Banker Who Fled Kim Jong Il Says New Leader May Open North Korean Economy

By Jiyeun Lee and Eunkyung Seo - Dec 29, 2011 12:16 PM GMT+0700

Kim Jong Un may relax state controls over North Korea’s economy and ease the isolation entrenched by his late father’s nuclear weapons program, according to a banker who fled the communist state after years working for the regime.

Kim’s Swiss education and his reported fondness for basketball -- a sign he’s a team player -- may make him more open to change than his late father, Choi Se Woong, former deputy governor of the North’s Korea Reunification Development Bank, said in an interview in Seoul this week.

“It’s better for North Korea to have Kim Jong Un as their leader than anyone else,” said Choi, 50, who defected to the South in 1995 and is the son of a former North Korean finance minister. “Kim Jong Un will seek to start a market economy but it will be uniquely North Korean-style, different from China, South Korea or any other capitalist country.”

Choi joins the growing number of people saying Kim will push for a more open North Korea as he takes over from his father Kim Jong Il, who passed away this month after a 17-year reign. Templeton Emerging Markets Group Executive Chairman Mark Mobius said last week he expects the North to adopt China-style deregulation, and a poll of South Koreans this month showed almost half expect the North to become more open under new leadership.

‘Exquisite Toys’

North Korea’s gross domestic product, about one-fortieth that of the South, shrank in four of the past five years after attempts to liberalize the economy failed under its stated policy of self-reliance. Still, it sits on deposits of minerals estimated at almost 7,000 trillion won ($6 trillion), according to South Korea’s state-run Korea Resources Corp.

“It’s a country with undiscovered minerals and the technique to make missiles,” Choi said. ``Have you seen the exquisite toys they make, like helicopters? Just think what it would be like if these skills were applied to manufacturing.’’

Kim may pursue more projects such as in Gaeseong, home to a joint industrial complex where South Korean-built factories employ workers from the North, said Choi, now a managing director at Eugene Investment & Futures Co. in Seoul.

Any economic opening in North Korea would follow Myanmar, also known as Burma, another undemocratic Asian nation subject to sanctions. Secretary of State Hillary Clinton this month became the highest level U.S. official to visit Myanmar in more than five decades as the nation moved to release political prisoners. Clinton pledged to upgrade relations if Myanmar takes further steps to ease repression.

‘Last Stalinist Regime’

North Korea and Myanmar are among the few countries remaining largely disconnected from international commerce in a region that’s leading global economic growth.

“The sustainability of the world’s last Stalinist regime will ultimately be under greater pressure following a transfer of power and within the broader global context of political change, with nascent political reforms in Burma evidence that change is not limited to the Middle East,” Citigroup Inc. analyst Tina Fordham in London wrote in a note this month.

The South’s Bank of Korea said today it will monitor changes in the North because escalating geopolitical risks may unnerve financial markets, which could cause consumption and investment in the South to contract “severely.”

‘Knock-on Effects’

“The bank will keep a close eye on the evolution and knock- on effects of risk factors such as the situation in North Korea,” the South Korean central bank said in a statement.

Kim, who’s thought to be 28 or 29, isn’t too young to lead the nation because his father also had decision-making responsibilities in his 20s, Choi said. Though Kim Jong Il formally began to assume the nation’s highest posts three years after North Korean founder Kim Il Sung died, he had been groomed for decades.

The younger Kim may have attended the Liebefeld Steinhoelzli school in Berne, Switzerland during the 1990s under the alias Pak Un. Joao Micaelo, who attended the school at the time, told the Daily Telegraph last year he and Pak Un bonded over the difficulties of learning German, and their passion for NBA basketball and Michael Jordan.

North Korea, which refuses to abandon its nuclear weapons program in the face of global sanctions, has depended on economic handouts since the mid-1990s. Food aid is currently needed for about 5 million people, with one in three children physically stunted from a lack of nutrition, according to a report from the United Nations and World Food Programme.

North Korea’s Elite

Previous attempts to liberalize the North’s economy have backfired. In 2002, North Korea started its “most drastic” effort by letting prices and wages fluctuate, resulting in the spread of the black market, said Bahng Tae Seop, a senior fellow at the Samsung Economic Research Institute. That led to a widening gap between the poor and elite, Bahng said.

Choi was one of the elite. The second son of Choi Hee Byeok, who was finance minister during the 1980s, he attended the nation’s top college in Kim Il Sung University. Then he was a currency and gold dealer at Daesong Bank in charge of foreign- currency management for the North’s Workers’ Party before rising to the deputy governorship at the KRDB.

Though he fled 16 years ago to seek a better life, Choi said he’s still in touch with North Korean mentality and expects a smooth transition.

“North Koreans think it’s a ‘must’ that political power be inherited to the heir,” he said. “Kim will probably open up gradually and selectively, while tightening internal grip to keep his power.”

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net