- The Washington Times - Wednesday, February 17, 2010

North Korea’s recent attempt at currency reforms, which produced rare social unrest in the totalitarian state, appears to have backfired, as Pyongyang on Tuesday celebrated the birthday of supreme leader Kim Jong-il with a call to end hostilities with the United States and South Korea.

In stark contrast to the belligerent and threatening pronouncements that accompanied last year’s celebration of Mr. Kim’s birthday — he turned 68 on Tuesday — ruling party leaders and state officials used the occasion to reach out to Washington.

Diplomats and analysts described the North’s conciliatory rhetoric as a desperate attempt to ease the financial and economic isolation it has been suffering since last summer, when the United Nations imposed broad nuclear sanctions. Most countries have observed the sanctions more strictly than expected.

No. 2 leader Kim Yong-nam emphasized the need to end hostile relations with the United States “through dialogue and negotiations” and expressed a “steadfast” desire to improve inter-Korean ties and raise living standards, according to the official Korean Central News Agency.

The key words in his message, which analysts said was intended mostly for domestic consumption, were “living standards” — an acknowledgment of the growing dissatisfaction among North Koreans with the way the country’s economy has been run.

“In the face of widespread opposition, the North Korean government appears to be backtracking away from its failed currency reform” started in late November, said Marcus Noland, deputy director of the Peterson Institute for International Economics and a leading authority on the North’s economy.

Earlier this month, North Korean Prime Minister Kim Yong-il issued a rare public apology for the disastrous policies during a meeting with government officials and village leaders in Pyongyang.

“Regarding the currency reform, I sincerely apologize, as we pushed ahead with it without sufficient preparation, causing pain among the people,” Mr. Kim said in an hourlong statement, according to South Korea’s Chosun Ilbo newspaper.

The reforms, which were aimed at cracking down on the limited private markets and enterprise allowed to exist in recent years and at reviving socialism, set off chaos and led to further deterioration of living standards that were already among the lowest in the world, Mr. Noland said.

Evans Revere, president of the Korea Society in New York and a former career diplomat with extensive experience on the Korean Peninsula, said there are “many credible reports that the currency reform has prompted runaway inflation and popular anger.”

“The North is under considerable domestic pressure to do something to boost its economy, particularly in light of the pledge it has made to its people to make [North Korea] a ‘strong and prosperous nation’ by 2012,” Mr. Revere said.

Mr. Noland said some reports “have linked Kim Jong-un, Kim Jong-il’s third son and purported successor, to the policy” that initiated the failed currency reform, and “it remains to be seen if the fiasco has damaged his succession prospects.”

However, Bruce Klingner, senior research fellow at the Heritage Foundation, said it is unlikely that those prospects will be seriously hurt, because the government already has found a scapegoat — Pak Nam-gi, who has been fired as the Workers’ Party’s director of finance, according to South Korean media reports.

Mr. Klingner said the North’s conciliatory rhetoric is not surprising given that its “script usually consists of two pages — provocative statements and a charm offensive — and now they are on Page 2.”

“The regime is clearly feeling the pinch of the U.N. sanctions, as well as South Korea’s reluctance to provide aid without certain conditions,” he said. “It’s becoming increasingly desperate as it finds it difficult to get economic benefits.”

The U.N. Security Council sanctions, which were imposed in June, targeted mostly the North’s arms sales and proliferation activities. But the sanctions also sent a strong signal to foreign countries and companies that conducting any kind of business with Pyongyang is risky, Mr. Klingner said.

The North has repeatedly rejected the Obama administration’s offers of engagement and refuses to return to six-nation talks on its nuclear program until Washington agrees to a “peace treaty.”

Mr. Revere said the North Koreans are clearly “trying to improve the atmospherics” with the United States, “and much of the bellicosity that was previously directed against the U.S. and the Obama administration has been toned down.”

“What I have not seen so far is an indication that the North’s core positions have changed, despite the hints delivered to the Chinese, and the effort they made with [U.S. special envoy] Stephen Bosworth last December to re-recognize the validity of the Sept. 19, 2005, agreement,” in which they committed to denuclearization, he said.

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