Quotes of the Day

We are on a bus rolling south from Pyongyang toward Kaesong near the DMZ, searching for signs of economic life in North Korea. Pyongyang, the capital, was like a ghost town—its spotless streets scrubbed clean of the messy bustle that defines most Asian capitals. The highway to the country's second-biggest city is nearly deserted. But our government handlers have promised to show us the Kaesong industrial park, where North Koreans are churning out watches, shoes and kitchenware in newly built South Korean-owned factories. After a two-hour drive, the bus stops on a bridge in the middle of nowhere. No industrial park here, just a few farmers. This is it, our guide informs us. We peer into the distance at a hazy outline of blue factory sheds shimmering like a mirage on the horizon. "You see that building over there under the mountain?" asks our guide. Can we get any closer? No, comes the curt reply, "that area is banned from others."

Our group, Western journalists granted a rare visit to the North by Kim Jong Il's secretive regime, would get no closer to this supposedly showcase example of economic reform. The government's reluctance to show off anything that smacked of capitalism was symptomatic of an ominous new mood in Pyongyang. Recent baby steps toward reform and greater openness kindled a glimmer of hope that the North could be coaxed out of isolation. Now Kim, perhaps fearful that private enterprise and greater contact with the outside world would undermine his power, seems to have reversed course. Earlier this month, Pyongyang banned sales of grain in the country's recently legalized farmers' markets and announced a return to the old socialist system of government-controlled rice handouts. Private grain markets were just a stop-gap measure necessitated by a few bad harvests, according to the North Korean official in charge of our group, Choe Jong Hun. "Now we have a good harvest and we are able to feed ourselves," said Choe. "There is no need to sell rice in the markets."

Pyongyang's politics are opaque even to long-time foreign residents. But the government's attempt to wrest control of grain sales from private traders is widely seen as an attempt to reassert political control. One of the few slivers of freedom granted in recent years—the right to trade produce and household goods in the officially sanctioned farmers' markets—has already engendered a modest change in mindset. But there have been indicators of greater repression since last year, when the government outlawed cell phones for the general public shortly after setting up a national network. This year, officials at state-run trading companies were ordered to stop sending e-mails to China and to use faxes instead, apparently because the authorities believe faxes are easier to monitor, according to Kang Chol Hwan, a defector and journalist living in Seoul. Now the regime is pressuring foreign aid workers to leave. "The country seems to be closing," says a Western diplomat. "It is not going in the right direction."

That bodes ill for the long-running effort to convince Pyongyang to give up its nuclear-weapons programs. If the meandering six-party talks resume as expected next month, the U.S., China, South Korea, Japan and Russia will once again probe the North's willingness to trade its nuclear arsenal for massive amounts of aid. But any such deal would necessitate an influx of more foreign experts—including weapons inspectors. If Pyongyang has decided reform and engagement with the outside world are too risky, the prospects for a settlement are bleak.

The closure of private grain markets is a step backwards for a country that uses food to ensure loyalty. When the economy tanked and food ran out in the 1990s, North Koreans were forced to fend for themselves to survive. Underground markets expanded and a fledgling entrepreneurial class emerged, particularly in the towns near the northern border where goods flow in from China. Grain sales were a critical slice of the new economy. The famine that killed an estimated 2 million people forced the North to accept food aid even from the West, including about $600 million worth from the U.S. over the past 10 years.

But receiving shipments of food from outside is galling for a government that constantly lectures on the merits of juche (self-reliance). Donations also give adversaries leverage in political negotiations. Claiming this year's rice harvest is up 10%, North Korea announced last month that it doesn't need humanitarian aid. On Oct. 1, official rice rations for adults doubled to 500 grams a day, the bare minimum for survival, according to the U.N.'s World Food Program (WFP). WFP officials who visited Pyongyang's biggest market this month saw "empty tables, empty stalls" where grain vendors once worked, says WFP spokesman Gerald Bourke, adding that grain seems to have disappeared from roadside kiosks, too. At least one aid group has been told to leave and others are under pressure to go, NGO officials say, although New Mexico Governor Bill Richardson, who visited Pyongyang last week, said his hosts had assured him that a reduced humanitarian presence will be permitted to remain. The WFP is negotiating to keep some of its operations running, pointing out that a third of women and children in the country still aren't getting enough to eat. Criss-crossing the country to monitor aid projects and meet local officials, international aid workers bring new ideas about the outside world as well as an irksome reminder of North Korea's dependence. Pyongyang seems to be gambling that better harvests and continued food aid from South Korea and China—which attach few strings to their assistance and do not monitor the deliveries to ensure they are not diverted to the army—will be enough to get by.

The North Korean government says it still wants help with economic development. But at an economic conference organized by the European Union in Pyongyang this month, officials from the North didn't have a clear plan. "They didn't ask us to help in a transition to a market economy," said a European diplomat who attended. "They barely participated. There was no debate." The country desperately needs to rebuild its economy. But any liberalization could lead to a loss of the absolute political control enjoyed by Kim. The dilemma is evident during a visit to the Kumsung Educational Institute. Boys recruited from around the country are learning English and computer skills beneath portraits of Kim and his father, state founder Kim Il Sung. In one class, students are studying Microsoft PowerPoint on Taiwanese computers, and 10-year-old Chun In Hyo shyly tells a visitor: "I will be a scientist." Down the hall, an older student poring over a Cambridge English text says he likes football star David Beckham. The students are well-behaved and bright, and their English is as good as anything you would find in Seoul or Tokyo. Vice Principal Bak Ryong Gil says the youngsters are learning to use the Internet. Really, we ask, can they access it? No, he explains, they can only look at select material downloaded at the country's main computer-research center. "There is no Internet," says Bak, "but we have a plan." He says he can't tell us more.

Indeed, censorship remains pervasive. After the school's musicians put on a stirring performance, belting out rousing odes to school and country backed by electric guitars, Rhee Jin Hyuk, a spiky haired drummer, mentions that he owns an MP3 player. But he claims not to have heard of rap music, or even the Beatles. The only tunes he plays are North Korea's version of pop, a chirpy, heavily synthesized sort of muzak that sounds like it was composed in the 1950s. "I want to be a musician in a military propaganda unit," he tells us. Choe, our minder, says his country is developing its own style of music. Closing his eyes and clasping his hands to his heart, he launches into a song about a girl who is popular with the boys because she is a model worker. "We call it juche music," he says. North Korea saw how rock music and other decadent Western art forms played a role in the demise of communism in Eastern Europe, and it doesn't intend to make the same mistake. "Countries like the U.S. are trying to collapse our countries through media and music," says Choe.

With its grandiose monuments and rows of orderly apartment blocks, Pyongyang looks impervious to any threat. At a flower exhibition consisting exclusively of a red begonia named after the Dear Leader (the Kimjongilia) and a purple orchid named after his father (the Kimilsungia), North Korean visitors gush about the joy of living in a workers' paradise. "Thanks to the wise guidance of the great leader, life has improved so much," a soldier assures us. That may be true for members of the privileged é lite, of whom we catch glimpses as they are ferried around town in Mercedeses with tinted windows. But how long will everyone else be willing to put up with rice rations and stale elevator music?

• Donald Macintyre
• In a trip to North Korea, TIME finds a nation where small economic reforms are being rolled back as the country retreats into its own world