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Economy of North Korea

North Korea's faltering economy and the breakdown of trade relations with the countries of the former socialist bloc--especially following the fall of communism in eastern Europe and the disintegration of the Soviet Union--have confronted Pyongyang with difficult policy choices. 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 political and ideological control.

About 80% of North Korea's terrain consists of moderately 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 harbors 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 early 1990 levels. 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since 1988, no physical links between the two remain, and the infrastructure of the North is generally poor and outdated.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, which were exacerbated by record floods in the summer of 1995 and continued shortages of fertilizer and parts. In response to international appeals, the U.S. provided 500,000 tons of humanitarian food aid in the period July 1999-June 2000 through the UN World Food Program and through U.S. private voluntary organizations.

Colonial Rule and Postwar Division
Beginning in the mid-1920s, the Japanese colonial administration concentrated its industrial development efforts in the comparatively underpopulated 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 the peninsula into Soviet and American military zones of administration. This southward exodus continued after the establishment of the D.P.R.K 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 labor 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 China, helped the regime achieve a high growth rate in the immediate postwar period.

Efforts at Modernization
During the early 1970s, North Korea attempted a largescale modernization program through the importation of Western technology, principally in the heavy industrial sectors of the economy. Unable to finance its debt through exports that shrank steadily after the worldwide recession stemming from the oil crisis of the 1970s, the D.P.R.K. became the first communist country to default on its loans from free market countries.

In 1979, North Korea was able to renegotiate 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 $4 billion. It also owed nearly $2 billion to communist creditors, principally Russia. The Japanese also declared the D.P.R.K. 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 the D.P.R.K. was about one-third of that in the R.O.K. 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 the D.P.R.K. devotes to the military.

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, however, was not accompanied by a shift in priorities away from support of the military. In 1991, the D.P.R.K. announced the creation of a Special Economic Zone (SEZ) in the northeast regions of Najin, Chongjin, and Sonbong. 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.

The D.P.R.K. 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 short of grain self-sufficiency each year. Moreover, lack of foreign exchange to purchase spare parts and oil for electrical generation has left many factories shuttered. Without significant opening to the outside world and substantial outside resources, the D.P.R.K. is unlikely to return to a path of sustainable economic growth.

North-South Economic Ties
Following a 1988 decision by the South Korean Government to allow trade with the D.P.R.K. (see, under Foreign Relations, 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 the D.P.R.K. and reached agreement on building a light industrial complex at Nampo. In other negotiations, Hyundai Asan obtained permission to bring tour groups by sea to Kumgangsan on the southeast coast of the D.P.R.K. and more recently to construct an 800-acre industrial complex at Kaesong, near the DMZ, at a cost of more than $1 billion.

In response to the Kim Jong Il/Kim Dae-jung summit, the D.P.R.K. and the R.O.K. agreed in August 2000 to reconnect the Seoul-Sinuiju railroad where it crosses the DMZ. In addition, the two governments said they would build a four-lane highway bypassing the truce village at Panmunjom. Once these projects are completed, the Kaesong industrial park will have ready access to South Korean markets and ports.

GDP: purchasing power parity - $22.6 billion (1999 est.)

GDP - real growth rate: 1% (1999 est.)

GDP - per capita: purchasing power parity - $1,000 (1999 est.)

GDP - composition by sector:
agriculture: 30%
industry: 42%
services: 28% (1999 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): NA%

Labor force: 9.6 million

Labor force - by occupation: agricultural 36%, nonagricultural 64%

Unemployment rate: NA%

revenues: $NA
expenditures: $NA, including capital expenditures of $NA

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

Industrial production growth rate: NA%

Electricity - production: 31.975 billion kWh (1998)

Electricity - production by source:
fossil fuel: 34.4%
hydro: 65.6%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 29.737 billion kWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: rice, corn, potatoes, soybeans, pulses; cattle, pigs, pork, eggs

Exports: $680 million (f.o.b., 1998 est.)

Exports - commodities: minerals, metallurgical products, manufactures (including armaments); agricultural and fishery products

Exports - partners: Japan 28%, South Korea 21%, China 5%, Germany 4%, Russia 1% (1995)

Imports: $954 million (c.i.f., 1998 est.)

Imports - commodities: petroleum, coking coal, machinery and equipment; consumer goods, grain

Imports - partners: China 33%, Japan 17%, Russia 5%, South Korea 4%, Germany 3% (1995)

Debt - external: $12 billion (1996 est.)

Economic aid - recipient: $NA; note - an estimated $200 million to $300 million in humanitarian aid from US, South Korea, Japan, and EU in 1997 plus much additional aid from the UN and non-governmental organizations

Currency: 1 North Korean won (Wn) = 100 chon The currency code is KPW.

Exchange rates: official: North Korean won (Wn) per US$1 - 150 (August 2002), 2.15 (May 1994), 2.13 (May 1992), 2.14 (September 1991), 2.1 (January 1990), 2.3 (December 1989); market: North Korean won (Wn) per US$1 - 200. Note: The won was devalued in August 2002.

Fiscal year: calendar year

See also : North Korea