By Lee Kyung-min

Even if all sanctions were lifted, North Korea's economy would remain in "bad shape" without further reforms, according to a Washington-based North Korea expert.

Bill Brown

De-collectivization coupled with the selling of state assets to rich North Koreans should be the two-pronged approach taken in reforming the North's crippled economy, Bill Brown, an adjunct professor at Georgetown University School of Foreign Service, said in an email interview.

His remarks came a week after a second summit between U.S. President Donald Trump and North Korean leader Kim Jong-un broke down over disagreements on sanctions.

De-collectivization, which recognizes the advantages and greater role of markets, will help speed up individual contracts, thereby leading to a market economy ruled by supply and demand, with the desired outcome of rapid economic growth, he said.

Currently, under the collectivization system, the rural population is guaranteed a secure but low level of subsistence.

Brown expressed hope that the North would promptly de-collectivize as China did 30 years ago, given that the country is losing support among its state employees.

"One of their U.N. officials said last week that due to the sanctions, the government had to sharply cut food rations, which by now are only for state employees, not everyday people," he said.

"As it appears that the food supply in the markets is fine, I think this is additional evidence that the state is losing ground. It can't even feed its own workers and military."

He said de-collectivization would make farmers happy and their output would soar.

"Ideologically this is difficult but Kim has been hinting at something like this and experiments have been done. So now he should go ahead and do it."

U.S. President Donald Trump and North Korean leader Kim Jong-un / AP-Yonhap

In Brown's view, selling state assets to rich North Koreans will bring in money that can be used to raise state salaries that have remained "too low" compared to growing market income.

A pay increase for state employees ― about one-third of the workforce there ― is not easy as it is feared this would create inflation, similar to what happened in the recent past.

The solution reflects the complex macroeconomic situation there, Brown explained.

Kim brought inflation under control and stabilized the North Korean currency (the won) by, among other things, allowing dollars and Chinese yuan to circulate in the economy.

However, Brown believes this is a dangerous approach since at any time the people, perhaps in a herd or panic moment, could begin to change their won for dollars and send its value spiraling downwards, creating inflation and instability.

According to his analysis, the North's central bank can't print new money or provide credit since this would create too much won in circulation compared to the dollar and yuan, which are already exiting the country due to the sanctions.

He said the highly unstable situation can be solved by the state selling its assets to its rich people, practically the only way to raise the salaries of state employers.

"In the past, this would have been impossible to hope for but under the current pressure, brought on by the summits and by the sanctions, it may have a chance."

Brown expects Kim will have no choice but to continue to allow market activities to rise.

"That will be to compensate for some of what I sense is a decline in production in state enterprises in late 2017 and 2018. It will be very interesting to see what he does next month with their grand assembly and budget speeches."

The former U.S. intelligence officer said the North will continue to be in a dire situation evidenced by increased efforts to seek sanctions relief as its huge deficit with China continues to grow, amid a likely outflow of foreign exchange.

"This makes sense to me and suggests financial trouble may be ahead. A good thing to watch, in these circumstances is prices and exchange rate behavior," he said.