ECONOMIC TRENDS IN NORTH KOREA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000600050022-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 12
• Document Creation Date: December 16, 2016
• Document Release Date: October 19, 2004
• Sequence Number: 22
• Publication Date: December 18, 1974
• Content Type: MF

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M1sP1QJI;l\N1)UM FORChief , North Praricl;
Office of Curj:?enL InLc:cl).i c~c~ncce
5U1SJEC"T Economic Trends, in North Korea
The attached paper. 17c-,pr,-.,sent-s, OUR's contribution
to an I)cyency report requested by the NIO for J&pan
and the Pacific on political; economic, anc' military
trends in North Korea.
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Clae -, China Division
Office of Economic Research
Attachment:
As stated
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I:ccrnornir. `J.'rcnr1 in I'lorl-h Korea
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Over the years, this information -- together with
the fragmentary information on the domestic economy pub-
lished by P'yongyang -- reveals that Nu,:,:th Korea's success
at industrialization has fluctuated with its ability to
acquire foreign industrial equipment and technology.
This conclusion holds true for developments under the
Six-Year Plan (1971-76). The success of this economic
plan is particularly important to President Kim Il-song
to show the South Koreans and the world the growth.'that is
possible under North !.urea's economic system. Thus, for
the past year, P'yongyang leaders from Kim Il-song down
have been urging the economy forward under a campaign to
fulfill plan targets in 1975, one year ahead of schedule.
While the North Koreans have done well in acquiring foreign
inputs to their economic development, we i belrcroe-ttrnt--mnfi-r-
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major industrial and other plan targets will not be met
until at least 1976. Such an achievement, however, would
be a notable improvement over the record under the extended
Seven-Year Plan (1961?-70).
P'yongyang has proclaimed several major production
goals for a "next prospective plan". With no fixed time
frame for this "plan", these figures probably represent
propaganda rather than planning targets. Whatever the
targets, the next economic plan is likely to face greater
obstacles than the current plan. For example, the recent
fall off in machinery and equipment deliveries from the
USSR may signal Soviet reluctance to continue underwriting
North Korea's industrialization, and chronic balance of
payments problems may reduce Japanese and West European
willingness to supply plant and equipment to North Korea
on credit.
Recent Developments in Agriculture
North Korea claims that 7 million metric tons of
grain -- primarily rice and corn -- were harvested this
year. Attainment of the 7 million ton level suggests that
the Six-Year Plan target of 7 to 7.5 million tons by 1976
can be reached. This year's bumper harvest is the result
of good weather and the increased use of technology --
particularly more chemical fertilizers and improved
mechanization.
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'PI-ic North Koreans are apparenLly using this year's
good harvest to help improve their. balance of payments.
This is a departure from the past when grain trade was
used primarily to make up the food shortfalls created by
poor harvests. North Korean grain trade cofwitments in
1974 call for, the,export of about half of a million tons
of rice and the import of about the same amount of wheat
and corn (see the tabulation). North Korea is currently
negotiating for additional wheat purchases next year.
Because of the higher price of rice relative to wheat,
these transactions may improve P ' yongyang' s foreign e}:change
position.
Food supplies -- most of which are strictly rationed --
are adequate at a low level of consumption. This year
there should be no critical shortages such as have appeared
in the past. North Korea has also begin expanding the
production of higher quality food such as fish and poultry.
However, much of these goods will undoubtedly be exported
and thus will not be available for home consumption.
Early this year the North Koreans increased the non-
rice content of the basic grain ration from 50 percent to
70 percent. This unpopular measure has enabled Pyongyang
to mobilize additional amounts of rice for export. North
Korea will probably continue to try to improve its foreign
exchange earnings by selling rice in the world market.
Kim 1l-song recently claimed that North Korea will have
a rice surplus of 1 million tons in 1975.
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North Korean 1.974 Grain Tra(te
(Preliminary)
(Metric Tons)
L:'.ports-ficec
Recipient Countries:
Unknown
25,000
Indonesia
400,000*
USSR
100,000
TOTAL
525,000
Imports-Wheat and Corn
Countries of Origin:
Australia
150,000
Argentina
140,000 -
160,
000
Canada
200000
TOTAL
490,000 -
510,
000
Nearly 200,000 metric tons of the total will not
be delivered until 1975.
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According to North Korean claims for increases in the
gross value of industrial production, industrial expansion
was ahead of schedule a: mid-plan. The claim was that
industrial production in 1973 was 60%% higher than in 1970,
an average annual rate of 1.7% ccmpared with a plan rate
of 140'. However, P'yangyang has provided almost no solid
evidei,ce to support this claim. Our production estimates
for a few major industrial. commodities indicate good
progress toward plan goals, with fulfillment possible in
1976 but with industrial growth in the 10% to 12% range
rather than the claimed 17% (see the following tabulation).
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1970 1973 1976 Goal
Industrial production,
Official index 1970=100 100 160 220
Electric power Billion kwh 16.5 19.0 28-30
Coal Million MT 27.5 33.0 50-53
Crude steel Million MT 2.2 3.3 3.8-4.0
Cement Million MT 4.0 5.5 7.5-8.0
Chemical fertilizer Thousand MT 320 420 NA
(nutrient
content)
Trucks Thousand units 10
Textile fabrics Million Linear
meters 400
16 NA I
6
NA 500-600
Among the ambitious goals of the Six-Year Plan are
the substantial expansion of capacity in electric power,
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Illeta].lurgy, machine building, cement, and textiles and the
adding of new inclustrial sectors, notably petroleum refining
and petrochemical production. Given domestic limitations
in machine building, imported machinery and equipment
provide a substantial portion of any new industrial capacity.
capacity is indeed being added to those industrial sectors.
The Contribution of Imports to the Six-Year Plan
The success of the current Six-Year Plan (1971-76)
depends on the generosity of the USSR and on North Korea's
ability to pay for imports of capital equipment from the
West. The Soviet Union is building 30 industrial instal-
lations in North Korea which will significantly boost
capacity in important heavy industrial sectors. Many of
these projects are currently under coftstruction and should
be complete in 1976. Soviet industrial projects alone will
boost steel capacity by 30%, coal output by 30%, electric
power production by 401L, and nitrogen fertilizer output
by 2596.
As a result of huge imports of Soviet equipment, North
Korea accumulated a trade deficit with the USSR during
1970-73 of almost $600 million. This deficit presumably
will be treated as aid and eventually written off.
Nevertheless, the North Koreans have become increasingly
wary of continued heavy reliance on the USSR.
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The purchase of complete industrial plants from Japan
and Western Europe is the most significant development in
North 'Korea's trade in recent years. Total plant orders
during the first four years of the Six-Year Plan were
worth about. $560 mi.llion. In 1970, North Korea placed
orders worth an estimated $11'miJ.lion. Orders for plants
jumped to nearly $230 million in 1973 and to about $170
million in 1974. When completed, Western plants will add
significant capacity to industries producing cement,
petrochemicals, fertilizer, and metals.
North Korea's turn toward non-Communist suppliers is
beginning to show up in the trade data. Communist countries
accounted for 85% of North Korea's total trade in 1971;
the share dropped to 70% in 1973 and will probably decrease
further in 1974. Last year, for the first time, North
Korea's trade deficit with non-Communist countries matched
that with Communist countries, as shown below:
(million US $)
Communist countries Non-Communist countries
1971
1972
1973
239
170
152
4
73
166
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The tilt to the Wes L also show:; up strongly wlicij
comparinc/ imports of machinery and equipment from the
USSR and CiApitalist suppliers since 1971. The value of
machinery and cquipment imported from Western Europe and
Japan mor-_! than doubled in the past three years, from
$30 million in 1971 to $75 million in 1973. Part of this
increase in dollar terms was caused by currency revalua-
tions and inflationary price increases. Nevertheless,
the jump in real terms was sizeable. At the same time,
imports of machinery and equipment from the USSR have
leveled off at a little more than $100 million annually
during 1970-73 (imports have declined when valued in
rubles). The tabulation below shows the growing importance
of the West and the relative decline of the USSR as a
source of machinery and equipment.
(million US $)
Impor
Equip
and th
ts o,: Machinery and' Percent
ment from the USSR from
e West the u, P.
Percent
from
the West
1971
1972
142 79
21
197
176 66
34
3
180 58
42
North Korea's program to rely more heavily on Western
sources of supply has been possible because several non-
Communist countries have been willing to extend credit
financing. P'yongyang has securred an estimated $500
million to $600 million worth of medium-term credits in
recent years and is attempting to obtain additional loans.
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Mlc:tlier or not these loan;.; are forthcoming will det c:r.mine
the success or failure of North Korea's future incl:istrial-
i%ation pros ra:. The North Koreans apparently are, encoun-
terJ.ny balance of payments problems and have failed to
moot some scheduled repayments. Prices have fallen for
some of North Korea's primary exports, such as lead and
zinc., thus hurting export earnings. At the same time,
North Korea is paying higher prices for Western machinery
and equipment and high interest rates for commercial loans,
Petroleum Imports
Compared to many ccuntrics, North Korea is nm uno
frori-I world wide energy problems. Petroleum shortages
have not affected economic development. The North Koreans
obtain the bull: of their oil supplies from China and the
USSR. China is the primary supplier, accounting for
approximately 300,000 tons out of North Korea's total
petroleum imports in 1973 of 1.5 million tons. Part of
the petroleum obtained from China reportedly is covered
under a Chinese aid agreement.
the North Korean
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industrial base has been undergoing major expansion since
1970.
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petroleum and chemical sectors. North Korea's only
petroleum refinery is basically complete. This installation
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was built. with Soviet ai.d. A major rpctroclhjemi.cal complex
is under Con sLruction that will incorporate plants from
Fr-trice, Austria, and Finland. Other plants under con struc-
tion or expansion produce electric power, phosphate
fertilizer, steel, tractor::,, and magnesia.
Some of the plants I Iwil.i be completed
during the remainder of the Six-Year. Plan. Others are in
an early stage of construction and probably will. not be
finished by 1375.
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