Economy of North Korea

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A satellite photo of the Korean peninsula at night illustrates the harsh state of the North Korean economy in contrast to that of South Korea and neighbouring China and Japan.

The economy of North Korea has been in a continued state of flux since the early 1990s, spurred by the disintegration of the Soviet Union. Other centrally planned economies in similar straits have opted for domestic economic reform and liberalization of trade and investment. Despite its recent moves toward limited economic opening, North Korea has thus far avoided making any fundamental changes. Its leadership seems determined to maintain tight economic control.

North Korea possesses extensive economic resources with which to build a modern economy. These include sizable deposits of coal, other minerals, and nonferrous metals. The river systems of the Yalu, Tumen, and Taedong, and lesser rivers supplement North Korea's coal reserves and form an abundant source of power. Although the mountainous terrain prohibits paddy rice cultivation except in the coastal lowlands, corn, wheat, and soybeans grow well on dry field plateaus. The country's hilly areas also provide for timber forests, livestock grazing, and orchards.

North Korea inherited the basic infrastructure of a modern economy at the end of the Japanese colonial era (1910-45) and achieved considerable success due to the ability of the socialist government to marshall unutilized resources and idle labor, and to impose a low rate of consumption. Around the beginning of the 1960s, however, the economy had reached a stage where delays and bottlenecks began to emerge. Once growth could be achieved only by raising productivity through increased efficiency, an expanded resource base, and technological advances, slowdowns and setbacks occurred. Slow economic growth continued into the 1970s and 1980s. Based on chuch'e, the self-reliant economic policy emphasizes heavy industry. This policy, coupled with economic difficulties, has resulted in a poor record of exports, chronic trade deficits, and a sizable external debt, as well as foreign trade primarily oriented toward other communist countries. At the outset of the 1990s, North Korea's economy was in a deep slump and in great disarray, and was hopelessly behind its neighbour, the Republic of Korea (South Korea), which has become a world-class economic powerhouse.^{[citation needed]}

North Korea's economy remains one of the world's last centrally planned systems. The role of market allocation is sharply limited - mainly in the rural sector where peasants sell produce from small private plots. There are almost no small businesses. Although there have been scattered and limited attempts at decentralization, as of mid-1993, P'yongyang's basic adherence to a rigid centrally planned economy continues, as does its reliance on fundamentally non-pecuniary incentives. As the country faces the 2000's, great challenges lie ahead. The collapse of socialist governments around the world, particularly North Korea's principal benefactor, the Soviet Union, have forced the already depressed North Korean economy to fundamentally realign its foreign economic relations. Economic exchanges with South Korea have even begun in earnest. A recent attempt at creating Chinese-style economic zones is representative of North Korea's current movement towards capitalism.^{[citation needed]}

About 81% of North Korea's terrain consists of high mountain ranges and partially forested mountains and hills separated by deep, narrow valleys and small, cultivated plains. The most rugged areas are the north and east coasts. Good harbours are found on the eastern coast. Pyongyang, the capital, near the country's west coast, is located on the Taedong River.

Although most North Korean citizens live in cities and work in factories, agriculture remains a rather high 25% of total GNP, although output has not recovered to the levels of the early 1990s. While trade with the South has expanded since 1988, no physical links between the two remain, and the infrastructure of the North is generally poor and outdated.

North Korea suffers from chronic food shortages, brought about by the combined effects of a reclusive regime, successive natural disasters, structural constraints — such as little arable land and a short growing season — as well as the fact that food products are deliberately diverted away from citizens and into the military. These shortages were exacerbated by record floods in the summer of 1995 and continued shortages of fertilizer and parts. In response to international appeals, the US provided 500,000 tons of humanitarian food aid in the period July 1999-June 2000 through the UN World Food Programme and through US private voluntary organizations.

[edit] Colonial rule and postwar division

Beginning in the mid-1920s, the Japanese colonial administration concentrated its industrial development efforts in the comparatively under-populated and resource-rich northern portion of Korea, resulting in a considerable movement of people northward from the agrarian southern provinces of the Korean Peninsula.

This trend was reversed after the end of World War II, when more than 2 million Koreans moved from North to South following the division of Korea into Soviet and American military zones of administration. This southward exodus continued after the establishment of the Democratic People's Republic of Korea (North Korea) in 1948 and during the 1950-53 Korean War. The North Korean population is now 21.2 million, compared with 46.4 million in South Korea.

The post-World War II division of the Korean Peninsula resulted in imbalances of natural and human resources, with disadvantages for both the North and the South. By most economic measures, after partition the North was better off in terms of industry and natural resources. The South, however, had two-thirds of the work force. In 1945, about 65% of Korean heavy industry was in the North but only 31% of light industry, 37% of agriculture, and 18% of the peninsula's total commerce.

North and South both suffered from the massive destruction caused during the Korean war. In the years immediately after the war, North Korea mobilized its labour force and natural resources in an effort to achieve rapid economic development. Large amounts of aid from other communist countries, notably the Soviet Union and the People's Republic of China, helped the regime achieve a high growth rate in the immediate postwar period.

[edit] Economic planning

North Korea, one of the world's most centrally planned and isolated economies, faces desperate economic conditions. Industrial capital stock is nearly beyond repair as a result of years of underinvestment and shortages of spare parts. Industrial and power output have declined in parallel. During what North Korea called the "peaceful construction" period before the Korean War, the fundamental task of the economy was to overtake the level of output and efficiency attained toward the end of the Japanese occupation; to restructure and develop a viable economy reoriented toward the communist-bloc countries; and to begin the process of socializing the economy. Nationalization of key industrial enterprises and land reform, both of which were carried out in 1946, laid the groundwork for two successive one-year plans in 1947 and 1948, respectively, and the Two-Year Plan of 1949-50. It was during this period that the piece-rate wage system and the independent accounting system began to be applied and that the commercial network increasingly came under state and cooperative ownership.

The basic goal of the Three-Year Plan, officially named the Three-Year Post-war Reconstruction Plan of 1954-56, was to reconstruct an economy torn by the Korean War. The plan stressed more than merely regaining the prewar output levels. The Soviet Union, China, and East European countries provided reconstruction assistance. The highest priority was developing heavy industry, but an earnest effort to collectivize farming also was begun. At the end of 1957, output of most industrial commodities had returned to 1949 levels, except for a few items such as chemical fertilizers, carbides, and sulfuric acid, whose recovery took longer.

Having basically completed the task of reconstruction, the state planned to lay a solid foundation for industrialization while completing the socialization process and solving the basic problems of food and shelter during the Five-Year Plan of 1957- 60. The socialization process was completed by 1958 in all sectors of the economy, and the Ch'llima Movement (see Glossary) was introduced. Although growth rates reportedly were high, there were serious imbalances among the different economic sectors. Because rewards were given to individuals and enterprises that met production quotas, frantic efforts to fulfill plan targets in competition with other enterprises and industries caused disproportionate growth among various enterprises, between industry and agriculture and between light and heavy industries. Because resources were limited and the transportation system suffered bottlenecks, resources were diverted to politically well-connected enterprises or those whose managers complained the loudest. An enterprise or industry that performed better than others often did so at the expense of others. Such disruptions intensified as the target year of the plan approached.

Until the 1960s, North Korea's economy grew much faster than South Korea's. Although P'yongyang was behind in total national output, it was ahead of Seoul in per capita national output, because of its smaller population relative to South Korea. For example, in 1960 North Korea's population was slightly over 10 million persons, while South Korea's population was almost 25 million persons. Phenomenal annual economic growth rates of 30 percent and 21 percent during the Three-Year Plan of 1954-56 and the Five-Year Plan of 1957-60, respectively, were reported. After claiming early fulfillment of the Five-Year Plan in 1959, North Korea officially designated 1960 a "buffer year"--a year of adjustment to restore balances among sectors before the next plan became effective in 1961. Not surprisingly the same phenomenon recurred in subsequent plans. Because the Five-Year Plan was fulfilled early, it became a de facto four-year plan. Beginning in the early 1960s, however, P'yongyang's economic growth slowed until it was stagnant at the beginning of the 1990s.

Various factors explain the very high rate of economic development of the country in the 1950s and the general slowdown since the 1960s. During the reconstruction period after the Korean War, there were opportunities for extensive economic growth--attainable through the communist regime's ability to marshall idle resources and labor and to impose a low rate of consumption. This general pattern of initially high growth resulting in a high rate of capital formation was mirrored in other Soviet-type economies. Toward the end of the 1950s, as reconstruction work was completed and idle capacity began to diminish, the economy had to shift from the extensive to the intensive stage, where the simple communist discipline of marshaling underutilized resources became less effective. In the new stage, inefficiency arising from emerging bottlenecks led to diminishing returns. Further growth would only be attained by increasing efficiency and technological progress.

Beginning in the early 1960s, a series of serious bottlenecks began to impede development. Bottlenecks were pervasive and generally were created by the lack of arable land, skilled labor, energy, and transportation, and deficiencies in the extractive industries. Moreover, both land and marine transportation lacked modern equipment and modes of transportation. The inability of the energy and extractive industries as well as of the transportation network to supply power and raw materials as rapidly as the manufacturing plants could absorb them began to slow industrial growth.

The First Seven-Year Plan (initially 1961-67) built on the groundwork of the earlier plans but changed the focus of industrialization. Heavy industry, with the machine tool industry as its linchpin, was given continuing priority. During the plan, however, the economy experienced widespread slowdowns and reverses for the first time, in sharp contrast to the rapid and uninterrupted growth during previous plans. Disappointing performance forced the planners to extend the plan three more years, until 1970. During the last part of the de facto ten-year plan, emphasis shifted to pursuing parallel development of the economy and of defense capabilities. This shift was prompted by concern over the military takeover in South Korea by General Park Chung Hee (1961-79), escalation of the United States involvement in Vietnam, and the widening Sino-Soviet split. It was thought that stimulating a technological revolution in the munitions industry was one means to achieve these parallel goals. In the end, the necessity to divert resources to defense became the official explanation for the plan's failure.

The Six-Year Plan of 1971-76 followed immediately in 1971. In the aftermath of the poor performance of the preceding plan, growth targets of the Six-Year Plan were scaled down substantially. Because some of the proposed targets in the First Seven-Year Plan had not been attained even by 1970, the Six-Year Plan did not deviate much from its predecessor in basic goals. The Six-Year Plan placed more emphasis on technological advance, self-sufficiency in industrial raw materials, improving product quality, correcting imbalances among different sectors, and developing the power and extractive industries; the last of these had been deemed largely responsible for slowdowns during the First Seven-Year Plan. The plan called for attaining a self- sufficiency rate of 60 to 70 percent in all industrial sectors by substituting domestic raw materials wherever possible and by organizing and renovating technical processes to make the substitution feasible. Improving transport capacity was seen as one of the urgent tasks in accelerating economic development-- understandable since it was one of the major bottlenecks of the Six-Year Plan (see Transportation and Communications , this ch.).

North Korea claimed to have fulfilled the Six-Year Plan by the end of August 1975, a full year and four months ahead of schedule. Under the circumstances, it was expected that the next plan would start without delay in 1976, a year early, as was the case when the First Seven-Year Plan was instituted in 1961. Even if the Six-Year Plan had been completed on schedule, the next plan should have started in 1977. However, it was not until nearly two years and four months later that the long-awaited plan was unveiled--1977 had become a "buffer year."

The inability of the planners to continuously formulate and institute economic plans reveals as much about the inefficacy of planning itself as the extent of the economic difficulties and administrative disruptions facing the country. For example, targets for successive plans have to be based on the accomplishments of preceding plans. If these targets are underfulfilled, all targets of the next plan--initially based on satisfaction of the plan--have to be reformulated and adjusted. Aside from underfulfillment of the targets, widespread disruptions and imbalances among various sectors of the economy further complicate plan formulation.

The basic thrust of the Second Seven-Year Plan (1978-84) was to achieve the three-pronged goals of self-reliance, modernization, and "scientification." Although the emphasis on self-reliance was not new, it had not previously been the explicit focus of an economic plan. This new emphasis might have been a reaction to mounting foreign debt originating from large- scale imports of Western machinery and equipment in the mid- 1970s. Through modernization North Korea hoped to increase mechanization and automation in all sectors of the economy. "Scientification" is a buzzword for the adoption of up-to-date production and management techniques. The specific objectives of the economic plan were to strengthen the fuel, energy, and resource bases of industry through priority development of the energy and extractive industries; to modernize industry; to substitute domestic resources for certain imported raw materials; to expand freight-carrying capacity in railroad, road, and marine transportation systems; to centralize and containerize the transportation system; and to accelerate a technical revolution in agriculture.

In order to meet the manpower and technology requirements of an expanding economy, the education sector also was targeted for improvements. The quality of the comprehensive eleven-year compulsory education system was to be enhanced to train more technicians and specialists, and to expand the training of specialists, particularly in the fields of fuel, mechanical, electronic, and automation engineering (see Education , ch. 2).

Successful fulfillment of the so-called nature-remaking projects also was part of the Second Seven-Year Plan. These projects referred to the five-point program for nature transformation unveiled by Kim Il Sung in 1976: completing the irrigation of non-paddy fields; reclaiming 100,000 hectares of new land; building 150,000 hectares to 200,000 hectares of terraced fields; carrying out afforestation and water conservation work; and reclaiming tidal land.

From all indications, the Second Seven-Year Plan was not successful. North Korea generally downplayed the accomplishments of the plan, and no other plan received less official fanfare. It was officially claimed that the economy had grown at an annual rate of 8.8 percent during the plan, somewhat below the planned rate of 9.6 percent. The reliability of this aggregate measure, however, is questionable. During the plan, the target annual output of 10 million tons of grains (cereals and pulses) was attained. However, by official admission, the targets of only five other commodities were fulfilled. Judging from the growth rates announced for some twelve industrial products, it is highly unlikely that the total industrial output increased at an average rate of 12.2 percent as claimed. After the plan concluded, there was no new economic plan for two years, indications of both the plan's failure and the severity of the economic and planning problems confronting the economy in the mid-1980s.

The main targets of the Third Seven-Year Plan of 1987-93 are to achieve the so-called "Ten Long-Range Major Goals of the 1980s for the Construction of the Socialist Economy" (see table 2, Appendix). These goals, conceived in 1980, are to be fulfilled by the end of the decade. The fact that these targets are rolled over to the end of the Third Seven-Year Plan is another indication of the disappointing economic performance during the Second Seven-Year Plan. The three policy goals of self-reliance, modernization, and "scientification" were repeated. Economic growth was set at 7.9 percent annually, lower than the previous plan. Although achieving the ten major goals of the 1980s is the main thrust of the Third Seven-Year Plan, some substantial changes have been made in specific quantitative targets. For example, the target for the annual output of steel has been drastically reduced from 15 million tons to 10 million tons. This reduction will have serious negative secondary effects on heavy industry. The output targets of cement and non-ferrous metals-- two major export items--have been increased significantly. The June 1989 introduction of the Three-Year Plan for Light Industry as part of the Third Seven-Year Plan is intended to boost the standard of living by addressing consumer needs.

The Third Seven-Year Plan gives a great deal of attention to developing foreign trade and joint ventures, the first time a plan has addressed these issues. By the end of 1991, however, two years before the termination of the plan, no quantitative plan targets had been made public, an indication that the plan has not fared well. The diversion of resources to build highways, theaters, hotels, airports, and other facilities in order to host the Thirteenth World Festival of Youth and Students in July 1989, must have had a negative impact on industrial and agricultural development, although the expansion and improvement of social infrastructure have resulted in some long-term economic benefits.

The shortage of foreign exchange because of a chronic trade deficit, a large foreign debt, and dwindling foreign aid has constrained economic development. In addition, North Korea has been diverting scarce resources from developmental projects to defense; it spent more than 20 percent of GNP on defense toward the end of the 1980s, a proportion among the highest in the world (see The Armed Forces , ch. 5). These negative factors, compounded by the declining efficiency of the central planning system and the failure to modernize the economy, have slowed the pace of growth since the 1960s. The demise of the communist regimes in the Soviet Union and East European countries--North Korea's traditional trade partners and benefactors--has compounded the economic difficulties in the early 1990s.

Concomitant with the socialization of the economy and the growth in the total magnitude of national output has been a dramatic and revealing change in the relative share of output, indicating that the economy has been transformed from being primarily agricultural to primarily industrial. Whereas in 1946, industrial and agricultural outputs were 16.8 percent and 63.5 percent, respectively, of total national output, the relative position has reversed fundamentally since then so that the respective shares in 1970 were 57.3 percent and 21.5 percent. Judging from the agricultural share of 24 percent in 1981, there were slight reverses in the relative composition in the 1970s.

Growth and changes in the structure and ownership pattern of the economy also have changed the labor force. By 1958 individual private farmers, who once constituted more than 70 percent of the labor force, had been transformed into or replaced by state or collective farmers. Private artisans, merchants, and entrepreneurs had joined state or cooperative enterprises. In the industrial sector in 1963, the last year for which such data are available, there were 2,295 state enterprises and 642 cooperative enterprises. The size and importance of the state enterprises can be surmised by the fact that state enterprises, which constituted 78.1 percent of the total number of industrial enterprises, contributed 91.2 percent of total industrial output.

[edit] Development strategies

As of mid-1993, North Korea's economy remained one of the world's most highly centralized and planned, even by pre-1990 communist standards. Complete "socialization" of the economy was accomplished by 1958, when private ownership of the means of production, land, and commercial enterprises was replaced by state or cooperative (collective) ownership and control. As a result, industrial firms were either state-owned or cooperatives, the former contributing more than 90 percent of total industrial output in the 1960s.

As a consequence of the government's policy of establishing economic self-sufficiency, the North Korean economy has become increasingly isolated from that of the rest of the world, and its industrial development and structure do not reflect its international competitiveness. Domestic firms are shielded from international as well as domestic competition; the result is chronic inefficiency, poor quality, limited product diversity, and underutilization of plants. This protectionism also limits the size of the market for North Korean producers, which prevents taking advantage of economies of scale.

Unlike in industry, collectives are the predominant form of ownership and production in agriculture; the remaining rural enterprises are organized as state farms. The sole negligible exception to state and collective ownership in agriculture is the ownership of small garden plots and fruit trees, as well as the raising of poultry, pigs, bees, and the like, which are permitted both for personal consumption and sale at the peasant market. Private plots can be no more than roughly 160 square meters in area. State and cooperative ownership and control extends to foreign trade, as well as to all other sectors of the economy, including banking, transportation, and communications.

In commerce nearly all goods are distributed through either state-operated or cooperative stores. Less than 1 percent of retail transactions are carried out at peasant markets, where surplus farm products are sold at free-market prices.

As in other Soviet-type or "command" economies, all economic decisions concerning the selection of output, output targets, allocation of inputs, prices, distribution of national income, investment, and economic development are implemented through the economic plan devised at the center and are "blueprinted" by the State Planning Committee (see Planning , this ch.; Organization of the Government , ch. 4). In the face of the worldwide political and economic collapse of communist regimes in the early 1990s, North Korea defiantly continues to sing the praises of a command economy. Attempts to increase production through rigid central control and exhortations and other non-pecuniary incentives have not ceased, as exemplified by the campaign entitled "Speed of the 1990s." On-site industrial visits by President Kim Il Sung and his son and heir-apparent, Kim Jong Il, continue.

[edit] Efforts at modernization

During the early 1970s, North Korea attempted a large-scale modernization program through the importation of Western technology, principally in the heavy industrial sectors of the economy. North Korea found itself unable to finance its debt, because demand for its exports shrank steadily after the oil crisis of the 1970s. It became the first communist country to default on its loans from free market countries.

In 1979 North Korea renegotiated much of its international debt, but in 1980 it defaulted on all of its loans except those from Japan. By the end of 1986, hard-currency debt had reached more than $1 billion (4 G$). It also owed nearly $2 billion to communist creditors, principally the Soviet Union. The Japanese also declared North Korea in default. By 2000, taking into account penalties and accrued interest, North Korea's debt was estimated at $10-$12 billion.

Largely because of these debt problems but also because of a prolonged drought and mismanagement, North Korea's industrial growth slowed, and per capita GNP fell below that of the South. By the end of 1979 per capita GNP in North Korea was about one-third of that in the South. The causes for this relatively poor performance are complex, but a major factor is the disproportionately large percentage of GNP (possibly as much as 25%) that North Korea devotes to the military.

There have been some minor efforts toward relaxing central control of the economy in the 1980s that involve industrial enterprises. Encouraged by Kim Jong Il's call to strengthen the implementation of the independent accounting system (tongnip ch'aesangje) of enterprises in March 1984, interest in enterprise management and the independent accounting system has increased, as evidenced by increasing coverage of the topic in various North Korean journals (see The Media , ch. 4). Under the system, factory managers still are assigned output targets but are given more discretion in making decisions about labor, equipment, materials, and funds.

In addition to fixed capital, each enterprise is allocated a minimum of working capital from the state through the Central Bank and is required to meet various operating expenses with the proceeds from sales of its output. Up to 50 percent of the "profit" is taxed, the remaining half being kept by the enterprise for purchase of equipment, introduction of new technology, welfare benefits, and bonuses. As such, the system provides some built-in incentives and some degree of micro-level autonomy, unlike the budget allocation system, under which any surplus is turned over to the government in its entirety.

Another innovation, the August Third People's Consumer Goods Production Movement, is centered on consumer goods production. This measure was so named after Kim Jong Il made an inspection tour of an exhibition of light industrial products held in P'yongyang on August 3, 1984. The movement charges workers to use locally available resources and production facilities to produce needed consumer goods. On the surface, the movement does not appear to differ much from the local industry programs in existence since the 1960s, although some degree of local autonomy is allowed. However, a major departure places output, pricing, and purchases outside central planning. In addition, direct sales stores have been established to distribute goods produced under the movement directly to consumers. The movement is characterized as a third sector in the production of consumer goods, alongside centrally controlled light industry and locally controlled traditional light industry. Moreover, there were some reports in the mid-1980s of increasing encouragement of small-scale private handicrafts and farm markets. As of 1992, however, no move was reported to expand the size of private garden plots.

All these measures appear to be minor stop-gap measures to alleviate severe shortages of consumer goods by infusing some degree of incentives. In mid-1993 no significant moves signaling a fundamental deviation from the existing system had occurred. The reluctance to initiate reform appears to be largely political. It is, perhaps, the linkage between economic reform and political liberalization that worries the leadership. This concern is based on the belief that economic reform will produce new interests that will demand political expression, and that demands for the institutionalization of such pluralism eventually will lead to political liberalization. There clearly exists a catch-22 situation for Kim Il Sung and, particularly, for Kim Jong Il. In order to legitimize his power base, the younger Kim needs an economic base. However, his economic reforms challenge his position as the advancer of chuch'e and may eventually undo the regime.

Beginning in the mid-1980s, and particularly around the end of the decade, North Korea began slowly to modify its rigid selfreliant policy. The changes, popularly identified as the opendoor policy, included an increasing emphasis on foreign trade, a readiness to accept direct foreign investment by enacting a joint venture law, the decision to open the country to international tourism, and economic cooperation with South Korea.

In the mid-1980s, the speculation that North Korea would emulate China in establishing Chinese-style special economic zones was flatly denied by then deputy chairman of the Economic Policy Commission Yun Ki-pok (Yun became chairman as of June 1989). China's special economic zones typically are coastal areas established to promote economic development and the introduction of advanced technology through foreign investment. Investors are offered preferential tax terms and facilities. The zones, which allow greater reliance on market forces, have more decisionmaking power in economic activities than do provincial-level units. Over the years, China has tried to convince the North Korean leadership of the advantages of these zones by giving tours of the various zones and explaining their values to visiting high-level officials.

In April 1982, Kim Il-sung announced a new economic policy giving priority to increased agricultural production through land reclamation, development of the country's infrastructure—especially power plants and transportation facilities—and reliance on domestically produced equipment. There also was more emphasis on trade.

In September 1984, North Korea promulgated a joint venture law to attract foreign capital and technology. The new emphasis on expanding trade and acquiring technology was not, however, accompanied by a shift in priorities away from support of the military. In 1991, North Korea announced the creation of a Special Economic Zone (SEZ) in the northeast regions of Rajin-Seonbong and Ch'ŏngjin. Investment in this SEZ has been slow in coming. Problems with infrastructure, bureaucracy, and uncertainties about investment security and viability have hindered growth and development.

After the Cold War, financial aid and privileged trade relations with the Soviet Union and Eastern European communist regimes were suspended. China followed suit in the years thereafter. This evolution, combined with a series of natural disasters including record floods in 1995, caused one of the worst economic crises in North Korea's history. Other causes of this crisis were high defense spending (about 25% of GDP) and bad governance. It is estimated that between 1992 and 1998 North Korea's economy contracted with 50% and several hundred thousand (possibly up to 3 million) people died of starvation.

In December 1991, North Korea established a "zone of free economy and trade" to include the northeastern port cities of Unggi, Ch'ngjin, and Najin. The establishment of this zone also had ramifications on the questions of how far North Korea would go in opening its economy to the West and to South Korea, the future of the development scheme for the Tumen River area, and, more important, how much North Korea would reform its economic system.

North Korea announced in December 1993 a 3-year transitional economic policy placing primary emphasis on agriculture, light industry, and foreign trade. However, lack of fertilizer, natural disasters, and poor storage and transportation practices have left the country more than a million tons per year short of grain self-sufficiency. Moreover, lack of foreign exchange to purchase spare parts and oil for electrical generation left many factories idle.

Despite these problems, there seems little immediate prospect that North Korean will undergo an East German-style collapse: a prospect that South Korea and China view with great trepidation because of fear of sudden and large exodus of North Korean refugees into their countries. In 2002 Kim Jong Il declared that "money should be capable of measuring the worth of all commodities", followed by some small market economy relaxations and creation of the Kaesong Industrial Region with good transport links to South Korea. Experiments are under way to allow factory managers to fire underperforming workers and give bonuses. China’s investment increased from about $1 million in 2003 to $200 million in 2004. China has counseled North Korea’s leaders to gradually open the economy to market forces.

The large national debt contrasts with North Korea's policy of being the only tax-free country in the world (although taxes are still levied on foreign businesses). Factory output is part of a communist-style system in which needed items are produced for all sectors, both military and domestic, and then any surplus is sold off. This system reduces the amount of currency circulation and therefore the country's GDP.

[edit] Organization and management

Since the government is the dominant force in the development and management of the economy, bureaus and departments have proliferated at all administrative levels. There are fifteen committees--such as the agricultural and state planning committees--one bureau, and twenty departments under the supervision of the State Administration Council; of these, twelve committees--one bureau, and sixteen departments are involved in economic management. In the early 1990s, several vice premiers of the State Administration Council supervised economic affairs. Organizations undergo frequent reorganization. Many of these agencies have their own separate branches at lower levels of government while others maintain control over subordinate sections in provincial and county administrative agencies.

[edit] Budget and finance

The Ministry of Finance controls all aspects of the government's budget and finance, including banks. The Central Bank issues currency, regulates the money supply, sets official foreign exchange rates, deals with the purchase and sale of gold and foreign exchange, and handles foreign loans. The Foreign Trade Bank, under the supervision of the Central Bank, handles transactions and letters of credit related to foreign trade, and controls the foreign exchange payments of foreign trade organizations and other enterprises. The K mgang Bank is a specialized bank that handles transactions of foreign trade organizations dealing with exports and imports of machinery, metals, mineral products, and chemical products. The Daesng Bank handles transactions of the Daesng Trading Company and other trading organizations. There are also three joint venture banks.

An US- diplomat told on March 26, 2007 that a banking dispute will end in days. The row stalled North Korean nuclear disarmament talks. The United States argued that the Macau's Banco Delta Asia was handling the proceeds of North Korean counterfeiting and money-laundering. Washington cleared the way for transfer of 25 million dollars, frozen in 2005, to the state-owned Bank of China; as part of the nuclear accord. But it was said that the Chinese bank refused to accept the money for fear the transaction may hurt its credit rating.[1]

The state budget is a major government instrument in carrying out the country's economic goals. Expenditures represented about three-quarters of GNP in the mid-1980s--the allocation of which reflected the priorities assigned to different economic sectors. Taxes were abolished in 1974 as "remnants of an antiquated society." This action, however, was not expected to have any significant effect on state revenue because the overwhelming proportion of government funds--an average of 98.1 percent during 1961-70--was from turnover (sales) taxes, deductions from profits paid by state enterprises, and various user fees on machinery and equipment, irrigation facilities, television sets, and water.

In order to provide a certain degree of local autonomy as well as to lessen the financial burden of the central government, a "local budget system" was introduced in 1973. Under this system, provincial authorities are responsible for the operating costs of institutions and enterprises not under direct central government control, such as schools, hospitals, shops, and local consumer goods production. In return, they are expected to organize as many profitable ventures as possible and to turn over profits to the central government.

Around November of every year, the state budget for the following calendar year is drafted, subject to revision around March. Typically, total revenue exceeds expenditure by a small margin, with the surplus carried over to the following year. The largest share of state expenditures goes to the "people's economy," which averaged 67.3 percent of total expenditures between 1987 and 1990, followed in magnitude by "socio-cultural," "defense," and "administration."

Defense spending, as a share of total expenditures, has increased significantly since the 1960s: from 3.7 percent in 1959 to 19 percent in 1960, and, after averaging 19.8 percent between 1961 and 1966, to 30.4 percent in 1967. After remaining around 30 percent until 1971, the defense share decreased abruptly to 17 percent in 1972, and continued to decline throughout the 1980s. Officially, in both 1989 and 1990 the defense share remained at 12 percent, and for 1991 it was 12.3 percent with 11.6 percent planned for 1992 (see table 3, Appendix; Role in National Life , ch. 5). The declining trend is consistent with the government's announced intentions to stimulate economic development and increase the social benefits. However, Western experts estimate that actual military expenditures are higher than budget figures indicate.

After years, indeed decades, of reported steady annual increases on both sides of the ledger, by 1994 income and spending alike had reached 41.5 billion won (just under US$20 billion at the rate of exchange then). Then Kim Il sung died, and for four years the Supreme People's Assembly did not meet: supposedly as a sign of mourning, but this was also the worst period of famine. When in 1999 the SPA finally reconvened, the then-finance minister, Yun Ki jong (a rare woman among Pyongyang's top elite), revealed, but did not try to explain, figures of barely 20 billion won for 1998 - meaning both income and spending had plunged by half in just four years.

[edit] Planning

Although general economic policy objectives are decided by the Central People's Committee (CPC), it is the task of the State Planning Committee to translate the broad goals into specific annual and long-term development plans and quantitative targets for the economy as a whole, as well as for each industrial sector and enterprise. Under the basic tenets of the 1964 reforms, the planning process is guided by the principles of "unified planning" (ilwnhwa) and of "detailed planning" (saebunhwa).

Under "unified planning," regional committees are established in each province, city, and county to systematically coordinate planning work. These committees do not belong to any regional organization and are directly supervised by the State Planning Committee. As a result of a reorganization in 1969, they are separated into provincial planning committees, city/county committees, and enterprise committees (for large-scale enterprises).

The various planning committees, under the auspices of the State Planning Committee, coordinate their planning work with the existing planning offices of the various economy-related government organizations in each of the corresponding regional and local areas. The system attempts to enable the regional planning staffs to better coordinate with economic establishments in their areas, which are directly responsible to them with regard to planning, as well as to communicate directly with staff at the CPC. "Detailed planning" seeks to construct plans with precise accuracy and scientific methods based on concrete assessment of the available resources, labor, funds, plant capacities, and all other necessary information.

There are four stages in drafting the final national economic plan. The first stage is collecting and compiling preliminary statistical data. These figures, which are used as the basic planning data on the productive capacities of various economic sectors, originally are prepared by lower level economic units and aggregated on a national level by respective departments and committees. Simultaneously, the regional, local, and enterprise planning committees prepare their own data and forward them to the CPC. Through this two-channel system of simultaneous but separate and independent preparation of statistical data by economic units and planning committees, the government seeks to ensure an accurate, objective, and realistic data base unfettered by local and bureaucratic bias. The second stage is preparing the control figures by the CPC based on the preliminary data in accordance with the basic plan goals presented by the Central People's Committee. In the third stage, a draft plan is prepared.

The draft plan, prepared by the CPC, is the result of coordinating all draft figures submitted by the lower level economic units, which, in turn, base their drafts on the control figures handed down from the committee. In the fourth stage, the CPC submits a unified national draft plan to the Central People's Committee and the State Administration Council for confirmation. After approval by the Supreme People's Assembly, the draft becomes final and is distributed to all economic units as well as to regional and local planning committees. The plan then becomes legal and compulsory. Frequent directives from the central government contain changes in the plan targets or incentives for meeting the plan objectives.

Although the central government is most clearly involved in the formulation and evaluation of the yearly and long-term plans, it also reviews summaries of quarterly or monthly progress. Individual enterprises divide the production period into daily, weekly, ten-day, monthly, quarterly, and annual periods. In general, the monthly plan is the basic factory planning period.

The success of an economic plan depends on the quality and detail of information received, the establishment of realistic targets, coordination among different sectors, and correct implementation. High initial growth during the Three-Year Plan and, to a lesser extent, during the Five-Year Plan contributed to a false sense of confidence among the planners. Statistical overreporting--an inherent tendency in an economy where rewards lie in fulfilling the quantitative targets, particularly when the plan target year approaches--leads to overestimation of economic potential, poor product quality, and eventually to plan errors. Inefficient utilization of plants, equipment, and raw materials also add to planning errors. Lack of coordination in planning and production competition among sectors and regions cause imbalances and disrupt input-output relationships. The planning reforms in 1964 were supposed to solve these problems, but the need for correct and detailed planning and strict implementation of plans was so great that their importance was emphasized in the report unveiling the Second Seven-Year Plan, indicating that planning problems persisted in the 1980s.

[edit] The Ch'ongsan-ni Method

The Ch'ongsan-ni Method, or Chngsan-ri Method (see Glossary), of management was born out of Kim Il Sung's February 1960 visit to the Ch'ongsan-ni Cooperative Farm in South P'yngan Province. Kim and other members of the KWP Central Committee offered "on-the-spot guidance" and spent fifteen days instructing and interacting with the workers. The avowed objective of this new method is to combat "bureaucratism" and "formalism" in the farm management system.

The leadership claimed that farm workers were unhappy and produced low output because low-ranking party functionaries, who expounded abstract Marxist theories and slogans, were using incorrect tactics that failed to motivate. To correct this, the leadership recommended that the workers receive specific guidance in solving production problems and be promised readily available material incentives. The Ch'ongsan-ni Method called for highranking party officials, party cadres (see Glossary), and administrative officials to emulate Kim Il Sung by making field inspections. The system also provided opportunities for farmers to present their grievances and ideas to leading cadres and managers.

Perhaps more important than involving administrative personnel in on-site inspections was the increased use of material incentives, such as paid vacations, special bonuses, honorific titles, and monetary rewards. In fact, the Ch'ongsan-ni Method appeared to accommodate almost any expedient to spur production. The method, however, subsequently was undercut by heavy-handed efforts to increase farm production and amalgamate farms into ever-larger units. Actual improvement in the agricultural sector began with the adoption of the subteam contract system as a means of increasing peasant productivity by adjusting individual incentives to those of the immediate, small working group. Thus the increasing scale of collective farms was somewhat offset by the reduction in the size of the working unit. "On-the-spot guidance" by high government functionaries, however, continues in the early 1990s, as exemplified by Kim Il Sung's visits to such places as the Wangjaesan Cooperative Farm in Ssng County and the Kyngsn Branch Experimental Farm of the Academy of Agricultural Sciences between August 20 and 30, 1991.

[edit] The Taean Work System

The industrial management system developed in three distinct stages. The first stage was a period of enterprise autonomy that lasted until December 1946. The second stage was a transitional system based on local autonomy, with each enterprise managed by the enterprise management committee under the direction of the local people's committee. This system was replaced by the "oneman management system," with management patterned along Soviet lines as large enterprises were nationalized and came under central control. The third stage, the Taean Work System (see Glossary), was introduced in December 1961 as an application and refinement of agricultural management techniques to industry. The Taean industrial management system grew out of the Ch'ongsan-ni Method.

The highest managerial authority under the Taean system is the party committee. Each committee consists of approximately twenty-five to thirty-five members elected from the ranks of managers, workers, engineers, and the leadership of "working people's organizations" at the factory. A smaller "executive committee," about one-fourth the size of the regular committee, has practical responsibility for day-to-day plant operations and major factory decisions. The most important staff members, including the party committee secretary, factory manager, and chief engineer, make up its membership. The system focuses on cooperation among workers, technicians, and party functionaries at the factory level.

Each factory has two major lines of administration, one headed by the manager, the other by the party committee secretary. A chief engineer and his or her assistants direct a general staff in charge of all aspects of production, planning, and technical guidance. Depending on the size of the factory, varying numbers of deputies oversee factory logistics, marketing, and workers' services. The supply of materials includes securing, storing, and distributing all materials for factory use, as well as storing finished products and shipping them from the factory.

Deputies are in charge of assigning workers to their units and handling factory accounts and payroll. Providing workers' services requires directing any farming done on factory lands, stocking factory retail shops, and taking care of all staff amenities. Deputies in charge of workers' services are encouraged to meet as many of the factory's needs as possible using nearby agricultural cooperatives and local industries.

The secretary of the party committee organizes all political activities in each of the factory party cells and attempts to ensure loyalty to the party's production targets and management goals. According to official claims, all management decisions are arrived at by consensus among the members of the party committee. Given the overwhelming importance of the party in the country's affairs, it seems likely that the party secretary has the last say in any major factory disputes.

The Taean system heralded a more rational approach to industrial management than that practiced previously. Although party functionaries and workers became more important to management under the new system, engineers and technical staff also received more responsibility in areas where their expertise could contribute the most. The system recognizes the importance of material as well as "politico-moral" incentives for managing the factory workers. The "internal accounting system," a spin-off of the "independent accounting system," grants bonuses to work teams and workshops that use raw materials and equipment most efficiently. These financial rewards come out of enterprise profits.

A measure of the success of the Taean Work System is its longevity and its continued endorsement by the leadership. In his 1991 New Year's address marking the thirtieth anniversary of the creation of the system, Kim Il Sung said that the "Taean work system is the best system of economic management. It enables the producer masses to fulfill their responsibility and role as masters and to manage the economy in a scientific and rational manner by implementing the mass line in economic management, and by combining party leadership organically with administrative, economic, and technical guidance."

[edit] Mass Production Campaigns

Parallel to management techniques such as the Ch'ongsan-ni Method and the Taean Work System, which were designed to increase output in the course of more normalized and regularized operations of farms and enterprises, the leadership continuously resorts to exhortations and mass campaigns to motivate the workers to meet output targets. The earliest and the most pervasive mass production campaign was the Ch'llima Movement. Introduced in 1958, and fashioned after China's Great Leap Forward (1958-60), the Ch'llima Movement organized the labor force into work teams and brigades to compete at increasing production. The campaign was aimed not only at industrial and agricultural workers but also at organizations in education, science, sanitation and health, and culture. In addition to work teams, units eligible for Ch'llima citations included entire factories, factory workshops, and such self-contained units as a ship or a railroad station. The "socialist competition" among the industrial sectors, enterprises, farms, and work teams under the Ch'llima Movement frantically sought to complete the Five-Year Plan (1957-60), but instead created chaotic disruptions in the economy. The disruptions made it necessary to set aside 1959 as a "buffer year" to restore balance in the economy.

Although the Ch'llima Movement was replaced in the early 1960s by the Ch'ongsan-ni Method and the Taean Work System, the regime's reliance on some form of mass campaign continued into the early 1990s. Campaigns conducted after the Ch'llima Movement have been narrower in scope and have concentrated on specific time frames for a particular industry or economic sector. Often, the mass production movement takes the form of a "speed battle"-- the "100-day speed battle" being most common. The fact that the leadership has to resort to these campaigns points to the weakness or improper functioning of the regular day-to-day management system, as well as to a lack of incentives for workers to achieve the desired economic results. The leadership frequently resorts to speed battles toward the end of a certain period (such as a month, a year, or a particular economic plan) to reach production targets. The "Speed of the 1990s" is designed to carry out the economic goals of the decade.

[edit] Industry

North Korea's self-reliant development strategy assigned top priority to developing heavy industry, with parallel development in agriculture and light industry. This policy was achieved mainly by giving heavy industry preferential allocation of state investment funds. More than 50 percent of state investment went to the industrial sector during the 1954-76 period (47.6 percent, 51.3 percent, 57.0 percent, and 49.0 percent, respectively, during the Three-Year Plan, Five-Year Plan, First Seven-Year Plan, and Six-Year Plan). As a result, gross industrial output grew rapidly.

As was the case with the growth in national output, the pace of growth has slowed markedly since the 1960s. The rate declined from 41.7 percent and 36.6 percent a year during the Three-Year Plan and Five-Year Plan, respectively, to 12.8 percent, 16.3 percent, and 12.2 percent, respectively, during the First SevenYear Plan, Six-Year Plan, and Second Seven-Year Plan. As a result of faster growth in industry, that sector's share in total national output increased from 16.8 percent in 1946 to 57.3 percent in 1970. Since the 1970s, industry's share in national output has remained relatively stable. From all indications, the pace of industrialization during the Third Seven-Year Plan up to 1991 is far below the planned rate of 9.6 percent. In 1990 it was estimated that the industrial sector's share of national output was 56 percent.

Industry's share of the combined total of gross agricultural and industrial output climbed from 28 percent in 1946 to well over 90 percent in 1980 (see Agriculture, Forestry, and Fisheries , this ch.). Heavy industry received more than 80 percent of the total state investment in industry between 1954 and 1976 (81.1 percent, 82.6 percent, 80 percent, and 83 percent, respectively, during the Three-Year Plan, Five-Year Plan, First Seven-Year Plan, and Six-Year Plan), and was overwhelmingly favored over light industry.

North Korea claims to have fulfilled the Second Seven-Year Plan (1978-84) target of raising the industrial output in 1984 to 120 percent of the 1977 target, equivalent to an average annual growth rate of 12.2 percent. Judging from the production of major commodities that form the greater part of industrial output, however, it is unlikely that this happened. For example, the increase during the 1978-84 plan period for electric power, coal, steel, metal-cutting machines, tractors, passenger cars, chemical fertilizers, chemical fibers, cement, and textiles, respectively, was 78 percent, 50 percent, 85 percent, 67 percent, 50 percent, 20 percent, 56 percent, 80 percent, 78 percent, and 45 percent.

[edit] Agriculture, forestry, fishing

The task of increasing agricultural production beyond simple recovery from the Korean War was not easy. The country's sparse agricultural resources limit agricultural growth. Climate, terrain, and soil conditions are not particularly favorable for farming (see The Physical Environment , ch. 2). Only about 18 percent of the total landmass, or approximately 2.2 million hectares, is arable; the major portion of the country is rugged mountain terrain. The weather varies markedly according to elevation, and lack of precipitation, along with infertile soil, makes land at elevations higher than 400 meters unsuitable for purposes other than grazing. Precipitation is geographically and seasonally irregular, and in most parts of the country as much as half the annual rainfall occurs in the three summer months. This pattern favors the cultivation of paddy rice in warmer regions that are outfitted with irrigation and flood control networks. Where these conditions are lacking, however, farmers have to substitute other grains for the traditional favorite.

Farming is concentrated in the flatlands of the four west coast provinces, where a longer growing season, level land, adequate rainfall, and good, irrigated soil permit the most intensive cultivation of crops. A narrow strip of similarly fertile land runs through the eastern seaboard Hamgyng provinces and Kangwn Province, but the interior provinces of Chagang and Yanggang are too mountainous, cold, and dry to allow much farming. The mountains, however, contain the bulk of North Korea's forest reserves while the foothills within and between the major agricultural regions provide lands for livestock grazing and fruit tree cultivation.

Since self-sufficiency remains an important pillar of North Korean ideology, self-sufficiency in food production is deemed a worthy goal. Another aim of government policies--to reduce the "gap" between urban and rural living standards--requires continued investment in the agricultural sector. Finally, as in most countries, changes in the supply or prices of foodstuffs probably are the most conspicuous and sensitive economic concerns for the average citizen. The stability of the country depends on steady, if not rapid, increases in the availability of food items at reasonable prices. In the early 1990s, there also were reports of severe food shortages.

The most far-reaching statement on agricultural policy is embodied in Kim Il Sung's 1964 "Theses on the Socialist Agrarian Question in Our Country," which underscores the government's concern for agricultural development. Kim emphasized technological and educational progress in the countryside as well as collective forms of ownership and management. As industrialization progressed, the share of agriculture, forestry, and fisheries in the total national output declined from 63.5 percent and 31.4 percent, respectively, in 1945 and 1946, to a low of 26.8 percent in 1990. Their share in the labor force also declined from 57.6 percent in 1960 to 34.4 percent in 1989.

[edit] North-South economic ties

North and South Korea's economic ties have fluctuated greatly over the past 30 years or so. As of now, North-South relations have warmed, and many firms have agreed to invest in North Korea, encouraged by the South Korean government's commitment to cover their losses, should investment projects in the north fail to become profitable. However, despite all of this, North Korea's trade ties are still relatively weak and will probably remain so as only a few economic giants actually agree to trade with it.

Following a 1988 decision by the South Korean Government to allow trade with the North (see Reunification efforts since 1971), South Korean firms began to import North Korean goods. Direct trade with the South began in the fall of 1990 after the unprecedented September 1990 meeting of the two Korean Prime Ministers. Trade between the countries increased from $18.8 million in 1989 to $333.4 million in 1999, much of it processing or assembly work undertaken in the North.

During this decade, the chairman of the South Korean company Daewoo visited North Korea and reached agreement on building a light industrial complex at Namp'o. In other negotiations, Hyundai Asan obtained permission to bring tour groups by sea to Kŭmgang-san on the North Korea's southeast coast (see Kŭmgang-san Tourist Region), and more recently to construct the 800 acre (3.2 km²) Kaesŏng Industrial Park, near the Demilitarized Zone (DMZ), at a cost of more than $1 billion.

In response to the summit between Kim Jong-il and Kim Dae-jung in 2000, North and South Korea agreed in August 2000 to reconnect the section of the Seoul-P'yŏngyang Gyeongui Railway Line across the DMZ. In addition, the two governments said they would build a four-lane highway bypassing the truce village at P'anmunjŏm. Once these projects are complete, the Kaesŏng industrial park will have ready access to South Korean markets and ports.

TV commercials for Samsung’s "Anycall" cell phone featuring North Korean dancer Cho Myong-ae and South Korea’s Lee Hyo-lee hit the airways since June 11 2006 (see [2]).

[edit] Economic ties with other countries

In addition to Kaesŏng and Kŭmgang-san, other special economic areas have been established at Sinŭiju in the northwest (on the border with China), and at Rasŏn in the northeast (on the border with China and Russia).

[edit] Illegal activities

The Pong Su, a North Korean ship suspected of smuggling heroin into Australia

The North Korean government has repeatedly been accused by Western governments and their agencies of engaging in a wide range of illegal activities abroad - using the cover provided by North Korea's status as a sovereign state. These include the kidnapping of Japanese and South Korean citizens, trade in weapons technology, drug manufacturing and trafficking, as well as the manufacture and export of counterfeit cigarettes and other consumer goods. Among the most spectacular, North Korea has been accused by Western authorities of making almost perfect counterfeit United States dollars, known as Superdollars.^[1]

Western agencies believe that the foreign currency revenue from such activities is used to support the luxurious lifestyle of the country's small ruling elite – the country's leader Kim Jong Il is reported to be partial to Mercedes-Benz cars, Rolex watches and cognac – and to fund projects considered critical to the regime's survival, such as the nuclear weapons program.

Due to the closed nature of the North Korean system, independent assessments of these claims are difficult. The North Korean government itself has consistently denied such allegations, dismissing them as propaganda. On the one hand, large numbers of counterfeit bills have been seized from the port of Newark and in Russia and traced back to North Korea.

[edit] Tax-Free State

North Korea claims that it is the only state in the world that does not levy taxes. Taxes were abolished beginning on April 1, 1974. [3] However, North Korea has a command economy in which nearly everything of value is already owned by the state.

[edit] Record of Economic Performance

A lack of reliable data inhibits an accurate quantitative assessment of North Korea's economic performance. In mid-1993 North Korea remains one of the most secretive nations in the world, limiting the release of its economic data to the outside world and, for that matter, to its own population. Until about 1960, North Korea released economic data relatively more freely. Beginning in the 1960s, the publication of economic data began to dwindle dramatically; the withholding of information coincided with the beginning of the economy's slowdown.

The small amount of data that is published suffers from ambiguities and gaps and--more often than not--is in the form of percentages that do not provide base figures or explain the precise meaning of aggregated data. Moreover, North Korean macroeconomic aggregates such as national income, which is based on Marxist definitions, has to be modified in order to be comparable to customary Western standards. In the 1980s and early 1990s, only limited quantitative or qualitative information about the North Korean economy was available. Quantitative information on foreign trade is a welcome exception because the statistical returns from North Korea's trade partners are gathered by such international organizations as the United Nations (UN) and the International Monetary Fund (IMF--see Glossary), and South Korean organizations such as the National Unification Board.

Estimating gross national product (GNP--see Glossary) is a difficult task because of the dearth of economic data, the national income accounting procedures based on the Marxist definition of production, and the problem of choosing an appropriate rate of exchange for the wn (see Glossary) -- the nonconvertible North Korean currency. The South Korean government's estimate placed North Korea's GNP in 1991 at US$22.9 billion, or US$1,038 per capita. This estimate of economic accomplishment pales next to South Korea's GNP of US$237.9 billion with a per capita income of US$5,569 that same year. North Korea's GNP in 1991 showed a 5.2 percent decline over 1989, and preliminary indications were that the decline would continue. In contrast, South Korea's GNP grew by 9.3 percent and 8.4 percent, respectively, in 1990 and 1991.

It should be noted that due to North Korea's isolation, statistical data are sparse, and what official statistics are released are thought to be exaggerated. Therefore, all economical data regarding North Korea must be used with caution.

[edit] GDP

Purchasing Power Parity - $40 billion (2005 *est.)

GDP - Real Growth Rate: 1.8% (2003 est.)
GDP - per capita: (Purchasing Power Parity) $1,800 (2003 est.)

[edit] GDP - composition by sector

Agriculture:	30.2%
Industry:	33.8%
Services:	36%

Data: 2003 est.

[edit] Labour force

The labour force is 9.6 million.

Labour force - by occupation:

Agricultural 36%
Non-agricultural 64%

There is no data about the unemployment rate available.

[edit] Budget

There is no data about the budget available.

[edit] Industries

The main industries are: military products; machine building, electric power, chemicals; mining (coal, iron ore, magnesite, graphite, copper, zinc, lead, and precious metals), metallurgy; textiles, food processing; tourism.

[edit] Electricity - production

30.01 TWh (2003)

Electricity - production by source:

fossil fuel: 34.4%
hydro: 65.6%
nuclear: 0%

as of 1998

Electricity - consumption: 29.91 TWh (2001)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

[edit] Agriculture - products

The main agricultural products of North Korea include: rice, corn, potatoes, soybeans, beans; cattle, pork and eggs.

Since 1995 the World Food Program has been assisting North Korea, following a series of natural disasters compounding a general economic downturn that reduced agricultural production. In 2004, 484,000 tons of food assistance was provided to North Korea from the organization.

[edit] Exports

$1.044 billion (f.o.b., 2003 est.)

Exports commodities include minerals, metallurgical products, manufactures (including armaments); agricultural and fishery products.

The main export partners are South Korea 28.5%, China 28.4%, Japan 24.7%. (2003 est.)

[edit] Imports

$2.042 billion (c.i.f., 2002 est.)

The main import commodities include: petroleum, coking coal, machinery and equipment; consumer goods and grain.

The main imports partners are: China 39.7%, Thailand 14.6%, Japan 11.2%, Germany 7.6%, South Korea 6.2%, Vietnam, and Cuba. (2002 est.)

[edit] External debt

$12 billion (1996 est.)

There are no figures about economic aid received by North Korea. An estimated $200 million to $300 million in humanitarian aid from US, South Korea, Japan, and EU were received in 1997. There is also much additional aid from the UN and non-governmental organizations.