Confronted with economic difficulties and no alternative options for rehabilitating the economy without international help, North Korea seems to be inclining toward greater openness to South Korea and the U.S. There are increasing signs that North Korea's relationship with the US and Japan, both political and economic, is likely to improve rather than to deteriorate as long as the political regime of North Korea remains stable. On the other hand, South Korea and the U.S. seem to be moving toward broader ranged assistance to North Korea.

In the short term, there seems to be little chance for North Korea to undertake wide-ranging reforms, but it is also unlikely that the North Korean regime will collapse. In the longer term, however, so long as North Korea maintains political stability, it is likely to grow bolder with reforms, especially if South Korea and the international community remain supportive of these reforms.

A scenario of reform will likely to entail the two Koreas entering into some period of peaceful coexistence, followed by a gradual economic integration with South Korea. On the other hand, if political stability in North Korea begins to weaken as a result of policies of broader-ranged openness, an implosion is likely to occur.

Executive Summary

I. Introduction

II. North Korea's Current Economic Situation

1. Macroeconomic Performance
2. Government Budget
3. Employment
4. Sectoral output
5. Food Situation
6. Energy
7. Primary and Intermediate Inputs
8. External Sector

III. The Impact of the Economic Crisis

1. Disarray in the rationing system and increased market activities
2. Severe weakening of North Korea's economic planning system and the ensuing
decentralization
of the North Korean economy
3. North Korea's Changing Attitude toward the International Community

IV. Current Status of and Potential for North-South Economic Relations

1. North Korea's trade with South Korea
2. South Korea's Investment in the North

V. Future Prospects of the North Korean Economy

1. Scenarios for Developments in North Korea: Major Factors Affecting Future
Prospects
2. The North's Two-Pronged Approach
3. The South's Approach of Separating Politics from Economics
4. The Role of International Cooperation: A Practical Approach
5. Concluding Remarks