ECONOMIC RETRENCHMENT FOR NORTH KOREA IN 1964

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A001800040007-1
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 11
• Document Creation Date: December 12, 2016
• Document Release Date: May 31, 2002
• Sequence Number: 7
• Publication Date: October 21, 1963
• Content Type: BRIEF

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CONFIDENTIAL
Current Support Brief
ECONOMIC RETRENCHMENT FOR NORTH KOREA IN 1964
CIA/RR CB 63-86
21 October 1963
CENTRAL INTELLIGENCE AGENCY
Office of Research and Reports
CONFIDENTIAL
GROUP 1
Excluded from automatic
downgrading and
declassification
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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ECONOMIC RETRENCHMENT FOR NORTH KOREA IN 1964
A change in the direction of the economic development plan of North
Korea for 1964 recently announced by planning chief Chong Chun-taek --
from emphasis on expansion in heavy industry to production of consumer
goods and support of agriculture and export industries -- greatly dimin-
ishes the possibility that the regime will fulfill the over-all goals of its
ambitious Seven Year Plan (1961-67). Although the rate of economic
growth will slacken next year, this retrenchment is not indicative of
any basic instability in the North Korean economy, and it is likely that
the reduced goals of the economic plan for 1964 will be met. This shift
in economic priorities, which comes at the end of a year marked by
apparent indecision in economic planning and a reduction in the rate
of industrial growth, reflects continuing problems in the allocation of
material and manpower resources and doubts in Plyongyang concerning
either the desirability or the reliability of the USSR and the European
Satellites as key sources of trade and aid for future economic develop-
ment. The change in priorities in the 1964 plan indicates that North
Korea intends to become less dependent on the USSR for industrial
imports and for economic assistance. So far, there is no official
change in economic relations between the two countries, and there is
some evidence that economic aid and military assistance from the
USSR continued at least as late as May 1963. It is doubtful that Com-
munist China could supplant the USSR immediately as a supplier of
North Korean industrial imports, and several years would be required
before any other sources of such imports could be developed. Further-
more, because military supplies and equipment have come solely from
the USSR, the fighting efficiency of the North Korean armed forces may
be expected to decline if the flow of this materiel is reduced.
1. Economic Plans for 1964
According to Kim Il-song, "the core of the 1964 plan will lie in con-
solidating the foundation of a self-sufficient economy which has been laid,
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utilizing it more legitimately, and increasing consumer goods production
on a large scale ... . " 1/ The prime objectives of the plan are (a) to
expand the output of consumer goods; (b) to develop mining and forestry
in order to "build raw material bases"; and (c) to improve agricultural
production by increasing the proportion of rice in the total grain harvest,
by increasing meat production, and by expanding the output of com-
mercial crops. A comparison of the claimed output of important indus-
trial, consumer, and agricultural products in 1962 with planned production
for 1964 and 1967 (the final year of the Seven Year Plan) is given in the
table. 2/
a. Industry
As indicated in the table, some of the essential industries that
are in need of foreign assistance from the Soviet Bloc in order to bring
capacity up to the levels contemplated by the final year of the Seven Year
Plan (electric power, iron and steel, machine building, and construction
materials) are to remain at about the same level in 1964 as in 1962, and
some are to produce even less in 1964 than the claimed output of 1962.
Production of consumer goods (textiles, footwear, sewing machines, and
bicycles) is to register impressive percentage gains in 1964 compared
with 1962, ,but the impact of these increased supplies on the prevailing
low levels of living of North Korea's 11.6 million people will be negligible.
The practice, started in mid-1963, of producing consumer goods in large,
centrally controlled factories such as the Huichon machine tool plant and
the Hwanghae iron works in order to supplement the output of small local
factories is necessary to insure the higher production targets for 1964
and probably will help to improve the generally poor quality of North
Korean consumer goods.
The mining of coal and metallic ores again will be emphasized
in 1964,and an expansion of smelting facilities also is planned. Anthracite
coal, iron ore, copper, lead, zinc, and precious metals are important
export items for North Korea in trade with both Communist and Free
World countries.
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Table
North Korea: Claimed Production of Major Products
1962 and Plans for 1964 and 1967
Category and Commodity
Unit of Measure
1962 Claim
1964 Plan
1967 Plan
Electric power
Billion kilowatt-hours
11.44
10 72
17
Iron ore
Million metric tons
? 3.34
4
.7.2
Pig iron and sponge iron
Thousand metric tons
1,213
1,270
2,300
Finished steel
Thousand metric tons
633
870
1,700
Metalcutting machines
Units
3,360
3,200
7,500
Cement
Million metric tons
2.38 '
2..78
4.30
Flat glass
Million square meters
- 5.54
5
lo
Tractors
Thousand units
2.50
4,,2
17.1
Chemical fertilizers
Thousand metric tons
779
950
1,700
Textiles
Million linear meters
256
300
500
Footwear
Million pairs
24
37
41
Sewing machines
Thousand units
31
82
123
Bicycles
Thousand units
32
70
150
Grain
Million metric tons
5
5
6.6
Marine products
Thousand metric tons
840
800
1,200
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b. Agriculture
In 1964 the North Korean regime plans to expand the output of
rice by an unspecified amount. Total production of grain is to be main-
tained at 5 million metric tons -- an unimaginative goal by Communist
standards, considering that P'yongyang claims to have produced as much
as 4. 8 million metric tons of grain in 1961. * In December 1962, when
the regime proclaimed that 1963 would be a year to consolidate past eco-
nomic achievements and prepare for rapid economic growth in the future,
goals of 3 million metric tons of rice and 200, 000 tons of meat products
were set for 1964. These goals were not restated in the recently pub-
lished economic plan for 1964 -- no absolute figure for rice production
was given and the target for meat was dropped to 130, 000 tons -- and it
is assumed that agricultural plans for 1963, in particular the expansion
of acreage for dry field rice, have not been carried out successfully. 3/
Although in 1963 the growing season has been better than usual and al-
though the regime has made progress in improving the irrigation system
and increasing the supply of chemical fertilizers, it is believed that poor
planning and administration will preclude any large gains in agricultural
production in 1963 and probably in 1964. Commercial crops (tobacco,
cotton, flax, hemp, and fruit) will be emphasized in 1.964 in order to earn
foreign exchange and to provide raw materials for light industry.
2. Problems and Prospects
The problems that have brought about the decision to slow the pace of
economic development in 1964 are (a) continuing industrial bottlenecks,
dating from late 1962, caused by poor planning and administration and
inefficiency in the allocation of material and manpower resources, and
(b) planning difficulties stemming from a basic change in relationships
with the USSR and the European Satellites.
* According to the estimates of this Office, the actual production of grain
in North Korea was 3.15 million metric tons in 1962, an increase of
90, 000 tons above that of 1961.
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a. Industrial Problems
Some sectors of heavy industry have been especially unresponsive
to administrative reforms advanced by the North Korean regime. The re-
organization of the Heavy Industry Commission into separate ministries
in September 1962 apparently did not improve the planning and administra-
tive performance of individual mines and factories. In spite of increased
investment in the mining industry in 1963, amounting to 21 percent above
the previous year, it is unlikely that output of coal in 1963 will reach the
goal of 15 million tons originally set for 1962. 4/ Similarly the establish-
ment of a State Construction Commission early in 1963 to control the
assignment of men and materials to local construction projects has not
yet produced the desired results. Important construction projects such
as the Pyongyang Thermal Powerplant and the rolling mill of the Nampo
Smeltery continue to lag behind schedule. A lack of standardized plans,
blueprints, and construction materials has been an important factor in
retarding progress on construction sites.
b. Labor Shortages
One of the most serious domestic problems in North Korea is a
deficiency of trained labor. Continuous industrialization, rapid expansion
of the economy, and maintenance of a large standing army of about 330, 000
men have strained North Korea's available manpower resources to the limit.
In particular, the agricultural labor force has been seriously depleted in
recent years because of a continual migration of workers to the cities. A
recent traveler to North Korea was impressed by the number of women
and children working the land. 5/ The regime's latest strategy apparently
has been to "recruit" students into the working population. According to
official statistics, total school enrollment decreased by 90, 000 students --
from 2. 64 million to 2. 55 million -- between the end of 1962 and September
1963. 6/ This drop in school enrollment is the first recorded since the
Korean War. It is likely that most of these former students have been
directed into the agricultural labor force. It was recently announced that
in 1964 the regime will "assign over 20, 000 units of manpower, including
new graduates of schools of various levels, to rural communities. " Al-
though this move may benefit agricultural production, the industrial labor
force will continue to be shorthanded, especially in terms of technicians,
skilled workers, and managers.
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c. Economic Relations with the USSR and the European Satellites
? There is still no official confirmation of any change in economic
relations between North Korea and the USSR in spite of North Korea's sup-
port of Communist China in the bitter Sino-Soviet dispute. Trade between
the two countries continued to rise through 1962, and there is some evidence
that economic aid and military assistance from the USSR continued as late
as May 1963. The sharp reversal of priorities in the 1964 economic plan,
however, strongly indicates a decision by P'yongya.ng to become less de-
pendent on the USSR for industrial imports and for economic assistance
in the future and may possibly reflect the imposition of sanctions by the
USSR.
A long-term trade and assistance agreement signed in late 1960
provides for Soviet support in the latter part (1964-67) of the Seven Year
Plan in expanding the annual capacity of the Kimchaek Iron Works to
1.8 million tons of steel -- almost two times the present capacity of the
entire North Korean iron and steel industry. 7/ In addition, the agree-
ment calls for assistance in the construction of two large thermal electric
power stations, several flax and woolen mills, and an oil refinery with
an annual capacity of 2 million tons. To date, the only projects underway
are a 15,000-spindle flax mill in Hyesan and the Pryongyang Thermal
Powerplant, and the regime has not publicized the role of Soviet assist-
ance in either. case. 8/ Failure to expand the steelmaking facilities of
the Kimchaek plant according to plan will, by itself, be enough to preclude
the successful completion of the Seven Year Plan. Since the economic
plan for 1.964 contemplates no large additions to industrial capacity "within
a year or two," except in the field of consumer goods, it seems certain
that the regime has chosen, at least temporarily, "self-reliance" rather
than rapid economic growth through foreign assistance.
d. Prospects
Although North Korea has achieved an impressive record of eco-
nomic development since the Korean War, prospects for sustaining eco-
nomic growth in 1964 and beyond depend on the regime's ability to remedy
industrial bottlenecks and to adjust short-run and long-term planning to
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an anticipated decline in the level of economic support from the USSR. If
the regime fulfills its promise to expand production of consumer goods
and to improve living conditions, the decision to slow the development of
heavy industry will be cheerfully accepted by North Korea's long-suffering
workers and peasants.
North Korea's drive to become the "Czechoslovakia of the Far
East" will falter without continuing support from the USSR and the Euro-
pean Satellites in providing new machinery and equipment, technical
assistance, and spare parts for heavy industry -- in particular for the
key machine building, chemical, and iron and steel industries. Communist
China has supplied no appreciable support to North Korean heavy industry
in the past and is believed to be incapable of filling this gap in the near
future. Several years would be required for North Korea to develop alter-
nate sources of items now supplied by the USSR by importing from Japan
or other non-Bloc countries. Furthermore, the North Korean armed
forces have been completely supplied and equipped by the USSR, and
fighting efficiency may be expected to drop if the flow of modern arma-
ments, materiel, and spare parts is reduced.
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