Future Development Assistance to North Korea Through the Establishment of Multi-Donor Trust Funds

Abstract

IntroductionThe economic recovery of North Korea has stagnated over the last two decades, the regime seemingly lacking the capacity to resolve food shortages and economic problems. Moreover, due to the recurrence of the nuclear issue and subsequent imposition of tighter sanctions against Pyongyang, not only has the scale of foreign aid decreased sharply, but the engagement of international donors in humanitarian assistance has also been greatly reduced. According to UN data, foreign aid to the country amounted to only USD twenty-four million in 2010, the lowest level since the international community began providing humanitarian assistance to alleviate the North Korean famine of the mid-1990s. It is widely accepted that the living standards of many ordinary North Koreans have deteriorated, a situation that is clearly reflected in the recent recurrence of food crises and malnutrition among its vulnerable population. Total food deficits for the 2010/11 fiscal year were estimated to amount to some 886,000 tons, and more than six million people were reportedly in urgent need of external food assistance.1 Such a nutritional situation and sluggish economic performance suggests that the rehabilitation of North Korea is unfeasible without international aid and the normalization of foreign relations, both of which may only be possible with the abandonment of its nuclear development program and a major shiftin economic policy direction.For South Korea and its neighboring countries, the North is a source of great regional turbulence, and its development of nuclear weaponry would likely alter the entire security situation of East Asia. Added to this, the food shortage and economic crisis possess a great likelihood of creating socioeconomic instability in the region. In this regard, the softlanding of North Korea's economic transition coupled with denuclearization is a critical goal for South Korea and its neighbors. Accordingly, it appears that a feasible institutional instrument for the amelioration of the regional instability caused by North Korea's economic problems and the nuclear stand-offis the establishment of a multilateral framework involving bilateral donors and international organizations. Indeed, it is necessary that the international community draws up a concrete blueprint for moving beyond its economic and diplomatic stalemate with North Korea.The effective provision and management of foreign aid is an important incentive in holding Pyongyang to its word in any treaty, as well as ensuring close cooperation among stakeholders. The establishment of one or more multi-donor trust funds (MDTFs) could thus be a feasible option for promoting resource mobilization and donor coordination of development assistance to North Korea.2 As almost all pooled trust funds implemented in developing countries encompass governance arrangements involving bilateral donors and multilateral organizations, the creation of trust funds for North Korea could provide a policy forum in which Pyongyang might engage with its international donors. The joint funding mechanism of the special trust fund would also help to ease the political burden currently shouldered by South Korea and neighboring countries directly involved in providing financial assistance to North Korea.At this point, we might consider the establishment of an agency for the coordination of aid to North Korea, provisionally named the North Korea Development Assistance Group (NKDAG), which would function as the principal MDTF governing body following agreement among international donors to set up the first special trust fund. Under a broad consultative framework for consolidating tripartite cooperation between North Korea, South Korea, and international donors, the NKDAG could provide an administrative mechanism for MDTFs.Considering the reconstruction and development benefits of MDTFs for developing countries, the establishment of special trust funds could help stimulate the economic rehabilitation of North Korea, thus creating a favorable environment conducive to the active involvement of foreign donors in the socioeconomic transformation of the country. …