Virus outbreak shuts North Korea's best route around US sanctions

Seoul

NORTH Korea's decision to shut the border with China to avoid the coronavirus will set back its nascent economic recovery, renewing pressure on leader Kim Jong-un to return to nuclear negotiations with US President Donald Trump.

A jump in fuel prices, a dip in port activity and the suspension of train and air links show the early impact as reports emerge of the first virus case in North Korea. In recent days, Seoul-based NK News reported a 36 per cent jump in diesel prices and diminished activity at the port of Nampo, along with new quarantine procedures.

The closed borders will cut off foreign tourism that provides the cash-starved state with hard currency and further limit the trickle of trade it has with the outside world. The economic blow, if sustained, might make it tougher for Mr Kim to keep pushing back against Mr Trump's demands.

Before the virus complicated matters, things had been looking up - reforms, a bumper harvest and sanctions-dodging were helping Pyongyang claw back some of the lost growth triggered by tougher United Nations (UN) trade restrictions and a drought.

The UN Conference on Trade and Development estimated that the economy expanded by 1.8 per cent last year, following its biggest slump in decades in 2018. That view tallied with a surge in China's imports that suggested an increase in economic activity and trade.

Global sanctions piled on North Korea in 2017 for its nuclear and missile tests have slammed its trade and access to vital resources such as oil. That hasn't stopped Mr Kim from building his nuclear arsenal and finding ways to evade the economic restrictions, such as the illegal trading of commodities via high-seas transfers between ships, the US and others have said.

North Korea stepped up its illegal exports of coal last year, with most of those deliveries headed for China, according to a confidential UN report reviewed Monday by Bloomberg News. Pyongyang raked in US$370 million worth of shipments from January through August alone, a panel monitoring the enforcement of sanctions on North Korea said in the report to the Security Council, citing evidence provided by an unidentified member-state.

The Kim regime also managed to import luxury vehicles and other sanctioned items, including alcohol and robotic machinery, the report showed. While these activities could be affected by the border closure, other illicit activity highlighted in the report won't, such as the country's acquisition of virtual currencies and cyberattacks against global banks to evade financial sanctions.

Even before the virus, there was a limit to how much Mr Kim could do to shore up the economy without more access to foreign capital. One study after another has suggested that he would eventually face an economic crisis if he was unable to secure enough hard currency to sustain development. BLOOMBERG