By Alice Donald BBC East Asia Today

Reports from secretive North Korea suggest big economic changes are afoot.

A senior South Korean official has said the North had begun what he called "sweeping reforms", aimed at turning round its collapsed centrally planned economy.

And reports from Seoul say the rationing system is being phased out in a partial move towards a free market.

North Korea has needed food aid in the past

It remains notoriously hard to gauge what is happening in North Korea, with even foreign aid workers based in Pyongyang being denied access to large parts of the country.

But it does now seem clear that significant economic reforms are under way.

David Morton, who represents the World Food Programme in Pyongyang, said the introduction of a limited free market had already had an effect.

"As of 1 July, some of the prices for foodstuffs have been increased by factors of ten or more," he said.

"And then we're told that at the end of this month, the wages or the living allowance that people receive for July will be increased.

The living allowances or the wages are going up by differing degrees according to the category of the worker

David Morton, World Food Programme

"It seems that the rationing system which uses public distribution centres will now charge more or less the prices that people have to pay in the farmers' markets."

Officials have not brought in uniform price or wage rises, Mr Morton said, in another sign of a move towards a freer economy.

"The living allowances or the wages are going up by differing degrees according to the category of the worker," Mr Morton said.

"So if you are a miner you will get paid more than if, say, you were an office worker or a clerical worker."

Reality check

In one sense, these moves towards a free market are a formal recognition of the reality that has existed for some time.

The state had lost control of the food distribution system, partly because farmers were withholding produce to sell on the black market.

We still have the same problem in that there's not enough food in the country and there's been no economic resuscitation

Hazel Smith, Korea analyst

So the state has decided: "If you can't beat them, join them."

It would rather tolerate and regulate the market than lose control altogether.

As prices rise, so wages and living allowances are going up too.

But Hazel Smith, a Korea analyst at the United States Institute for Peace, warned of possible trouble ahead.

"Although wages are going to go up, and pensions also are going to go up, the won [Korean currency] is in fact worthless," she said.

"People can't buy things with the won - they have to use hard currency, produce their own food or commonly they engage in barter. So this is going to be the problem.

"They're not cosmetic reforms, but we still have the same problem in that there's not enough food in the country and there's been no economic resuscitation."

Watching brief

South Korea is watching the process of reform in its impoverished northern neighbour keenly.

There is a good deal of cynicism in Seoul about whether the reforms are a genuine attempt to move to a free market, or simply a short-term measure to wrest back control from the black marketers.

Food rationing has been part of North Korean life for 50 years

Kim Jun-ro, spokesman at the Reunification Ministry in Seoul, said more information was needed before conclusions could be made.

"If the North Korean Government asks for economic assistance, then we will be willing to provide it.

"But unless the North Korean Government is willing to accept our offer of assistance, there will be very limited room for us to manoeuvre."

Future problems

Ms Smith said a degree of political liberalisation would be necessary if North Korea wanted substantial support from South Korea and the rest of the international community.

"This is the next problem for the government," she said.

"Moving on from tolerating, then legalising the markets, to a system where there are economic incentives and the individual gets rewarded.

"And this is the next step, which of course means political freedoms for individuals."

She said the North Koreans would look at - but probably not follow - the reforms made in China.

They see it as a kind of experimentation, and they therefore see themselves that there'll need to be lots of re-adjustment

David Morton, World Food Programme

It is impossible for the North Korean Government or anyone else to predict exactly where the reforms will end up.

But the changes are a sign that the authorities in Pyongyang are adopting a more pragmatic approach as they seek to turn round an economy that has produced misery and starvation for the bulk of the population.

Mr Morton appears convinced that the government is genuinely committed to its big experiment.

"What we gather is that the increases or the new fixed prices could themselves be flexible. In other words, they're open to re-adjustment as they see how this thing works out," he said.

"They see it as a kind of experimentation, and they therefore see themselves that there'll need to be lots of re-adjustment here and there to make it work."