North Korea: The Foundations for Military Strength -- Update 1995

December 1995

Chapter 2

Increasing Internal Pressures


North Korea's socialized command economy remains basically unchanged in structure and emphasis. Agriculture is still labor intensive, and heavy industry, including arms production, is emphasized at the expense of consumer goods. Never a very prosperous country, North Korea's shortages of fuels and electric power have increased between 1991 and 1995, especially in the civil sector. A negative spiral of shortages has led to idle factories, fewer exportable items, and less hard currency to buy food, fuels, and other critical items. North Korea's petroleum deliveries subsequently have declined by over 50 percent from the peak consumption years of the late 1980s. During 1995, North Korean factories reportedly operated at less than 50 percent of capacity. The 1994 estimated gross national product was between $20 billion and $21 billion, amounting to a relatively high per capital income of $925.

Foreign Trade

Foreign trade plays an important role in North Korea's economy despite Pyongyang's avowed philosophy of staunch self-reliance. North Korea relies heavily on imports for several critical needs, such as crude oil, coking coal, and food. Pyongyang is placing a higher priority on earning foreign currency to purchase needed imports. North Korea's principal exports remain military weapons, minerals, chemicals, and metallurgical products.

Pyongyang realizes that it must tap world markets to satisfy critical economic needs. However, this will entail revamping North Korea's industries and giving greater attention to quality of goods, financial responsibilities, and product warranties so that exports can attract foreign exchange. North Korean leaders appear to fear that substantial foreign assistance, while alleviating some economic ills, could undermine the government. Hence, the new Najin-Sonbong Free Trade area is constructed as a high-security area.

Until 1990, half of North Korea's trade had been conducted with the Soviet Union, China, and Eastern Europe. With the breakup of the communist world and the new emphasis on market economics, Pyongyang's foreign trade in 1994 plummeted to its lowest level since 1978. Exports to China, Pyongyang's main trading partner, fell along with North Korean imports of Chinese goods. Exports to Japan, on the other hand, increased 20 percent while imports fell 18 percent. Inter-Korean trade has steadily increased since 1988 despite frigid political relations. Indirect trade accounts for over 95 percent of the volume and is difficult to quantify.

Worsening Food Situation