilizer provisions. It remains unclear precisely what the scale of this investment will be, but a UPI news analysis goes so far as to call the summit a likely "bonanza" for Pyongyang ⁵. The economic focus of the meetings highlights incremental shifts underway in a nation long known for maintaining rigid central command of its economy. This Backgrounder ⁶notes the North Korean government has gradually lightened its restrictions on "small-scale trade and barter" operations as a spiraling, decades-long economic crisis has made these activities increasingly common, despite government clampdown attempts.

The August 28-30, 2007 summit between North and South Korea will be the second summit between the countries since 1953, when the Korean War's frontline froze into a bitter cold border.

Now, slowly but unambiguously, foreign investment in the country is picking up. Newsweek International notes in a recent article that Pyongyang—"a country that stretches the very definition of emerging market"—has made news recently as a foreign investment target ⁷. An Egyptian construction group, for instance, recently bought up a $115 million stake in a North Korean cement plant ⁸. In part, this sort of investment comes in response to Kim Jong-Il's policy of opening large special economic zones ⁹ in which companies can operate with limited interference from Pyongyang.

These inklings of openness, taken alongside high hopes for this August's summit, make for a promising spectacle. But the Economist warns against buying too firmly into the hype, saying the summit may represent "another false dawn" ¹⁰ in a diplomatic history smattered with letdowns. In a separate article, the paper notes that Kim may have cynical, non-economic reasons ¹¹ for hosting the summit—namely to bolster South Korea's President Roh Moo-hyun, a relatively gentle political counterpart Kim may be eager to keep in power; and also to sow seeds of discord among North Korea's negotiating partners in the Six-Party Talks ¹² on nuclear disarmament. The Korea Times notes that Seoul and Washington are already bickering over the summit's agenda ¹³. Furthermore, even if Pyongyang makes baby-steps toward economic liberalization, there's a long road ahead—the Heritage Foundation's Index of Economic Freedom ¹⁴ still ranks North Korea 157th out of 157 countries analyzed.

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Footnotes:

¹ Koreas to Hold Summit in Pyongyang, The Korea Times
² Crisis Guide: The Korean Peninsula, CFR.org
³ U.S. Wants Seoul to Push on Nuclear Issue, but Pyongyang Unlikely to Respond: U.S. Observer, Yonhap News Agency
⁴ Seoul to Unveil Investment Plan in NK Infrastructure, The Korea Times
⁵ Analysis: Summit bonanza for North Korea, UPI Asia Online
⁶ Backgrounder: North Korea's Capitalist Experiment, CFR.org
⁷ World's Riskiest Market: Investors are growing more cautious, but an intrepid few still bet on North Korea, Newsweek International
⁸ Orascom takes stake in N Korea's Sangwon, Financial Times
⁹ North Korea to Let Capitalism Loose in Investment Zone, New York Times
¹⁰ Another False Dawn? The Economist
¹¹ Mr. Kim Has the Neighbors In, The Economist
¹² Backgrounder: The Six-Party Talks on North Korea's Nuclear Program, CFR.org
¹³ Seoul, Washington D.C. Differ on Summit Agenda, The Korea Times
¹⁴ 2007 Index of Economic Freedom, North Korea, The Heritage Foundation




Contributed by Lee Hudson Teslik, Assistant Editor of CFR.org. From CFR.org. Reprinted with permission. For more analysis on foreign policy and international relations, go to www.cfr.org.

To read another Global Envision article about Korea's economy, see A Defining Moment for US-South Korea Free Trade Agreement.



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