A Korean Economic Disaster in the Making?

Sources:

Seoul fears burden of North’s implosion, Financial Times
Seoul Eases Conditions For Aid to North Korea, The New York Times Online

Recent reports of Kim Jong-il suffering from a serious illness have leaked out of North Korea and prompted speculation about what its fate will be when the dictator dies. Kim Jong-il has no known designated successor and it is feared that without a strong leader firmly in place, North Korea will politically and economically implode. If this were to happen, North Koreans would have nowhere to turn to for aid but to their South Korean neighbors.

South Koreans have long hoped for reunification with the North. They provide extensive aid to the resource-poor North and have recently relaxed conditions it has to meet to receive aid, requiring only that the country prove it is facing a crisis and guarantee that rice shipments won’t go to the military. However, the South’s economy has begun to experience trouble of its own. Its stock market has dropped by a fifth this year and inflation is rising. If the North were to collapse in the near future, the South would find it difficult—if not impossible—to provide enough aid to the struggling country to prevent a humanitarian crisis.

A North Korean economy expert claims it would be impossible for the South to absorb the North’s twenty-three million inhabitants, however much South Koreans might wish for reunification. The North’s economy is significantly less developed than the South’s and some economic analysts estimate that the gross domestic product may be as low as $500 per person. Additionally, the North’s infrastructure is dilapidated and in need of renovations, it is isolated from other types of international aid because of its nuclear programs, and there are few links between the two countries. Even their television systems are incompatible.

Questions:

(1) How is North Korea likely to fare economically upon Kim Jong-il’s death? Are there any possible better outcomes than the one forecasted here?

(2) How should South Korea deal with a North Korean economic collapse? Is absorption of the North Korean population the only option?

(3) What is the international community likely to do in response to a North Korean economic collapse?