Nowhere to Go But Up.(North Korea)

South Korean journalist Gong Jong Shik found something unexpected on the highway outside Pyongyang recently: apples. During an October visit to the communist North, he stopped at a roadside fruit stand and, for 1, purchased five tasty specimens, discovering firsthand that foreign currency is the coin of the realm even in the countryside. Three days later Gong and his travel companions passed the same spot on the highway again, but by then 1 fetched just three apples--a price that suggested either hyperinflation, tourist gouging or both. "It was a sign of the market mechanism," says Gong, putting a positive spin on his experience. "The price reflected supply and demand."

However one interprets them, the stories emanating from inside the Hermit Kingdom these days suggest that something is definitely up. Optimists hail the deepening of "Vietnamese-style reforms"--a go-slow version of China's capitalist experiment crafted to preserve Kim Jong Il's hereditary dictatorship. Pessimists see the death throes of an economy built to embrace juche, or self-reliance, as it crumbles under the twin weights of famine and isolation.

The ongoing nuclear standoff hardly suggests that Pyongyang is poised to embrace the world; the North's hard-line approach has in fact upped the political risk. On Nov. 3, the ratings agency Standard & Poor's warned that North Korea's economy "cannot be sustained in its current state" and "is highly likely to collapse" in the indeterminate future. Yet the Bank of Korea recently released data showing that North Korea's economy grew for the fourth straight year in 2002, a run economists in Seoul expect will continue in 2003 on the back of a stronger harvest and reviving industrial production.

Nobody with any credibility claims to have a solid handle on Pyongyang's overall strategy, if one indeed exists. But most observers agree that government "adjustments" made in July 2002 have set in motion unprecedented change. Radical wage, price and currency reforms undertaken to reverse a marathon economic decline are playing out in ways even "Great Leader" Kim can't forecast with any certainty. Pyongyang's solutions "entered the realm of mass politics because the reforms impacted everyone," says Marcus Noland, a senior fellow at the Institute for International Economics in Washington. "The longer-run question is to what extent changes at the mass level prove consistent with the maintenance of Kim's political regime."

Visitors to Pyongyang report dynamism unheard of even a year ago. "I was ...