South Korea North Korea · 2007. 7. 24. · South Korea Basic data Land area 99,314 sq km...

COUNTRY PROFILE

South Korea

North KoreaOur quarterly Country Report on South Korea and NorthKorea analyses current trends. This annual Country Profileprovides background political and economic information.

1997-98The Economist Intelligence Unit15 Regent Street, London SW1Y 4LRUnited Kingdom

The Economist Intelligence Unit

The Economist Intelligence Unit is a specialist publisher serving companies establishing and managingoperations across national borders. For over 50 years it has been a source of information on businessdevelopments, economic and political trends, government regulations and corporate practice worldwide.

The EIU delivers its information in four ways: through subscription products ranging from newslettersto annual reference works; through specific research reports, whether for general release or for particularclients; through electronic publishing; and by organising conferences and roundtables. The firm is amember of The Economist Group.

London New York Hong KongThe Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit15 Regent Street The Economist Building 25/F, Dah Sing Financial CentreLondon 111 West 57th Street 108 Gloucester RoadSW1Y 4LR New York Wanchai United Kingdom NY 10019, US Hong KongTel: (44.171) 830 1000 Tel: (1.212) 554 0600 Tel: (852) 2802 7288Fax: (44.171) 499 9767 Fax: (1.212) 586 1181/2 Fax: (852) 2802 7638e-mail: [email protected] e-mail: [email protected] e-mail: [email protected]

Website: http://www.eiu.com

Electronic deliveryEIU ElectronicNew York: Lou Celi or Lisa Hennessey Tel: (1.212) 554 0600 Fax: (1.212) 586 0248London: Moya Veitch Tel: (44.171) 830 1007 Fax: (44.171) 830 1023

This publication is available on the following electronic and other media:

Online databases CD-ROM Microfilm

FT Profile (UK) Knight-Ridder Information World Microfilms Publications (UK)Tel: (44.171) 825 8000 Inc (US) Tel: (44.171) 266 2202

DIALOG (US) SilverPlatter (US) University Microfilms Inc (US)Tel: (1.415) 254 7000 Tel: (1.800) 521 0600

LEXIS-NEXIS (US)Tel: (1.800) 227 4908

M.A.I.D/Profound (UK)Tel: (44.171) 930 6900

Copyright© 1997 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited.

All information in this report is verified to the best of the author’s and the publisher’s ability. However,the EIU does not accept responsibility for any loss arising from reliance on it.

Symbols for tables“n/a” means not available; “–” means not applicable

Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK

ISSN 1351-4431

December 19th 1997 Contents

South Korea

3 Basic data

4 Political background4 Historical background5 Constitution and institutions5 Political forces8 International relations and defence

11 The economy11 Economic structure12 Economic policy15 Economic performance17 Regional trends

18 Resources18 Population18 Education19 Health20 Natural resources and the environment

21 Economic infrastructure21 Transport and communications22 Energy provision24 Financial services 25 Other services

26 Production26 Manufacturing28 Mining and semi-processing28 Agriculture and forestry29 Construction

30 The external sector30 Merchandise trade33 Invisibles and the current account33 Capital flows and foreign debt35 Foreign reserves and the exchange rate

36 Appendices36 Sources of information37 Reference tables

1

EIU Country Profile 1997-98 © The Economist Intelligence Unit Limited 1997

North Korea

54 Basic data

55 Political background55 Historical background57 Constitution and institutions58 Political forces59 International relations and defence

60 The economy60 Economic structure61 Economic policy64 Economic performance65 Regional trends

66 Resources66 Population67 Education68 Health69 Natural resources and the environment

70 Economic infrastructure70 Transport and communications71 Energy provision72 Financial services72 Other services

73 Production73 Industry74 Mining and semi-processing76 Agriculture and forestry77 Construction

77 The external sector77 Merchandise trade79 Invisibles and the current account79 Capital flows and foreign debt81 Foreign reserves and the exchange rate

82 Appendices82 Sources of information84 Reference tables

2


South Korea

Basic data

Land area 99,314 sq km

Population 45.5m

Main towns Population in ’000 (1996)

Seoul 10,470Pusan 3,879Taegu 2,491Inchon 2,404Kwangju 1,302Taejon 1,298

Climate Continental, with extremes of temperature

Weather in Seoul(altitude 87 metres)

Hottest month, August, 22-31°C (average daily minimum and maximum);coldest month, January, minus 9-0°C; driest month, February, 20 mm averagerainfall; wettest month, July, 376 mm average rainfall

Language Korean

Measures Metric system. Some local measures are:

1 chungbo=0.992 ha 1 suk=100 dai=180.39 litres 1 kwan=1,000 don=3.75 kg

Currency Won (W). Average exchange rates in 1996: W804.5:$1; W1,428:£1 (arbitratedrate). Average exchange rates at end-November 1997: W1,155:$1; W1,970:£1

Time 9 hours ahead of GMT

Public holidays January 1st-3rd; March 1st, 10th; April 5th; May 5th; June 6th; July 17th;August 15th; October 1st, 3rd, 9th; December 25th; Buddha’s birthday (May);Thanksgiving (September)

South Korea: Basic data 3


Political background

Historical background

The divided Koreanpeninsula

An ancient civilisation which had enjoyed many centuries of unity and polit-ical independence, Korea was unable to preserve that independence in the eraof colonialism, coming under Japanese rule effectively in 1905 and formally in1910. Japanese colonial rule was harsh, and culminated in the decade to 1945in an attempt to wipe out Korean identity by imposing Japanese religion,language and names. At the end of the second world war, a US proposal to usethe 38th parallel as a temporary dividing line for taking the surrender of Japa-nese forces in Korea was accepted by the Soviet Union. In the event, thisdivision hardened into two separate states. In 1948 the Republic of Korea(South Korea) was proclaimed, and this was quickly followed by the formationof the Democratic People’s Republic of Korea (North Korea) as a communiststate modelled on the Stalinist pattern. Both republics claimed sovereigntyover the whole of the Korean peninsula, each claiming to be the only legiti-mate national government.

In July 1950 North Korea, under the leadership of Kim Il-sung, attemptedto unify Korea by force, launching an invasion of South Korea with the un-announced backing of Stalin and the Soviet Union. The north had overrunvirtually all South Korea when UN forces led by the US counterattacked. TheUN then overran almost all North Korea, which was in turn rescued by Chineseintervention. Stalemate resulted. The present border between North and SouthKorea, the demilitarised zone (DMZ), is the line along which fighting stoppedin 1953, and is not very far removed from the 1950 line.

Important recent events

1990: Right and centre-right groups form the Democratic Liberal Party (DLP) withtwo-thirds of National Assembly seats. Diplomatic relations are established with theSoviet Union.1992: Legislative elections cost the DLP its working majority. Diplomatic relationsare established with China. Kim Young-sam (DLP) is the first civilian president to wina free and fair election.1995: Provincial governors and city mayors are directly elected for the first time.1996: Two former presidents, Chun Doo-hwan and Roh Tae-woo, are convicted ofmutiny and corruption.1997: Kim Dae-jung is elected president.

No longer a militaryregime

For most of its history South Korea has been ruled by a succession of authoritar-ian regimes, civilian in the case of Syngman Rhee (president in 1948-60), mili-tary in the cases of General Park Chung-hee (1961-79) and General ChunDoo-hwan (1980-88). But although Roh Tae-woo was the military nominee ofhis military predecessor, he was elected president in 1988 in a relatively fair andfree election, and South Korea passed a milestone in its political history when hehanded over power in 1993 to an elected civilian successor, Kim Young-sam,

4 South Korea: Historical background


following an election in December 1992, which was again tolerably clean. Afurther milestone, the transfer of power by an elected president to a successfulopposition candidate, has yet to be reached but is no longer inconceivable. Theinfluence of the military, which for long tended to view opposition to thegovernment as disloyalty to the regime, is no longer paramount. That the polit-ical power of the military has been definitely broken is clear from the remark-able spectacle of both Mr Chun and Mr Roh being tried, convicted andsentenced for their coup of 1979-80 and subsequent corruption.

Constitution and institutions

National Assembly The present constitution was agreed between the government and oppositionparties in September 1987 and approved by the National Assembly and byreferendum in October of that year. The new document replaced ChunDoo-hwan’s 1980 constitution (which stipulated indirect presidential electionsand allowed the president a seven-year term) and provided that the presidentbe directly elected in a first-past-the-post system to serve a single five-year term.As before, there is a single legislative chamber, the National Assembly, whoseelected members serve a four-year term. Thus the sounding of public opinionin a presidential election can be as close as three months away from a legis-lative election once in a 20-year cycle, but it can be as far away as 21 months;the system therefore makes it fairly likely that the presidency will be underdifferent political control from the legislature. The National Assembly musthave at least 200 members and currently has 299. Of these, 253 are directlyelected on a first-past-the-post system, with the remaining 46 distributed be-tween parties in proportion to their share of the national vote.

The cabinet The president selects a State Council (cabinet) of up to 30 members. It isnominally headed by a prime minister, although in practice this office is ofminor political importance compared, for instance, with the deputy primeministership which goes with the role of economic overlord. Cabinet membersmay, but need not, be members of the National Assembly. In either case, theyare answerable to the president and not the Assembly: the cabinet does nothave to command the confidence of the Assembly.

Elected local government In 1995 the first elections to fill the posts of governors of provinces and mayorsof large cities took place, replacing a system of appointment by the centralgovernment. This was followed in June 1996 by full local elections for councilsat all levels, from province down to county and ward. By the latter part of 1996this new local democracy had not appeared to make a vast difference. Centralgovernment still controls most purse-strings and appointments, and has foundways of thwarting the odd case of local resistance to its plans (for example,construction projects).

Political forces

Between 1961, when General Park Chung-hee seized power, and 1988,when General Chun Doo-hwan relinquished it, the government party (the

South Korea: Constitution and institutions 5


Democratic Republican Party (DRP) under General Park, and then theDemocratic Justice Party (DJP) under General Chun) existed in the NationalAssembly and in the country to support the president, but the power base ofthe regime lay elsewhere, in the military. Moreover, opposition parties in theNational Assembly, while they might criticise government policies, could notsafely challenge the constitutional basis on which the government was estab-lished, at least until 1985. The main challenge to that basis was mounted fromoutside the Assembly, notably in the presidential campaign of Kim Dae-jung in1971. (He came close enough to defeating General Park for the latter to imposea new constitution which ended direct presidential elections, permitted indefi-nite re-election of the president and empowered the president to nominateone-third of the Assembly.)

Opposition focuses onnarrow political issues

Opposition forces, centred on the New Democratic Party during General Park’sincumbency and the New Korea Democratic Party, formed with many of thesame leaders in 1985 following General Chun’s political relaxation, tended toconcentrate on narrowly political issues, such as the constitution, control ofthe media and trade union rights. They have few problems with the govern-ment’s broad development strategy or with its reliance on private enterprise.They were not socialist, in short, at a time when it was still fashionable, if notde rigueur, for third world popular movements so to describe themselves.

Personalities moreimportant than principles

Their problem has been a tendency to split over issues of personality ratherthan principle. Kim Dae-jung, the veteran of opposition to military presidents,narrowly escaped execution on trumped up treason charges arising out of theevents of 1980, and was released from prison only on condition that he wentabroad, ostensibly for medical treatment. In his absence, Kim Young-samemerged as the leader of the extra-parliamentary opposition. When KimDae-jung returned from exile in 1985, the two men were unable to worktogether. They both contested the 1987 presidential election, splitting betweenthem an opposition vote almost certainly reduced by disapproval of theirinability to unite. The result was to allow the election of General Chun’sprotégé, General Roh Tae-woo, on a minority vote. A united opposition wouldhave romped home.

Party games in the 1990s Kim Young-sam’s frustration at this turn of events led to an unexpectedrealignment in 1990, when he agreed to cross the floor and merge his partywith the DJP. Another minor conservative opposition group led by KimJong-pil, a veteran colleague of the late Park Chung-hee, also joined this newcoalition, called the Democratic Liberal Party (DLP). As its name implied, thisnew right and centre-right party seemed set to emulate the grip on powerexercised by the Liberal Democratic Party in Japan. Kim Dae-jung’s faction,now labelled the Democratic Party, was left as the only, and heavily outnum-bered, opposition party in the National Assembly. This changed with the legis-lative elections of 1992. The new governing party, which the merger had leftwith two-thirds of the seats in the National Assembly, lost its majority and onlyregained it by winning the support of a handful of independents. A respectablenumber of votes and seats were won by the new National Unification Party, thepersonal vehicle of Chung Ju-yung, founder of the Hyundai conglomerate,

6 South Korea: Political forces


who was nostalgic for the 1970s alliance between big government and bigbusiness. This formula, however, could not siphon off enough votes from theDLP to prevent the election of Kim Young-sam in the presidential election ofDecember 1992. He came comfortably ahead of Kim Dae-jung, who thereuponannounced his political retirement, only to return to the fray in 1995 with anew vehicle, the National Congress for New Politics (NCNP).

Main political figures

Kim Young-sam: The first wholly civilian president in more than 30 years tookoffice in February 1993. A former dissident and fighter for democracy, he wonplaudits in his first two years for bold reforms which also weakened the ruling party’sold guard. However, during 1997, his last year in office, his reforming image wastainted by a succession of scandals, including the jailing of one of his sons oncorruption charges.Kim Dae-jung: The veteran opposition leader won the presidential election inDecember 1997. This was his fourth bid to become president since 1971. While hisdemocratic credentials are not in doubt, he is seen as a representative of the nowdiscredited era of the “three Kims”. His power base is in the Cholla region, where hecan command some 90% of the vote. His traditionally anti-chaebol (conglomerate)and pro-union views have earned him the reputation in South Korea of being aradical.Kim Jong-pil: The brains behind Park Chung-hee’s coup in 1961 and founder ofthe feared Korean Central Intelligence Agency. He was eased out of his role aschairman of the then Democratic Liberal Party (DLP) in early 1995. He then foundedthe United Liberal Democrats (ULD) with a mix of regional supporters and otherconservatives. He enjoys a strong following in the Chungchong region.Lee Hoi-chang: A former prime minister and head of the Board of Audit andInspection. He ran as the ruling party’s presidential candidate in the 1997presidential election. His reputation as a politician untouched by scandal wastarnished in the run-up to the presidential election by allegations that his sons hadevaded military service. Rhee In-je: Governor of Kyonggi province. He came second to Lee Hoi-chang in therace to be nominated as the ruling party’s candidate for the 1997 presidentialelection and then yielded to the temptation of his high opinion poll ratings byannouncing he would also run for president under the banner of his new party, theNew Party by the People. Although he finished third in the election, his relativeyouthfulness (49) and his identity as the torch-bearer of a new generation of SouthKorean politicians make him a man to watch in future presidential elections. You Jong-kuen: A top economic adviser to Kim Dae-jung. He is likely to play animportant role in Mr Kim’s new administration. A governor of North Cholla province,he has been a strong advocate of market reforms. His economic beliefs were shapedduring his long period of residence in the US.Cho Soon: In June 1995 the respected former governor of the Bank of Korea andeconomics minister became the first popularly elected mayor of Seoul in more than30 years. Towards the end of 1997 he merged his small Democratic Party with the(then) ruling New Korea Party to fight the presidential election.

South Korea: Political forces 7


Presidential election results, 1997(% share of the vote)

Kim Dae-jung (NCNP-ULD) 40.3

Lee Hoi-chang (GNP) 38.7

Rhee In-je (NPP) 19.0

Others 2.0Source: The Korea Herald.

Recent intra-party friction After Kim Young-sam’s inauguration in February 1993, strains between thefactions making up the DLP have become increasingly apparent. It was alwaysa marriage of convenience, entered into so that Roh Tae-woo could obtain aparliamentary majority and Kim Young-sam could succeed him as president.Both aims were accomplished, but at the cost of endemic tensions between theold guard associated with the military regimes of the 1980s and the reformersaround Kim Young-sam. The latter had the upper hand during Kim Young-sam’s first two years in office, thanks to popular reforms such as “real names”(people are now required to hold bank accounts under real, rather than as-sumed, names, thus making graft more difficult). But during 1995 the reformdrive ran out of steam and the ruling party’s poor showing in the June 1995local elections strengthened the president’s need to mend fences on the right.In the event, however, the fortuitous discovery that Roh Tae-woo had amasseda vast political slush fund while in office gave Kim Young-sam the opportunityto prosecute both Mr Roh and Mr Chun, not only for corruption but also fortheir original military coup. This popular move also served finally to weakenthe old guard in the ruling party, which in December 1995 was symbolicallyrenamed the New Korea Party (NKP). In the National Assembly elections ofApril 1996, the NKP secured a majority after winning over independents andsome minor opposition figures. The party was subsequently renamed again(Grand National Party) in the run-up to the 1997 presidential election follow-ing its merger with the much smaller Democratic Party. This, however, was notenough to shore up its flagging fortunes and it narrowly lost the election to theNCNP-ULD coalition led by Kim Dae-jung. This was the first time in the historyof South Korea that an opposition party had won a presidential election.

International relations and defence

Since its inception, South Korea’s overriding external preoccupation has beenwith North Korea, as the threat of renewed aggression from that quarter hasnever been wholly lifted and has been reinforced from time to time by acts ofterrorism. In addition, relations with North Korea, however glacial, are boundto be of consuming interest to South Korea because they hold the key toeventual national reunification.

Forging ties withPyongyang’s international

allies

The threat from the north has determined that South Korea’s principal externaltie should be a military alliance with the US, which still has troops stationedbetween Seoul and the demilitarised zone (DMZ) as a guarantee of US involve-ment from the first hours of a renewed conflict. Hostility between North andSouth Korea also determined, throughout the cold war, that South Koreashould have no diplomatic relations with either China or the Soviet Union, as

8 South Korea: International relations and defence


North Korea played on the rivalry of these countries to keep both lined upbehind its denial of South Korea’s political legitimacy.

As South Korea’s economy forged further ahead of a North Korean economy onthe verge of collapse, however, both communist powers saw the advantage ofeconomic links with South Korea, and became increasingly unwilling to letideological solidarity with North Korea stand in the way. Diplomatic relationswere established with the Soviet Union in 1990 and with China in 1992,opening the way for a rapid increase in trade and investment flows. Bothcommunist superpowers also withdrew their longstanding veto on South Koreajoining the UN, thus enabling both Korean states to become full members in1991. In 1995 South Korea was elected to the UN Security Council, to thenorth’s discomfiture.

Lingering memories of theJapanese occupation

South Korea’s relations with Japan are prickly. Each side tends to despise theother and memories of Japan’s 1910-45 annexation of the Korean peninsula diehard. But the two economies are closely linked and Japan is the source, both ofa great deal of the machinery and technology used by South Korean industryand of the largest national group of foreign tourists. However much theydislike it, the two countries are condemned to live with each other and in 2002will share the hosting of the football World Cup.

The prospects for the early 21st century are of a united Korea (see box), a Japanwhose diplomatic and military clout more closely reflects its economicstrength, an economically much stronger China and a Siberia tugged towards aPacific rather than an Eurasian future, with possible political implications.Power relationships in North-east Asia are likely to be, to say the least, interest-ing, particularly since there are, as yet, no multilateral alliances or securityframeworks in this region.

Heavy military presenceon the peninsula

The Korean peninsula is one of the most heavily militarised areas in the world.North Korean armed forces are deployed forward for a blitzkrieg attack on thesouth, whose own forces are disposed so as to repel them (see box). As long asa communist regime survives in North Korea this is likely to remain the case,although limited economic exchanges and continuing diplomatic coexistencecan be expected to reduce tension. The situation would be radically changedwere Korea to be peacefully reunited. While a peace dividend would undoubt-edly be available, it is possible that Korea would remain a stronger militarypower than other countries at a similar level of economic development, whilethe balance within its armed forces might tend to shift away from the armytowards the navy and air force.

Although spending less than 5% of real GDP on defence, South Korea has beenclosing the military gap, despite North Korea’s spending up to 25% of its muchsmaller GDP on defence. With South Korea’s 1997 budget of some $17bnalmost as big as the entire northern economy, this is an arms race which NorthKorea cannot win. Although the north’s quantitative lead in numbers oftroops, tanks, submarines and aircraft remains a worry, this is balanced now bythe south’s qualitative lead. But there is also concern over the north’s develop-ment of missiles and suspected weapons stockpiles, as well as lingering doubtsabout its nuclear programme.

South Korea: International relations and defence 9


South Korean and North Korean armed forces

South Korea North Korea

Army personnel 560,000 923,000

Main battle tanks 2,130 3,000

Self-propelled guns 1,040 4,500

Air force personnel 52,000 85,000

Combat aircraft 461 607

Navy personnel 60,000 47,000

Destroyers 7 0

Submarines 6 26

Frigates 33 3Source: International Institute for Strategic Studies, The Military Balance 1997/98.

A reunited Korea?

North Korea has never recognised the legitimacy of South Korea and still claims tobe the rightful representative of the entire Korean people. It has never abandonedthe strategy of unification by force put into effect in 1950. The south, for its part,proclaims the ideal of peaceful unification, and could not afford to abandon it, sincethere are still today millions of Koreans separated from immediate members of theirfamilies by the fortunes of war in 1950-53.

Although it could be argued that the narrowing of the military gap between the twoKoreas presents the North Korean proponents of blitzkrieg with a “now or never”option, “never” has seemed the more likely outcome than “now” since the death ofKim Il-sung in 1994, the more so if North Korea has in fact bartered away itsrudimentary nuclear weapons programme for substantial economic advantages. Butthe South Korean government undoubtedly fears what is probably the most likelyscenario for the unification of the peninsula: the implosion of the North Koreanregime in circumstances which virtually compel South Korea to absorb the north byinvitation. North Korea is having great difficulty in feeding its people. Itsinternational credit is exhausted, not least with its former mentors in Russia. Itsindustry is obsolete, its exports negligible, and its economy crippled by a perceivedneed to outweigh South Korea militarily. The collapse of the regime is a realpossibility.

For South Korea this means the possibility that it will have to take on burdens ofreconstruction relatively greater than those assumed by West Germany when itabsorbed East Germany. The South Korean government’s preferred option—in so faras it has a consistent strategy at all, which is doubtful—seems to be to try to avertthe collapse of the north politically by propping it up economically while seekingmilitary and diplomatic détente. Meanwhile, South Korea is quietly makingcontingency plans for unification which, it is hoped, will avoid West Germany’smistakes (immediate currency unification and early wage rate equalisation, leadingto mass unemployment in the east and huge budgetary problems in the west) whileseizing the economic opportunity to establish low-cost, labour-intensive exportindustries in North Korea (as an alternative to locating in China or Vietnam).

10 South Korea: International relations and defence


The economy

Economic structure

Main economic indicators, 1996

Real GDP growth (%) 7.1

Consumer-price inflation (av; %) 4.9

Current-account balance ($ bn) –22.2

Foreign debt ($ bn) 137.7a

Average exchange rate (W:$) 804.5

Population (m) 45.5

a EIU estimate.

Source: EIU.

Manufacturing dominates Until the late 1980s manufacturing industry accounted for a rising share ofGDP—nearly one-third in 1988 compared with only one-quarter in 1973. Thecounterpart of this was a fall in the share of agriculture, forestry and fishing,from one-quarter to one-tenth, over the same 15-year period. Since 1988, how-ever, the share of manufacturing in current-price GDP has been falling again,to 25.8% in 1996. The generally falling share is not because industry has beendoing badly—on the contrary, real value added by manufacturing rose by anannual average of 7.7% between 1992 and 1996—but because hitherto ne-glected areas of the services economy have been catching up fast. Thus 9.5%average real growth in value added by financial and business services in thesame period carried its share of current-price GDP up from 16.6% in 1991 to17.4% in 1996, and this trend probably has further to go.

Industrial activity is heavily concentrated in two areas, Seoul-Inchon (30% ofGDP in 1994) and the south-east tip of the peninsula, site of much of thecountry’s heavy industry, such as steel in Pohang, shipbuilding at Pusan andcar production at Ulsan. The government’s strategic thinking has much to dowith the role of the south-east, since the area is as far as possible from thedemilitarised zone (DMZ). More specifically, party considerations have contrib-uted to the relative neglect of the south-western Cholla region, the power baseof the main opposition party.

Very high levels ofinvestment

Expenditure on GDP is characterised by a very high proportion of gross fixedinvestment and, given the marginal nature of current-account surpluses anddeficits over the years, of domestic saving. The share of gross fixed capitalformation in current-price GDP averaged nearly 37% in the five years to 1996.

Rapid growth of theexternal sector

The other striking feature of expenditure on GDP is the rising degree of open-ness to international trade which it reveals. In 1996 exports of merchandisegoods represented 26.5% of current-price GDP, compared with barely 5%30 years earlier at the outset of the export-oriented industrialisation drive,while imports of merchandise goods represented some 29.6% of GDP com-pared with less than half that figure 30 years ago.

South Korea: Economic structure 11


Comparative economic indicators, 1996

South Hong Korea Singapore Kong Taiwan Japan US

GDP ($ bn) 484.8 94.1 154.9 272.3 4,598 7,636

GDP per head ($) 10,650 30,860 24,550 12,740 36,536 28,790

Consumer-price inflation (%) 4.9 1.4 6.0 3.0 0.1 2.9

Current-account balance ($ bn) –22.2 14.8 2.9a 11.0 65.9 –165.6

Exports of goods ($ bn) 128.3 126.6 183.5 115.5 400.3 613.6

Imports of goods ($ bn) 143.5 124.4 198.9 97.9 316.7 799.8

Foreign trade (% of GDP)b 56.1 266.7 246.9 78.4 15.7 18.5

a Goods and services balance. b Merchandise exports plus imports.

Sources: National sources; EIU.

Economic policy

Contra-cyclical fiscalpolicy

Fiscal and monetary policies are not a main area of political contention, al-though monetary policy can be subject to a number of conflicting pressures.The overall non-financial public-sector borrowing requirement has tendedsince 1980 to fluctuate in line with cyclical economic conditions, within limitswhich would, for instance, make most European aspirants to the Maastrichtconvergence criteria green with envy. Fiscal policy, accorded low priority dur-ing the 1960s and 1970s, has in the 1980s and 1990s been tight enough toensure that there is an overall surplus when the economy is near the top of thecycle, while the deficits that emerge near its bottom are normally well below3% of GDP (see Reference table 1 for a breakdown of central governmentfinances).

The tax burden isincreasing

It is perhaps ironic that at a time when the champions of low taxation in thedeveloped countries have begun to point to the “Asian tigers” as evidence tosupport their argument, the South Korean government is planning for anincrease in taxation as a percentage of GNP, from an admittedly low base. In1995 the overall tax burden was 20.6% of GNP. It was only as high as thisbecause local taxes accounted for 4.4% of GNP, 2 percentage points higherthan ten years earlier: national taxes accounted for 16.2% of GNP in 1994,almost unchanged from the level ten years earlier. The overall tax burden islikely to increase over the next few years as the government fulfils conditionsattached to IMF credit from 1998.

Large allocations fordefence spending

It was long the doctrine of South Korean governments that defence expend-iture should not be less than 5% of GNP. Holding the proportion steady meantan average annual real increase of 7-8%. Whether or not by design, invitingNorth Korea to match this rate of growth in defence expenditure has had theeffect of ruining the North Korean economy, just as, on a wider scale, USdefence spending under Ronald Reagan broke the economy of the SovietUnion. Now that North Korea is required to pay hard currency, which it doesnot have, for its war material, South Korean defence spending has been allowedto drop below 5% of GNP. In 1996 it stood at 3.5% of GNP.

12 South Korea: Economic policy


Dirigiste industrial policy The main issues of economic management in recent years have concerned theliberalisation and internationalisation of the South Korean economy. Theessence of “tigerhood” in the 1960s, as practised by Hong Kong, Singapore,Taiwan and South Korea, was an awareness that the world trade system wasliberal enough to accommodate a rapid increase in developing world exports ofmanufactures to the markets of the industrial economies, at a time wheneconomic orthodoxy argued that such markets were not capable of expansionin this way, and that less-developed countries should concentrate instead onimport substitution. But while Hong Kong pursued its (changing) comparativeadvantage in world markets on the basis of almost completely liberal domesticeconomic management, South Korea did so on the basis of minute governmentcontrols on economic activity.

Export-ledindustrialisation

This was only partly because political direction was in the hands of soldierswho saw no reason why an economy should not be run like an armoureddivision. Such industry as existed in South Korea in 1963 to serve the domesticmarket was heavily protected by quotas and tariffs. But these impart a biasagainst exporting: it is much easier to serve a sheltered domestic market than acompetitive international one. In pursuit of its central objective of export-ledindustrialisation, the government of General Park Chung-hee (1961-79) couldhave removed this bias either by emulating Hong Kong and removing tariffsand quotas, or by subsidising exports. It chose the latter path, its preferredmethod being to offer companies which served its export objectives preferen-tial access to subsidised and rationed credit. Thus the entire financial system,from the Bank of Korea (the central bank) downwards, became a conveyor beltfor a detailed industrial policy.

Lowering trade barriers As the South Korean economy grew in scale and complexity, it became clearthat this model would no longer serve. For one thing, South Korea’s greaterinternational visibility ensured that it would not be allowed to continue eithersubsidising exports or taking advantage of others’ liberal trade regimes whilecontinuing to protect is own domestic market. Most of the physical barriers totrade have now been removed. There are two notable exceptions. A ban, hardto justify on any grounds, remains in force on imports of many Japaneseconsumer goods (although this will change in 1998 as South Korea opens itsmarkets to these goods as a condition of receiving bailout funds from the IMFand Japan to support its struggling economy); while in the Uruguay Round ofnegotiations within the GATT, South Korea secured a delayed start to a verymodest programme of opening its rice market to foreign competition. SouthKorean tariffs, while still higher on average than those of developed eco-nomics, are falling towards them. One effect of quota and tariff reduction isthat it becomes easier to reduce export subsidies without making domesticmarkets more attractive than foreign ones. The worst features of the “policyloan” system, giving cheap credit for purposes that fitted in with governmentobjectives, have now been abandoned; not least in recognition that a bankingsystem thus saddled with involuntary and often non-performing loans has, asa result, been painfully stunted in its own development.

South Korea: Economic policy 13


Controlling capital flows Until the economic crisis of late 1997, the government was reluctant to allowliberalisation of South Korea’s financial system to proceed too fast and main-tained many controls on international payments, both inward and outward.This was partly due to the fear of foreign competition and partly due to theargument that too great an inflow of foreign funds would push up the nominalexchange rate and, via inflation, push the real exchange rate up yet further.The need to turn to the IMF for credit to buoy the flagging currency at the endof 1997 will, however, accelerate the pace of deregulation as the governmentcomplies with the conditions attached to the IMF money. The cap on stock-market capitalisation for foreigners will, for example, be abolished in 1998, anda much larger section of the bond market will be made available to foreigninvestors. In July 1997 the government deregulated almost all lending anddeposit rates as the fourth stage of its interest rate liberalisation programme,which began in November 1991. (See Reference tables 2 and 3 for historicaldata on money supply and interest rates.)

Summary of central government finances, 1996(W bn)

Revenue 88,544 of which: value-added tax 16,771 income tax 14,777 corporation tax 9,356 customs (duties in book) 5,317

Expenditure 88,732 of which: defence 13,217 fixed capital formation 5,007

Net lending 79

Balance 108Source: Bank of Korea, Monthly Statistical Bulletin.

Globalisation andliberalisation

Politically, the former president, Kim Young-sam, and the team advising thepresidency was probably more committed to liberalisation of the economythan the cabinet as a whole, and the cabinet is more committed to it thancertain areas of the civil service, notably the Ministry of Trade, Industry andEnergy and the Ministry of Finance and Economy. It is this conflict, ratherthan interparty conflict, which will determine the pace of South Korea’s liber-alisation and internationalisation, and thus its acceptability as a member of theOECD. Seeking OECD membership and then complying with the requirementsof membership have been two of the weapons deployed by the liberalisersagainst the interventionists. Despite arguments both in Seoul and with theOECD about the required pace of liberalisation, South Korea was eventuallyadmitted as the 29th member of the club on October 25th 1996.

14 South Korea: Economic policy


Economic performance

Gross domestic product(% real change)

Annual average1996 1992-96

GDP 7.1 7.1 Private household consumption 6.9 7.1 Gross fixed capital formation 7.1 8.4 Exports of goods & services 14.1 15.3 Imports of goods & services 14.8 13.8

Regional comparisonsTaiwan 6.0 7.5Hong Kong 4.6 5.8Singapore 8.8 7.3Source: National sources.

Sustained rapid growth South Korea’s average annual rate of real GDP growth between 1992 and 1996of 7.1% was close to the long-term average growth rate it has sustained formore than 30 years since the beginning of its industrial development pro-gramme in 1963. (For historical data on GDP see Reference tables 4, 5 and 6.)Once again, the driving force of the economy was the growth of exports ofgoods and non-factor services. This averaged 15.3% per year between 1992 and1996. At a time when import demand in the OECD countries was relativelysubdued, South Korean exporters have proved able to maintain a very high rateof volume growth largely because of three factors:

• geographical diversification, particularly to the former Soviet Union and Chinabut also to the developing countries of South-east Asia and Latin America;

• a high degree of competitiveness with Japan in third markets, owing to thedepreciation of the won vis-à-vis the yen, although this began to go intoreverse in late 1995 (a trend that continued in 1996); and

• a steady extension of the range of manufactured products for exports, witha leading edge in memory chips and new car models.

Movingupmarket—successfully

At the same time, the won’s appreciation against the dollar and the wagesexplosion that occurred in 1987-89, ensured that traditional staples such asclothing, footwear and toys were less saleable. The 1990s have been a period inwhich South Korean manufacturers of labour-intensive goods have moved up-market (clothes manufacturers placing greater emphasis on quality and style,for instance) or have shifted production to countries such as Thailand, or, mostrecently, Vietnam (in the case of many of the footwear companies), or havegone out of business. The same logic applies to shipbuilding, where SouthKorean yards are trying, with considerable success, to position themselves be-tween Japan, with very high wages and a capital-intensive industry, and China,with very low wages and a highly labour-intensive operation.

Construction growsstrongly in the 1990s

Clearly it takes a great deal of investment in new factories and new equipmentto sustain a rate of growth in manufacturing’s real value added, which forexample averaged 11.4% in the 21 years to 1995. Investment in machinery and

South Korea: Economic performance 15


equipment (other than transport equipment) rose at an average rate of 6.5% ayear in real terms between 1992 and 1996. Investment in construction alsogrew strongly over this period, albeit not as fast as spending on plant andequipment. Real fixed-capital formation in buildings and infrastructure grewby an annual average of 6.6% between 1992 and 1996. Permits authorised forbuilding construction averaged 137,573 per year in the same period, similar tothe average of 139,450 recorded between 1986 and 1990, although this latteraverage is swollen by an exceptionally high figure of nearly 189,000 in 1990.(See Reference table 23 for statistics on construction.)

Inflation(% real change)

Annual average1996 1992-96

Consumer prices 4.9 5.3

Consumer price inflation comparisons Hong Kong 8.7 8.1 Taiwan 3.7 3.6 Singapore 1.7 2.2Sources: IMF, International Financial Statistics; Census and Statistics Department, Hong Kong Monthly Digest of Statistics; EIU.

Rapid growth in wagesand productivity

Thanks in no small measure to wage explosions in 1976-78, when the economywas badly overheating in an all-out boom, and 1988-90, when widespreadstrikes and the fear of their repetition swept aside government guidelines onwages, real average monthly earnings in manufacturing industry grew by anaverage of 8.4% per year for the 20 years between 1970 (when the statisticalseries began) and 1990. The rate of increase slowed down to an average of 7.8%per year between 1992 and 1996. In 1970 monthly earnings averaged $48. In1996 monthly earnings were the equivalent of $1,568 (at the 1996 average ofW804.5:$1). There is therefore no sense in which South Korean labour haspriced itself out of work. It has rather priced itself out of the sort of work thathas emigrated to cheaper labour locations. Although available measures ofmanufacturing productivity are somewhat suspect in detail, the explanation isundoubtedly that there has been a striking improvement in real value addedper man-hour, sustained for a period of well over 20 years.

High personal incomes The rise in manufacturing and other wage rates is not the only factor which hasbeen pushing up average incomes. Another of great importance is people’sswitching from low-paid (for example agricultural) occupations to higher-paidoccupations in industry and services. As a result, there has been a shift to anincreasingly affluent lifestyle. Real expenditure by households rose by about30% between 1992 and 1996. Whereas expenditure on food, beverages andtobacco rose by only 16.5% in real terms over this period, there was a 45.6%rise in spending on transport and communications, reflecting the explosion ofcar ownership (although this slowed to a crawl in 1995); a 33.4% increase inspending on furniture, furnishings and household equipment, reflecting theincrease in household formation that accompanied the growth in construc-tion; and a 33% increase in spending on recreation, entertainment, educationand cultural services.

16 South Korea: Economic performance


Sliced another way, real household expenditure on non-durable and semi-durable goods rose by only 22.8% between 1992 and 1996, while spending ondurables rose by 45.4% and spending on services by 36.8%. Average growth peryear in real household consumption expenditure did not preclude a substantialamount of household saving. In nominal terms, the amount saved by house-holds rose by 32.4% in the five years to 1995 (the most recent year for whichfigures are available), and in that year households accounted for 53.9% ofall private saving (the remainder being saved by corporations and financialinstitutions) and 38.2% of total gross saving. (Historical data on prices aregiven in Reference table 7; wage data are in Reference table 8.)

Wage and price highlightsAnnual average

% change,1996 1992-96

Average monthly earnings in manufacturing (W ’000) 1,261 13.6

Consumer price index (1995=100) 104.9 5.3

Deflator index for household consumption (1990=100) 142.5 5.5

Real wage growth (%) 6.7 7.8Source: Bank of Korea, Monthly Statistical Bulletin.

Regional trends

Concentration onSeoul-Inchon

Figures on the regional breakdown of GDP are available only for the years since1985 and in comparable form only for the period 1987-92. Although an earlypriority of the government was to diversify economic activity away from Seoul,whose closeness to the DMZ made it highly vulnerable, it is clear that thisstrategy has had only limited success. In 1992 metropolitan Seoul and Inchontogether still accounted for 30.5% of GDP, a proportion virtually unchangedsince 1987. Seoul and Inchon, moreover, must have enjoyed lower inflationthan elsewhere, since over the same years their GDP rose in real terms by anaverage of 9.2% per year, compared with 7.8% for the rest of the country.

Since the foundation of the republic, governments have been drawn prin-cipally from the eastern provinces of the country, and the Cholla region in thewest is chronically aggrieved by what it perceives as neglect by the centralgovernment. Some objective support for this perception may be found in thestrong representation of migrants from Cholla among the incomers to theSeoul region, which is a principal reason why Seoul is the only area outsideCholla where the main opposition party polls strongly. At all events, the shareof the Cholla region in total GDP fell between 1987 and 1992, from 9.3% to9%, and its real growth rate over that period was only 7.4%, well below the ratefor the country as a whole. But the share of Pusan fell even more sharply, from8.1% to 7%, and its growth rate was a low (for South Korea) 5.7%. Pusan is theregional political base of the former president, Kim Young-sam, who for mostof the period in question was still in opposition.

South Korea: Regional trends 17


Resources

Population

A highly urbanisedpopulation

South Korea is densely populated, the number of people per sq km having risenfrom 351 in 1975 to 455 in 1996 as a result of the increase in population from34.7m to 45.5m. The birth rate has fallen steadily, from 30 per 1,000 in 1970 to16 per 1,000 in 1994, and the death rate has also fallen, to five per 1,000compared with ten in 1970. Consequently, the population is currently risingby 1% per year, about half the rate which prevailed in the 1970s. This rate ofincrease can be expected to continue to decline. The rate of 1.1% that was theaverage between 1980 and 1994, according to World Bank figures, compareswith an average rate of increase among low- and middle-income countries ofEast Asia of 1.5% and rates of 0.5% for Japan and 2% for India. South Korea isethnically homogeneous and not particularly welcoming to the immigrantswho are attracted by its labour shortage to take on the dirty, difficult or danger-ous jobs South Koreans now spurn. It is also now highly urbanised. Some 80%of the population in 1994 was urbanised, compared with 41% in 1970 and 57%in 1980. More than half of South Korea’s total population now live in urbanagglomerations of 1m people or more. Regional comparisons for 1994 are anurban population of 85% in Australia, 78% in Japan, 53% in Malaysia and just20% in Thailand. There was average annual growth in South Korea’s urbanpopulation of 5.1% in the 1970s, which slowed to 3.8% in the 1980s and 2.9%between 1990 and 1994.

Reflecting a higher birth rate in earlier decades, as well as greater longevity, thesection of the population aged 15 or above continues to expand faster than thepopulation as a whole, while the economically active population, the labourforce, has been growing slightly faster still, and the employed population evenfaster. Between 1992 and 1996 average annual growth in the labour force was2.1%. The percentage of women in the labour force is currently 41%, up byonly 2 percentage points since 1980. (Historical data on the population aregiven in Reference table 9.)

Population and labour force trends, 1996(’000 unless otherwise indicated)

Population 45,545

Population of 15 & over 34,182

Economically active population 21,188

Participation rate (%) 62.0

Employed 20,764

Unemployed 425 % of labour force 2.0Source: Bank of Korea, Monthly Statistical Bulletin.

Education

High level of educationalenrolment—

Along with land reform, education was a priority for the republic from its veryearly days. In terms of putting smallholders on terms of educational equality

18 South Korea: Population


with the owners of larger farms, which was an important aspect of avoidingpolarisation in the countryside, and of enabling migrants from the countrysideto adapt relatively easily to urban and industrial life, South Korea’s educationalefforts must be judged a success. In purely numerical terms they are impressive:100% primary school enrolment had already been achieved by 1970. Theproportion of the relevant age group enrolled in secondary schools was thenonly 42%, but had been raised to 92% by 1993. Untypically, a slightly higherproportion of girls than boys has traditionally been enrolled in secondaryschools, although this position reversed in the latest year for which data areavailable (1993). Only 3.7% of the population aged over 15 were judged to beilliterate in 1995.

—but there are doubtsabout its quality

More remarkably still, the proportion of the relevant age group enrolled fortertiary education shot up from 16% in 1970 to 48% in 1993, ahead of Japan,the UK and Germany, although still behind France and well behind the US. Itis here, in particular, that doubts are now being expressed about the content ofeducation. It is argued that South Korean education places far too much em-phasis on rote learning and multiple-choice questions to which the answers areeither right or wrong, and as a consequence fails to develop analytical skills andindependence of mind. In the sort of economy that South Korea is becoming,in which it will increasingly sell the products of mind rather than muscle, thisis going to matter more and more, and the government is already taking stepsto address the problem, for instance by encouraging the writing of essays.There is also concern that parents’ zeal to get their offspring into the bestuniversities has fuelled excessive growth of supplementary schools. It is notuncommon for teenagers approaching university entrance to be studying fromdawn until midnight.

Health

Average life expectancy at birth in South Korea was 71.3 years in 1994, slightlybetter than the average of 69 years for upper middle-income countries but stillsome way short of the average of 77 years of the high-income economies andfurther still from Japan at 79 years, which is perhaps a better yardstick for SouthKorea in view of similarities in diet. The other important comparison is withthe situation in 1965, just after the industrialisation programme had got underway, when life expectancy at birth was on average 57 years.

Rising living standards Among the reasons why Koreans live 14 years longer than a generation ago arebetter water supply and sanitation, better housing, a better diet and bettermedical services. In 1962 only 13.2% of the population received piped water.By 1972 this had risen to 36.9%, by 1982 to 59.4% and by 1991 to 80.1%.Figures on sanitation do not go back quite as far, but even between 1985 and1990 the proportion of the urban population with flush WCs rose fromhalf to two-thirds. Between 1970 and 1992 the housing stock increased by4.36m dwellings but the number of dwellings constructed came to 6.12m. Thusroughly 30% of housing construction in this period was replacing older dwell-ings, and the probability is that the new ones were of a higher standard thanthe old. There has also been a tendency for the average size of new dwellings to

South Korea: Health 19


increase. In addition, after many years of decline, the housing adequacy ratio(the proportion of households enjoying separate accommodation) began torise again with the construction boom of the late 1980s and early 1990s and islikely to exceed in the next few years the best levels hitherto achieved.

Spending on healthcare compared with life expectancy(1990 unless otherwise indicated)

Hong SouthSingapore Kong Korea Japan US

Spending per head ($) 219 699 377 1,538 2,763

Spending (% of GDP) 1.9 5.7 6.6 6.5 12.7 Private 0.8 4.6 3.9 1.6 7 Public 1.1 1.1 2.7 4.8 5.6

No. of doctors per ’000 population 1.09 0.93 0.73 1.64 2.38

Life expectancy at birth (years, 1993) 75 79 71 80 76Source: World Bank, World Development Report.

Wider availability ofmedical care

There has been a marked change in the country’s diet over the last 30 years. In1963 the average daily intake of calories was only 1,918 per person. It had risento 2,622 by 1983 and 2,863 in 1993. The average daily intake of protein perperson in 1963 was only 53.2 g. It had risen to 70 g by 1973, but only aboutone-fifth of this was accounted for by animal protein. By 1993, however, thetotal had risen to 90.8 g, of which 38% was animal protein. Thus the averagedaily intake of animal protein per person has risen by an average of 4.5% peryear over two decades. Even more striking is the improvement in the avail-ability of medical care. In 1963 there were only 10,477 hospital beds, or 38.3per 100,000 inhabitants. By 1983 there were 59,045 (148 per 100,000) and by1993 125,970 (286 per 100,000). In 1963 there were 9,052 doctors, or one forevery 2,981 people. By 1983 there were 29,882 (one per 1,336) and by 1993there were 59,087 (one per 7,450). The availability of dentists, nurses andpharmacists has improved in a similar way. There has been a dramatic reduc-tion in the incidence of some diseases such as tuberculosis and typhoid, but theincidence of others such as lung cancer has risen.

Natural resources and the environment

Few natural resources South Korea has a paucity of natural resources. It has no onshore oil or naturalgas, and prospects offshore have so far come to nothing. The peninsula’s coalresources are in North Korea, except for a small quantity of anthracite, prod-uction of which has fallen to the point where it makes a negligible contributionto the country’s energy supplies. The only metal once available in commer-cially significant amounts was tungsten, of which output peaked in 1977 at5,019 tonnes of concentrates, but then fell sharply under the influence ofChina’s depression of the world market and dried up altogether in 1993. Thedeclining amounts of lead, zinc and copper mined are not significant on aworld scale and supply only a fraction of South Korea’s own needs; and outputof 184,300 tonnes of iron ore in 1995 was far from matching the requirementsof the country’s steel industry.

20 South Korea: Natural resources and the environment


Land and national parkspace is at a premium

Land is not plentiful either. The cultivated area, which peaked at 2.3m ha in1968, had fallen to 19.9m ha by 1995 (20% of the total) as land was lost tourbanisation and roadbuilding. In 1994 there were 22 people for each hectareof cultivated land. South Korea is heavily forested, and there has been littleevidence of deforestation in recent years, largely because the topography of thecountry makes commercial exploitation unviable in many places. Forest ac-counted for 65% of the land area in 1995, down from 66.5% in 1978. Therewere 28 nationally protected areas of outstanding natural beauty or scientificimportance in 1994, covering 7% of the total land area. This is well down onthe average of 13.6% for high-income countries, although above the East Asianregional average for low- and middle-income countries.

Use of fresh water is well within the limits imposed by total water resources,thanks to the continental climate and plenty of precipitation. Between 1970and 1994 annual fresh water withdrawal was 41.8% of total water resources.This is higher than in most neighbouring countries such as Japan (16.6%),Thailand (17.8%) and Malaysia (just 2.1%), but far from representing crisisproportions. Annual household consumption of water was 117 cu metres perhead between 1970 and 1994, only slightly down on that of Japan, despite thehigher penetration of consumer durables such as dishwashers and washingmachines in that country.

Reflecting rapid industrial growth and a rising number of vehicles on the road,emissions of carbon dioxide per head have more than doubled since 1980,from 3.3 tonnes in that year to 6.6 tonnes in 1994. Although this is still welldown on the average in the US of 19.1 tonnes per head, South Korean emis-sions are beginning to approach those of Japan (8.8 tonnes per head in 1994).

Economic infrastructure

Transport and communications

An explosion in carownership

Successive governments have, for decades, kept motoring difficult, expensiveand legally hazardous. One reason for abandoning this policy was the need ofthe motor industry, intended in the first instance to be export-oriented, for astrong home base. As recently as 1985 the number of passenger cars remainedbelow 500,000. Then came an explosion in car ownership, increasing it morethan tenfold in a decade to reach 6m cars by 1995.

This has not meant the eclipse of public transport, however. Over the last fewyears the railways have regained the share of the commercial passenger trans-port market they had lost in the mid-1980s, restoring it to the 25% share theyhad enjoyed in the late 1970s. This means that in terms of passenger-km, railtransport grew by an average of 3.8% per year in the ten years to 1995, al-though growth since 1990 has been negligible. But the railways have not goneon a buying spree. The number of passenger coaches in use fell by 16% over thesame ten years, which means either that they are being used more intensively,or that they are becoming much more crowded. In the ten years to 1994,commercial passenger transport by road rose by 0.4% per year, while its share

South Korea: Transport and communications 21


of the market fell from 75% to 59%. Bus rather than rail has been the maincasualty of greater ownership of private cars and of the development of theSeoul subway system. The latter had achieved an 11% share of the commercialpassenger market by 1993, a year in which it provided on average 3.8m jour-neys per day, averaging 10.6 km each.

Rapid growth of freighttransport

The growth of total domestic freight transport has been so great over the pastfive years (the tonnage carried more than doubling between 1990 and 1995,from 337m tonnes to 710m tonnes) that it was possible for the railways to losemarket share, from 17% of tonnage carried to 8%, while still maintainingvirtually the same volume of freight carried. However, the number of freightcars available has fallen since 1990, from 15,600 to 14,330. Commercial roadfreight companies also lost market share, from 21.5% to 19.1% in the ten yearsto 1993, their growth of 7.9% per year being trimmed back by the growth ofin-house freight operations. The share of coastal shipping in the commercialfreight market rose from 36.5% to 58.6% over this period, after average annualgrowth of 14.4%. It is probable that growth in the coastal shipment of petro-leum products and cement was chiefly responsible.

There also has been explosive growth in the telephone system. In 1973 therewere only 763,200 telephone subscribers, or 22 per 1,000 inhabitants. This hadrisen to 4.81m (121 per 1,000) in 1983, and to 19.6m by 1996 (430 per 1,000)Currently mobile telephones and pagers are expanding rapidly. (Data on rail,road, sea and air transport can be found in Reference tables 10, 11, 12 and 13;telephone statistics can be found in Reference table 14.)

Energy provision

Heavy dependence on oilimports

Despite government policies designed to lessen the economy’s dependence onimported petroleum, which proved costly between 1979 and the mid-1980s,such dependence is greater today than it was in 1973. At that time, accordingto figures from the Ministry of Trade, Industry and Energy, petroleum supplied53.8% of total primary energy consumption. By 1994 the proportion had risento 62.9%, although it fell back slightly in 1996 to 60.5%). This occurred withinthe context of an average annual rise in total primary energy consumptionbetween 1973 and 1994 of 8.5%. (The 21-year average conceals an accelerationfrom a rise of 7.1% in the first ten years to one of 9.7% in the subsequent 11years.)

Consumption of petroleum grew at an average annual rate of 7.5% between1973 and 1983 and 10.9% between 1983 and 1994 (9.2% on average for theperiod as a whole). Three main factors may be identified as contributing to thishigh rate of growth.

First, consumption of firewood and charcoal, which accounted for 14.7% oftotal primary energy consumption in 1973, was responsible for only 0.7% ofthat consumption 21 years later, and its main replacement was kerosene, con-sumption of which increased at an average rate of 18.6% per year between 1983and 1993.

22 South Korea: Energy provision


Energy balance, 1996(m tonnes oil equivalent)

Elec- Oil Gas Coal tricity Other Total

Primary supplyProduction 0.0 0.0 2.2 17.7a 1.2 21.1Imports 131.4 12.5 29.9 0.0 0.0 173.7Exports 22.5 0.0 0.0 0.0 0.0 22.5Stock change –2.6 –0.3 –0.4 0.0 0.0 –3.3Total 106.3 12.2 31.6 17.7a 0.0 169.0

6.8b 158.1

Processing & transformationLosses & transfers 15.8 4.7 12.0 1.8 0.4 34.7Transformation output 0.0 0.9 0.0 10.9b 0.0 11.8

Final consumptionTransport fuels 36.8 0.0 0.0 0.1b 0.0 35.9Industrial fuels 16.9 1.0 15.0 10.6b 1.0 44.5Residential etc 21.1 5.9 1.2 6.4b 0.2 34.8Non-energy uses 19.8 0.0 0.0 0.0 0.0 19.8Total 93.6 6.9 16.2 17.1b 1.2 135.0

a Expressed as input equivalents on an assumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

Second, in the wake of the two OPEC oil-price shocks, the government wasconcerned not only to pass on to the consumer the full increase in priceattributable to dearer crude, but also to add a deterrent margin on top. Thisceased to be the case in the late 1980s. Moreover, not only are dollar crudeprices currently only just over half their peak price in the early 1980s (despiterecent rises), but the won has appreciated against the dollar since 1983, push-ing won-denominated crude prices down even further.

Most important of all, there has been a huge increase in the number of cars andlorries on the road. The number of cars increased by 26.3% per year on averagebetween 1983 and 1994. The number of lorries registered rose by an average of16.2% per year over this period and the number of buses by 18.4%.

Not surprisingly, therefore, petrol has spearheaded the growth in consumptionof petroleum products, with an average annual increase in the 11 years to 1994,according to national statistics, of 24.4%. Consumption of fuel oil rose by muchless than this, however, largely because of the emphasis placed on nuclear powergeneration. The marked difference in growth rates for consumption of light andheavy products is a problem for the refining industry. It has tackled this partlyby technical innovation—the use of catalytic crackers to extract more lightproducts from a given barrel of crude—so that petrol accounted for 8.9% of thetotal volume of output of petroleum products in 1994, compared with 2.6% in1983, and diesel oil for 29.7% compared with 44.1% in 1983; and in partthrough foreign trade, whereby residual fuel oil is exported and lighter productsimported. In 1994 petroleum refinery capacity amounted to 1.7m barrels/day.Two companies, Aching and Hahnium, owned 35% and 23% of capacity respec-tively, but a relatively new feature of the scene is the ownership of 19% of thetotal by the large conglomerates, Hand and Singeing, which owned less than10% a decade earlier. Total refining capacity grew much more slowly than

South Korea: Energy provision 23


production of petroleum products in the 1980s, because capacity utilisation wasmuch lower at the beginning of the decade than at its end, but between 1990and 1994 refining capacity more than doubled, while output of petroleumproducts increased by less (86.7%).

Nuclear power The programme of nuclear power station construction was put in hand beforethe first oil-price shock, but its continuation became the government’s chiefmeans, other than punitive pricing of petroleum products, to reduce theeconomy’s vulnerability to interruptions of, or sharp increases in the pricedemanded for, the supply of Middle Eastern crude. The first pair of nuclearplants came into production in 1978, when they accounted for 8.5% of gener-ating capacity. By 1996 nuclear capacity had risen to 26.9% of a much largertotal, and because of its base load role it accounted for 40% of electricitygenerated in 1996 (some 73.9 gwh). In 1993 nuclear generation of 58.1 gwhwas calculated by the Ministry of Energy and Resources as being equal to 14.5mtonnes oil equivalent on an input basis. For example, 14.5m tonnes of oil or itscoal equivalent would have had to be burnt in thermal power stations toproduce that amount of electricity. (This compares with actual consumption ofpetroleum in that year of 78.5m tonnes.) There has also been a considerableexpansion in hydroelectric capacity, which roughly doubled between 1974 and1984 and doubled again in the next ten years. This was not enough, however,to stop its share of total generating capacity dropping from 13.7% in 1974 to8.7% in 1996. Equally, the expansion of nuclear capacity has held the growthof thermal capacity back to an average of 5.3% in the ten years to 1994, asits share of the total fell from 78% to 64.8%; in 1996 the share of thermalcapacity stood at 64.4%. (For historical data on energy production and con-sumption see Reference tables 15, 16 and 17.)

Financial and other services

Government control overbank loans

In 1996 finance, insurance, real estate and business services accounted for17.4% of South Korea’s GDP measured at current prices. Although this sectorhas been growing faster than GDP as a whole in recent years (with the excep-tion of 1995), this process probably has further to go, owing to the relativeunderdevelopment of banking in the country. There are good historicalreasons for this. Control of the banking system, through public ownership anddetailed guidance from the Ministry of Finance via the Bank of Korea (thecentral bank), was the means by which successive regimes (those of ParkChung-hee, Chun Doo-hwan and Roh Tae-woo) rewarded companies whichfell in with their development strategy and punished those which did not. Therate of capital formation in the first three decades of export-oriented indus-trialisation was such that bank credit was in chronically short supply. Bankloans went to companies which toed the line, leaving others to the tendermercies of the kerb (unofficial) market where interest rates were much higher.Companies could also qualify for so-called policy loans at still lower rates ofinterest if the government wished to give a special incentive to the develop-ment of their industry. Commercial banks were little more than a transmissionbelt for decisions taken elsewhere on grounds other than sound banking cri-teria. This is one reason why the banks are now burdened with a legacy of

24 South Korea: Financial and other services


non-performing loans, while the system as a whole gave the banks no reasonto develop and exercise such criteria. (Historical statistics on banking assets andliabilities are in Reference table 18.)

Interest-rate deregulation Interest-rate deregulation is a task which the banks will have to undertake inthe new climate which began to develop under the presidency of Roh Tae-wooand is in even greater evidence under the current president, Kim Young-sam.Within the monetary constraints imposed by the Bank of Korea, the aim is nowthat the banks should be free to lend on commercial criteria and to set theirown deposit and loan rates. According to the 1991 medium-term programmefor interest-rate deregulation, all lending rates and also deposit rates other thanthose on demand deposits and certain money-market instruments are due to bederegulated by the end of 1998. At the same time, the system of policy loans isto be overhauled to remove the burden of making such loans from the com-mercial banks altogether, making them instead the responsibility of officialbanks, with the government making specific fiscal provision for the element ofinterest rate subsidy involved. Meanwhile, the freeing of interest rates willinvolve a phasing out of artificially low rates on policy loans, and such loanswill not be renewed by the commercial banks as they fall due.

The stockmarket hasfailed to provide capital

The credit hunger of South Korean corporations can be explained in part by thefailure of the stock exchange to generate the equity capital they need. Debt/equity ratios of several hundred percent are common, and the financial fragilityof many corporations makes monetary control difficult in times of weak eco-nomic growth, especially where the “too big to fail” argument comes into play.

Clearly all is not well with a stockmarket in which the benchmark KoreaComposite Stock Price Index (KOSPI) average for 1996 was lower than theaverage for 1988, although the economy had virtually doubled in size in realterms over the same period. The stockmarket was also badly hit by the crisis ofconfidence in the South Korean economy in the second half of 1997. InNovember 1997 the KOSPI averaged just 407.9 points, a drop of just over 68%on the average level in January of the same year. The fragility of the stockmar-ket prompted many South Korean companies to reconsider funding throughequity issues. Prominent among these was the planned Korea Telecom sharelaunch worth some $1.5bn, which was postponed until 1998.

Direct access by foreigners to the stockmarket has been allowed since 1992; in1996 foreigners owned 11.6% of stocks listed on the Korean stock exchangecompared with only 4.1% in 1992. The ceiling on foreign ownership was raisedto 20% of market capitalisation in 1996 and will be abolished altogether in1998. (Historical stockmarket data can be found in Reference table 19.)

Other services

Tourism earnings aredisappointing

Tapping the country’s tourism potential is also an important goal for thegovernment. The number of visitors to South Korea increased by about 10% peryear over the decade to 1993, rising to just over 3m in that year, althoughvisitor numbers have fallen back slightly since then, no doubt partly because ofrising tension with North Korea. The Asian Games of 1986 and the Summer

South Korea: Other services 25


Olympics of 1988 both attracted visitors and raised international awareness ofSouth Korea. Visitors from neighbouring Japan remain the biggest single group,followed by nationals resident abroad returning for a visit and visitors from the US.But there has been considerable diversification in the origin of visitors since 1980.

There were 23,000 hotel rooms in 1984, 24% more than in 1980. A hotelconstruction boom related to the 1986 Games and the 1988 Olympics thenbegan, culminating in a 21% increase in the number of hotel rooms in 1988alone to 33,193. By 1993 the total number of hotel rooms had risen to 44,285(17,536 in Seoul), of which over 40% were in five-star hotels. (For historicaldata see Reference table 20.)

Tourism statistics, 1996

Foreign-exchange receipts ($ m) 5,455

Visitor arrivals (’000) 2,880 of which from: Japan 1,517 US 460 Taiwan 160Sources: National Statistical Office, Korea Statistical Yearbook; Monthly Statistics of Korea.

Production

Manufacturing

The manufacturing sector, 1996(% change)

Capital goods 11.1

Intermediate goods 10.0

Consumer goods 3.1Source: Bank of Korea, Monthly Statistical Bulletin.

South Korean industrialisation effectively began in 1962 with the inaugurationof the first Five-Year Plan. Before that, industry had accounted for only a smallshare of a GDP equivalent only to $90 per head in 1961. But although thegovernment was the driving force in a process of industrialisation which sawmanufacturing’s real value added rise at an average rate of 16.9% per yearbetween 1963 and 1978, the process was very different from the indus-trialisation either of command economies such as the Soviet Union or Chinaor of the developing countries of Latin America, Africa and the south andsouth-east Asian mainland. While these economies were seeking indus-trialisation through import substitution, South Korea, along with Taiwan,Singapore and Hong Kong, believed that the developed markets of westernEurope and North America were open enough to absorb labour-intensivemanufactures in large quantities. And so it proved.

Labour-intensivemanufactures

Production of fabrics made from man-made fibre, negligible in 1962, reached1bn sq metres for the first time in 1978 and 3bn sq metres in 1990. Productionof clothing for export rose rapidly at the same time. The value of exports, only

26 South Korea: Manufacturing


$4.6m in 1973, had reached $2bn in 1978. Production of sporting footwear,again principally for export, rose more than tenfold since 1963, to 140m pairs.A slightly later development was the use of still-cheap South Korean labour inassembly operations. Production of radios jumped from 158,000 in 1963 to6.7m in 1976 and 9m in 1986. Production of colour-TV receivers began in 1975(output of black and white receivers had begun six years earlier) and rose quicklyto 10m in 1988 and 21.5m in 1996. Electronic calculator production also beganin 1975. South Korea has been making refrigerators since 1968, cameras since1980, and videocassette recorders and microwave ovens since 1982.

The steel industry An important development in the early 1970s was the emergence of a steelindustry. (Before that, output of steel ingots was simply re-rolling.) South Koreawas strongly advised, by the World Bank among others, not to create a steelindustry. Had it heeded this advice it would not have, in the Pohang Iron andSteel Company (Posco), one of the world’s largest and most efficient steelproducers. In 1995 Posco produced 23.2m tons of steel and was the world’ssecond largest producer after Nippon Steel of Japan. Posco’s production issupplemented by the output of mini-mills, and South Korea as a whole pro-duced 33.8m tons in 1995, with a world ranking of sixth after Japan, China, theUS, Russia and Germany. It is currently a net exporter of steel in a modest way,but the primary purpose of the industry is to supply South Korea’s heavy usersof steel, such as the motor vehicle, shipbuilding and construction industries.

A rapidly developing carindustry

Unlike most new motor vehicle industries, South Korea’s started largely as anexport operation, with the North American market as its primary target, but inrecent years growing success in export markets has been complemented by anexplosive growth in domestic sales, so that in 1996 it produced 22.6m passen-ger cars, 321,100 trucks and 234,400 buses. The passenger car industry is cur-rently dominated by Hyundai and Daewoo, South Korea’s largest and secondlargest carmakers respectively. Hyundai’s development of a domestically pro-duced engine for its cars is an instance of one important trend in South Koreanindustry, the steady domestication of parts production as industries move awayfrom mere assembly of imported parts. A second feature of its development isthat it is still heavily dependent on imports of capital goods. Thus, whileSamsung and others have steadily narrowed and now virtually eliminated thelead of Japanese and US companies in marketing memory chips of ever greatercapacity, it is still unable to make its own chip-making machinery.

Shifting manufacturingbases overseas

Finally, South Korean labour has grown more expensive, especially since 1987.Wages are much lower in Indonesia, the Philippines, Malaysia and Thailand, tosay nothing of Vietnam and China. Most of the footwear industry has movedoperations to one or other of these locations, while the future of the clothingindustry, if it is to remain in South Korea, depends on a rapid move upmarketin terms of quality and fashion. Similarly, it is no longer economic to under-take simple assembly jobs in South Korea. A labour-intensive industry likeshipbuilding, while it seems to have found a niche between the high-techJapanese industry and the low-wage industry of China, is almost bound to haveto move towards the production of more sophisticated vessels than simpleVLCCs (very large crude carriers) and bulk carriers, and to shift the balance

South Korea: Manufacturing 27


between inputs of capital and labour. (For historical data on manufacturingproduction see Reference tables 21 and 22.)

Mining and semi-processing

Dependency on foreignraw materials

South Korea is now a significant consumer in world terms of the main non-ferrous metals, but is poorly endowed with the raw materials to produce them.In 1993, for instance, it consumed 403,000 tons of copper, almost as much asFrance, but mined none, and supplied its needs partly by producing220,000 tons of refined copper from imported concentrates and scrap and partlyby importing refined copper. Much the same is true of lead (consumption was224,000 tons in 1994, mine production 2,000 tonnes and refined production119,000 tons) and zinc (319,000 tons, 7,000 tons and 272,000 tons respectively).South Korea mines no tin or nickel. However, South Korea used to be a signif-icant exporter of tungsten concentrates, and could be again. But the scale of thecountry’s tungsten activities had to be severely curtailed as a result of the ruin-ous prices that resulted from China’s flooding the world market, such that SouthKorea’s output of tungsten ore dried up completely in 1993.

Agriculture and forestry

The basis of South Korean agriculture is owner-occupied smallholdings. In theearly days of the post-war land reform, strict limits were placed on the amountof paddy that any one farm household might own, so as to avoid polarisationand landlessness. The other pillar of agricultural policy has been the prohibi-tion of rice imports in normal circumstances, and the achievement of self-sufficiency by paying farmers many times the world price for their rice whilesubsidising the consumer.

The shift to part-timefarming

South Korean farmers have achieved a noteworthy rate of productivity improve-ment. This is not because farming’s real value added has been rising fast. On thecontrary, the average increase between 1973 and 1995 was only 1.4% per year,but over the same period the farm population fell by 65%. Thus real value addedper member of the farm population rose by an average of 6.4% per year; thisunderstates the productivity gain, since more farm households are farming lessthan full time. In 1992, 27% of the farm population were in households earningless than half their income from farming, compared with only 8% in 1973.(Agricultural production data can be found in Reference table 23.)

Rising productivity The explanation for the rise in farmers’ productivity is twofold: yields havebeen rising and farmers have been cultivating more land each. In the case ofrice, yields rose from an average of 4 tonnes/ha in 1973-77 to 4 tonnes/ha in1990-94, but barley yields rose by almost one-third in the same period. Behindthe rise in yields lies an increase in fertiliser application; and behind the in-crease in average farm size, by 42.9%, from 0.9 ha in 1972 to 1.3 ha in 1994, liesa great deal of mechanisation. This enabled an ageing agricultural labour forceto work larger holdings. A third explanation for the higher value added per

28 South Korea: Mining and semi-processing


farmer has arisen in recent years with the diversion of land from staple crops tomore lucrative fruit and vegetable crops.

Construction

Approximately once a decade since the industrialisation drive began in 1963there has been a downturn in construction activity, although it was mild inboth 1971-72 and 1992, reaching severe proportions only in 1980-81 after aunique combination of unfavourable circumstances (loss of export compet-itiveness, harvest failure, hugely increased oil prices and political chaos) threwthe whole economy into recession. These interludes can be seen as minorinterruptions to what has been a 33-year construction boom. The averageannual growth in construction’s real value added between 1962 and 1995 wasapproximately 12%, with higher rates towards the beginning of this period andlower rates towards the end.

More emphasis onresidential building since

late 1980s

The emphasis, early on, fell on infrastructure and factory building as residentialconstruction lagged behind a growing need for housing, resulting not onlyfrom an increase in the population but also from rapid urbanisation. Thischanged in the late 1980s, however. After averaging 196,000 per year in 1973-82 and 240,000 per year in 1983-87, the number of dwellings completed shotup to an annual average of 576,000 in 1988-94, with a peak annual completionrate of 750,000 in 1990. In 1995 the public sector accounted for 36.8% of thetotal value of domestic construction orders received, down from 64.2% tenyears earlier. There has been a major shift in the type of housing built. In themid-1970s roughly two-thirds of completions were of detached houses andonly about one-quarter were in apartment blocks. By the early 1990s, by con-trast, roughly 80% were apartments and less than 5% detached dwellings.

A high-inflation sectortraditionally, but less so

now

Construction has tended traditionally to be a high-inflation sector. Between1972 and 1982, when the deflator index for GDP as a whole rose by an averageof 19.5%, that for construction alone rose 3 percentage points more than this,or 22.4% per year. Between 1982 and 1992 the average rise in the GDP deflatordropped to 5.7% per year, but the rise in the deflator for construction droppedonly to 11.9%. The construction boom of 1990-91 marked a singular failure ofthe authorities to prevent overheating, and two years of low growth in 1992-93were the price of that failure. Since 1992 the deflator index for investment inconstruction has risen by just over 5% per year on average, broadly the same asthe deflator index for overall GDP.

Building overseas The South Korean construction industry expanded overseas in the 1970s whenits wage rates enabled it to win labour-intensive contracts, for example road-building in the newly enriched oil-exporting countries of the Middle East. Inthe late 1970s and early 1980s profits on construction contracts and remit-tances by South Korean construction workers abroad made an important con-tribution to the balance of payments. But the collapse of oil prices made suchcontracts more scarce, while South Korean labour was ceasing to be cheap.While the value of contracts has fallen, there has been a tendency for them tocome more from South-east Asia and less from the Middle East, and for them to

South Korea: Construction 29


involve more technology while becoming less labour-intensive. (Historical dataon the construction industry can be found in Reference table 24.)

The external sector

Merchandise trade

Foreign trade, 1996($ bn)

Exports fob 128.3

Imports fob –143.6

Trade balance –15.3

Balance with the US –11.6

Balance with China 3.0

Balance with Japan –15.7

Balance with Germany –2.5Sources: Bank of Korea, Monthly Statistical Bulletin; IMF, Direction of Trade Statistics.

Of the last seven years (1990-96) for which complete figures are available, therehas been a merchandise trade surplus on an fob balance-of-payments basis inonly one year, 1993. The largest of the trade deficits occurred in 1996, when itreached some $15bn.

Official concern overtrade deficits is mounting

The authorities tend to worry too much about the trade balance; they wastetime concerning themselves with bilateral balances, as well as the overall fig-ure; they encourage the view that imports of consumer goods are sinful if nottreasonable—an attitude which will have to change if South Korea’s externaltrade relations are to remain harmonious; and they find it hard to accept thatthe surge in imports in 1994 and 1995 was not a bad thing, because it was thecounterpart of a boom in investment in capital goods which will help tomodernise and broaden export performance. There have been times recentlywhen alarm has been justified, as in 1991 when imports of everything con-cerned with construction soared, but these imports were significant only as asymptom of an unaddressed problem of overheating: they were not themselvesthe disease. The overall payments position is sufficiently favourable for thegovernment to be able to concentrate on fiscal and monetary policy and let themerchandise trade balance look after itself. The sharp deterioration in the tradedeficit in 1996 had much to do with an unfavourable trend in the terms oftrade, particularly a sharp fall in the prices of semiconductors, steel and chemi-cals traded on international markets. As such it is a cyclical phenomenonwhich will die away in time. (Reference table 27 gives trade volume statistics.)

Exports oflabour-intensive goods

are in decline

The composition of South Korean exports has changed radically over the years.Exports of the labour-intensive goods such as clothing, footwear, toys andsimple assemblies, which sustained the early assault on the markets of thedeveloped world, are now either stagnant or in decline—precipitously in thecase of footwear. This is because South Korean wages, especially since 1988,have been high enough in dollar terms to make South Korea no longer a

30 South Korea: Merchandise trade


suitable venue for their export-oriented manufacture. In many cases SouthKorean firms themselves have shifted their operations, and often their equip-ment as well, to South-east Asia.

Changing nature ofautomotive trade

At the same time the capital intensity and sophistication of Korean engineeringexports has been growing. Samsung Electronics, for instance, is a world leaderin the export of memory chips, having closed the gap that separated it fromJapanese and US firms in this specialised field in a remarkably short time. Themotor industry too has been evolving rapidly, having moved beyond the utilityor “cheap and nasty” stage to one where, without competing head on withJapanese technological excellence, it markets good value for money in the tech-nological niche it has established. Net motor industry trade has also changed.Imports of vehicle parts and accessories, as a percentage of the value of exportsof passenger cars, fell from 23% in 1989 to 13.7% in 1996; but when account istaken of the huge growth of domestic car sales in this period, it is clear that theimport component of exported cars has fallen especially sharply (for example, asa result of the incorporation of South Korean engines in Hyundai cars).

Selling ships to Japan In the shipbuilding industry, where the parameters are the high-wage, capital-intensive Japanese industry and the low-wage, labour-intensive industry ofChina, South Korea has repositioned itself between these extremes with on-going success, of which the sale of vessels to Japan was a striking recentexample. A final illustration of the changing pattern of South Korean exports isthat it has for some years been a net exporter of telecommunications equip-ment. South Korea’s exports are increasingly those of an industrial economyapproaching maturity.

The opening-up toimports of cars and rice

The traditional pattern of South Korea’s imports has been that of no imports ofrice and minimal imports of manufactured consumer goods, but heavy de-pendence on imported fuel, almost total dependence on imports of industrialraw materials and a high import component in both capital expenditure andthe production of manufactures for export (although the ratio is now falling inboth cases as South Korea makes progress in the production of capital goodsand the incorporation of locally made parts in export goods).

This pattern is due to change in several respects. The climate of internationaltrade diplomacy is now such that South Korea has been forced by the US toopen its rice market, albeit very slowly and not for some time yet. The non-tariff barriers which keep imported car sales to a tiny percentage of the dom-estic market have become something of an international trade scandal and willhave to go. South Korea is crucially dependent on free access to the markets ofthe OECD countries and will have to concede something in order to preserveit, especially after being granted entry to the club in late 1996.

Dependence on fuelimports

Dependence on imported energy is a notable feature of the economy. Netenergy imports in 1994 represented 85% of energy consumption, according tothe World Bank, up from 77% in 1980 and now higher than in neighbouringJapan (82%). It is true that imports of crude petroleum, valued at $10.8bn in1995, represented only 8.6% of total export revenue compared with 30% in1981, but oil prices have roughly halved over the same period. Furthermore,

South Korea: Merchandise trade 31


South Korea now diversifies its energy supplies with imports of liquefied natu-ral gas (LNG) and steam coal and buys in refined petroleum products on a sig-nificant scale. The rise in the volume of crude imports, to over 1.7m barrels/dayin 1995, leaves the economy vulnerable to the price consequences of apolitically occasioned interruption of supply in any one of Saudi Arabia, Iran,Kuwait or Indonesia. (Historical data on the composition of merchandise ex-ports and imports can be found in Reference tables 25 and 26.)

Main commodities traded, 1996

Exports $ m Imports $ m

Semiconductors etc 17,305 Machinery & transport equipment 54,675

Woven fabrics (cotton & non-cotton) 8,703 Mineral fuels & lubricants 24,284

Ships & floating structures 7,127 Chemicals etc 13,231

Apparel & accessories 4,221 Inedible raw materials 10,965

Total incl others 129,715 Total incl others 150,339Source: Bank of Korea, Monthly Statistical Bulletin.

Growing markets in thedeveloping world

The direction of trade has changed most notably in recent years in the devel-opment of markets in the developing world and the communist/former com-munist countries. This change has been deplored by some who see it asevidence that South Korea is shirking the challenge of maintaining and raisingits share of the developed-country markets. This criticism would be valid if thegrowth in exports to the developing world were indeed taking place at theexpense of efforts in OECD markets, but there is every indication these arebeing made at the same time. It is true that in the US and Japanese marketsSouth Korean exports showed no advance in dollar value between 1989 and1994, but this can be attributed to the decline in the traditional labour-intensive export lines rather than to any failure to compete in technologicallymore advanced lines. In 1995 and 1996 solid export growth was recorded inboth these markets, and the healthy growth in South Korean exports to Ger-many over the same period puts paid to any suggestion that South Koreacannot expand sales in OECD markets. This explains the rapid rise in exportsto China for example in the five years to 1996 by some 330%, from under 4%of exports to nearly 9%. (For historical data on the main export markets andimport suppliers see Reference table 28.)

Main trading partners, 1996

Exports to: % of total Imports from: % of total

US 16.7 US 22.2

Japan 12.2 Japan 20.9

Chinaa 8.8 China 5.7

Hong Kong 8.6 Germany 4.8

Singapore 5.0 Saudi Arabia 4.4

a The figures for China are computed from IMF data.

Sources: Bank of Korea, Monthly Statistical Bulletin; IMF, Direction of Trade Statistics.

32 South Korea: Merchandise trade


Invisibles and the current account

South Korea’s current account, which achieved a surplus of $400m (Bank ofKorea data) in 1993, moved back into the red in 1994, registering a deficit of$4.5bn. This deficit widened further in both 1995 and 1996, reaching $23.7bnin the latter year, the highest level ever recorded in South Korea. The worsen-ing of the current-account deficit in 1996 largely reflected the deterioration interms of trade caused by the sharp fall-off in the prices of South Korea’s mainexport products, notably semiconductors. (See Reference table 29 for an IMFbreakdown of balance-of-payments data; Reference table 30 for national data.)

Deficit on travel There has also been a tendency for the deficit on invisibles to get worse. Animportant factor in this deterioration was the steady worsening of the balancefor travel expenditure. Still in surplus in 1989-90, this moved into a deficit thatwas modest in 1991 but grew each year thereafter to reach $2.6bn in 1996(Bank of Korea definition). The problem is twofold.

• The South Korean tourism industry hoped that the Seoul Olympics in 1988would put South Korea on the world tourism map, and that the rapid growth intourism expenditure in the years to 1985 would continue. This did not happenuntil 1995. Receipts in 1994, for example, were scarcely greater than in 1988.

• South Koreans have been taking increasing advantage of the freedom totravel abroad which they gained belatedly in the mid-1980s, despite the dis-approval voiced by the bossier elements in the administration. Their annualspending abroad increased by over 230% in the five years to 1995.

A rising deficit oninvestment income

As a net debtor South Korea runs a persistent deficit on investment income,which has tended to rise in recent years, reaching $2.5bn in 1996 (Bank ofKorea definition). An important element on the credit entry of $3bn in 1995will have been the interest earned on the foreign bonds which make up part ofthe official exchange reserves.

Current account, 1996($ m)

Current-account balance –23,716 of which: trade balance –15,306 travel balance –2,603 investment income balance –2,498

Capital-account balance 17,026 Long-term capital 11,797 Short-term capital 5,229Source: Bank of Korea, Monthly Statistical Bulletin.

Capital flows and foreign debt

Transactions on the capital account of the balance of payments have beenconstrained by government controls on the flow of capital in both directions.There is a limit on the proportion of a company’s shares that may be held byforeigners, although this is due to be abolished in 1998.

South Korea: Invisibles and the current account 33


In December 1997, in an attempt to attract more foreign funds into thecountry’s financial markets, the government announced that it would allowdirect foreign investment in benchmark three-year corporate bonds, althoughit set the ceiling on aggregate holdings of guaranteed corporate bonds at 30%and that for individual ownership at 10%. The opening of South Korea’s bondmarket, which is the largest in Asia behind Japan, will gather pace in 1998 andbeyond as the government complies with the conditions attached to the IMFbail-out package.

The rules governing FDI are also being eased, but it was only in 1995-96 thatthe impression waned of South Korea being rather unwelcoming towards this.This mattered principally because the economy has been denied the spur tomodernisation and technological innovation that FDI could supply, not onlyin manufacturing but also in services industries such as advertising, insurance,banking and retailing. Limits on foreign portfolio investment, meanwhile, aremaking it harder to improve the appalling debt/equity ratios of most SouthKorean companies. (For historical data on the sources of foreign investmentinflows see Reference table 31.)

Liberalising capital flows The official reason for not proceeding faster with the elimination of restrictionson inward investment flows in the past is that to do so would either push thenominal exchange rate up, if the Bank of Korea (the central bank) allowed thisto happen, or push the real exchange rate up if the central bank preferred tohold down the nominal exchange rate by taking foreign exchange into thereserves and so adding to inflationary pressures. Either way, it is claimed,exports would suffer. But this dilemma would be removed if there were asimultaneous relaxation of controls on outward movement of investmentfunds. However, entry into the OECD as well as pressure from the IMF willhasten the relaxation of controls on capital flows (thus overriding the objec-tions of a bureaucracy which mistrusts economic agents’ rights and capacity totake their own decisions).

South Korea’s foreigndebt—

Until the latter part of 1997 South Korea had never had significant problemswith foreign indebtedness. It exported its way out of the 1973-74 oil-priceshock with such success that it moved marginally into current-account surplusas early as 1977. The second oil-price shock in 1979-81 could not be neutralisedin the same way because on this occasion the OECD countries did not, as theyhad the first time round, countenance higher inflation as a way out of theirdifficulties, and South Korea was consequently denied export market growth.Although serious current-account deficits emerged, which had to be financedby foreign borrowing, this never reached the point where the overall debt-service ratio was a cause for concern.

—is rising In the 1990s, however, South Korea’s stock of foreign debt began to rise morequickly, as the government encouraged the country’s banks and conglomeratesto borrow heavily abroad to finance rapid industrial expansion. By the end of1996, for example, South Korea’s total external debt had risen to $138bn, a riseof 27% on the same period in 1995. More worrying than the absolute figure,however, was the rapid build-up of short-term debt—by the end of 1996 short-term debt accounted for some 50% of the total. This, together with the fact that

34 South Korea: Capital flows and foreign debt


much of this debt was borrowed by private institutions on floating global rates,rendered South Korea vulnerable to a sudden credit crunch, which duly camein the latter part of 1997. South Korea’s worst ever current-account deficit in1996, worries about the parlous state of the country’s corporate and financialsectors following a series of high-profile bankruptcies in 1997, contagion fromthe regional financial crisis which caused the won to plummet, and politicaluncertainty in the run-up to the presidential election all rapidly underminedthe creditworthiness of South Korea’s private borrowers, making it more diffi-cult for them to service their mainly dollar-denominated foreign obligations.This, in turn, forced the government to approach the IMF and other lenders atthe end of 1997 for emergency bail-out funds of some $60bn. (Historical dataon foreign indebtedness can be found in Reference table 32.)

Foreign reserves and the exchange rate

Foreign reserves, although lower than in many of South Korea’s Asian compet-itors, were substantial in 1996. The Bank of Korea’s vain attempt to bolster thewon towards the end of 1997, however, severely depleted the country’s re-serves. (Historical data on foreign-exchange reserves are given in Referencetable 33.)

Comparison of foreign reserves, end-1996

Total ($ m) Per head ($)

South Korea 34,073 754

Singapore 76,487 25,078

Taiwan 93,594 4,343

US 64,040 241

Japan 216,648 1,721

Germany 83,178 1,018Sources: IMF, International Financial Statistics; Central Bank of China, Financial Statistics.

Conflicting pressures onthe exchange rate

Until the economic crisis of late 1997 the Bank of Korea was believed to frameits exchange-rate policy with reference to an undisclosed basket of currencies.The main problem with this system lay with the dollar and the yen and withthe volatility of the exchange rate between those two currencies. Japan and theUS are of broadly similar importance to South Korea as trade partners, as far asboth exports and imports are concerned. If the exchange rate between the wonand one of these currencies is broadly right for South Korean exporters, theexchange rate with the other will tend to be wrong.

The won trades freely In response to the downward pressures on the won at the end of 1997, the Bankof Korea widened the currency’s daily trading band from 2.25% to 10% inNovember and then scrapped the limit altogether in December. This movereflected the government’s recognition of its own inability to dictate the move-ments of the won after it had spent much of the country’s foreign-exchangereserves trying to defend the currency in the run-up to the IMF-led rescuepackage. By mid-December 1997 the won had fallen to around W1,480:$1,representing a depreciation in nominal terms of more than 40%. (See Referencetable 34 for historical data on exchange rates.)

South Korea: Foreign reserves and the exchange rate 35


Appendices

Sources of information

National statistical sources Bank of Korea, Economic Statistics Yearbook, Seoul

Bank of Korea, Monthly Statistical Bulletin, Seoul

Bank of Korea, Quarterly Economic Review, Seoul

Economic Planning Board, Major Statistics of Korean Economy (annual), Seoul

Korea Development Bank, KDB Report (monthly), Seoul

Korea Development Institute, Quarterly Economic Outlook, Seoul

Korea Exchange Bank, Monthly Review, Seoul

Ministry of Trade, Industry and Energy, Yearbook of Energy Statistics, Seoul

National Statistical Office, Korea Statistical Yearbook, Seoul

International statisticalsources

Energy Data Associates, 1 Regent Street, London SW1Y 4NR

IMF, International Financial Statistics (monthly)

World Bank, Global Development Finance (annual)

World Bank, World Development Report (annual)

Select bibliography Economist Intelligence Unit, South Korea Country Forecast (quarterly)

Economist Intelligence Unit, South Korea Country Report (quarterly)

Economist Intelligence Unit, South Korea Country Risk Service (quarterly)

Michael McDermott and Stephen Young, South Korea’s Industry, EIU SpecialReport No. 2005, London, 1989

G Roberts, South Korea to 1990: Liberalisation for Growth, EIU Special Report No. 225, London, 1985

Ian Robertson, South Korea’s Motor Industry, EIU Special Report No. 2060, London, 1990

36 South Korea: Sources of information


Reference tables

Reference table 1

Central government finances(W bn)

1992 1993 1994 1995 1996

Revenue 46,267 53,128 54,510 76,917 88,732 of which: value-added tax 10,076 11,688 13,058 14,637 16,771 income tax 8,008 9,463 11,208 13,618 14,777 corporation tax 5,941 5,862 7,388 8,663 9,356 customs revenue 3,153 2,886 3,449 4,633 5,317 non-tax revenue 11,741 14,796 8,680 22,029 26,347

Expenditure 46,960 52,870 52,774 75,247 88,544 of which: general expenses 23,683 26,951 31,118 38,292 43,458 defence 8,771 9,308 10,056 11,051 13,217 fixed capital formation 2,821 2,889 2,547 4,045 5,007

Net lending –5 23 6 –42 79

Balance –689 235 1,730 1,712 108Source: Bank of Korea, Monthly Statistical Bulletin.

Reference table 2

Money supply(W bn; year-end)

1992 1993 1994 1995 1996

Notes & coins issued 9,808 13,884 15,089 17,324 17,907

M1 24,586 29,041 32,511 38,873 39,542

M2 96,259 112,219 133,179 153,945 178,312

M3 298,277 354,933 442,663 527,017 614,962Source: Bank of Korea, Monthly Statistical Bulletin.

Reference table 3

Interest rates(% unless otherwise indicated; annual averages)

1992 1993 1994 1995 1996

Bank of Korea discount ratea 7.0 5.0 5.0 5.0 5.0

Commercial banks’ time deposit rateb 6.0 5.0 5.0 5.0 7.5

Commercial banks’ loan ratec 12.5 12.5 12.0 12.5 11.1

Yield on corporate bonds OTC 14.0 12.2 14.2 11.7 12.6

a End-period. b Rate on three-month time deposits at deposit money banks. c End-period; interestrate of loans of general funds of up to one year for general enterprises.

Source: Bank of Korea, Monthly Statistical Bulletin.

South Korea: Reference tables 37


Reference table 4

Gross domestic product(W bn)

1992 1993 1994 1995 1996

At current prices 240,392 267,146 305,970 351,975 389,979 % change 11.4 11.1 14.5 15.0 10.8

At constant (1990) prices 205,860 217,699 236,375 257,536 275,850 % change 5.1 5.8 8.6 9.0 7.1

Per head (W ’000) At current prices 5,506 6,064 6,883 7,832 8,563 At constant (1990) prices 4,715 4,941 5,317 5,742 6,057Source: Bank of Korea, Monthly Statistical Bulletin.

Reference table 5

Gross domestic product by expenditure(W bn unless otherwise indicated; constant 1990 prices)

1992 1993 1994 1995 1996

Private consumption 112,501 118,883 127,865 138,461 148,034 % change 6.6 5.7 8.0 8.3 6.9 % of total 54.7 54.6 54.1 53.8 53.7

Government consumption 21,223 21,869 22,788 23,024 24,668 % change 7.6 3.0 4.2 1.0 7.1 % of total 10.3 10.0 9.6 8.9 9.6

Gross fixed capital formation 74,376 78,279 87,484 97,717 104,675 % change –0.8 5.2 11.8 11.7 7.1 % of total 36.1 36.0 37.0 37.9 37.9

Change in stocks 153 –1,891 1,190 95 2,330 % changea –0.5 –1.0 1.4 –0.5 0.9 % of total 0.1 –0.9 0.5 0.0 0.8

Exports of goods & non-factor services 66,351 73,857 86,040 106,675 121,751 % change 11.0 11.3 16.2 24.0 14.1 % of total 32.2 33.9 36.4 41.4 44.1

Import of goods & non-factor services –68,208 –72,777 –88,579 –108,037 –124,011 % change 5.1 6.7 21.8 22.0 14.8 % of total 33.1 33.4 37.5 42.0 45.0

Statistical discrepancy –537 –522 –413 –434 –1,596 % of total –0.3 –0.2 –0.2 –0.2 –0.6

GDP 205,860 217,699 236,375 257,501 275,850 % change 5.1 5.8 8.6 8.9 7.1 % of total 100.0 100.0 100.0 100.0 100.0

Net factor income from abroad –1,629 –1,537 –2,042 –2,796 –3,526 % of total –0.8 –0.7 –0.9 –1.1 –1.3

GNP 204,231 216,162 234,333 254,705 272,324 % change 5.0 5.8 8.4 8.7 6.9 % of total 99.2 99.3 99.1 98.9 98.7

a Change in stockbuilding as % of GDP.

Source: Bank of Korea, Monthly Statistical Bulletin.

38 South Korea: Reference tables


Reference table 6

Gross domestic product by sector(W bn unless otherwise indicated; constant 1990 prices)

1992 1993 1994 1995 1996

Agriculture, forestry & fishing 16,603 16,123 16,380 16,987 17,583 % change 6.0 –2.9 1.6 3.7 3.5 % of total 8.1 7.4 7.0 6.6 6.4

Mining & quarrying 917 879 914 872 825 % change –10.8 –4.1 4.0 –4.6 –5.4 % of total 0.4 0.4 0.4 0.3 0.3

Manufacturing 60,918 63,894 70,514 77,997 83,674 % change 4.8 4.9 10.4 10.6 7.3 % of total 29.6 29.3 29.8 30.3 30.3

Construction 23,644 25,635 26,843 29,163 31,128 % change –0.7 8.4 4.7 8.6 6.7 % of total 11.5 11.8 11.4 11.3 11.3

Electricity, gas & water 4,497 5,080 5,721 6,218 6,882 % change 7.2 12.9 12.6 8.7 10.7 % of total 2.2 2.3 2.4 2.4 2.5

Wholesale & retail trade, hotels & restaurants 26,311 27,438 29,809 32,285 34,282 % change 4.9 4.3 8.6 8.3 6.2 % of total 12.8 12.6 12.6 12.5 12.4

Transport, storage & communications 14,646 15,838 17,829 20,208 22,977 % change 9.5 8.1 12.6 13.3 13.7 % of total 7.1 7.3 7.5 7.8 8.3

Financial & business services 33,350 37,500 41,177 44,330 47,367 % change 10.7 12.4 9.8 7.7 6.8 % of total 16.2 17.2 17.4 17.2 17.2

Government services 14,068 14,464 14,700 14,832 15,274 % change 3.6 2.8 1.6 0.9 3.0 % of total 6.8 6.6 6.2 5.8 5.5

Total incl others 205,860 217,699 236,375 257,501 275,850 % change 5.1 5.8 8.6 8.9 7.1 % of total 100.0 100.0 100.0 100.0 100.0Source: Bank of Korea, Monthly Statistical Bulletin.



Reference table 7

Price indices(1990=100 unless otherwise indicated)

1992 1993 1994 1995 1996

GDP 116.8 122.8 129.4 136.6 141.0 % change 6.1 5.1 5.5 5.6 3.4

Investment in machinery 106.3 109.1 109.1 109.5 110.3 % change 3.7 2.6 0.0 0.4 0.7

Wholesale prices 107.0 108.6 111.6 116.8 119.9 % change 2.2 1.5 2.8 4.7 2.7

Consumer pricesa 86.0 90.1 95.7 100.0 104.9 % change 6.3 4.8 6.2 4.5 4.9

Export prices (W) 106.5 109.2 112.2 113.7 114.3 % change 2.6 2.5 2.8 1.3 0.5

Export unit value ($) 99.0 99.4 101.1 106.2 92.6 % change –1.6 0.4 1.7 5.0 –12.8

Import prices (W) 101.1 104.7 108.9 115.2 115.2 % change 1.4 3.6 4.0 5.8 0.0

Import unit value ($) 98.4 94.7 95.2 103.7 103.3 % change –1.6 –3.8 0.5 8.9 –0.4

a 1995=100.

Sources: Bank of Korea, Monthly Statistical Bulletin; Economic Statistics Yearbook.

Reference table 8

Average monthly earnings(W ’000 unless otherwise indicated)

1992 1993 1994 1995 1996

Manufacturing 799 885 1,022 1,124 1,261 % change 15.8 10.8 15.5 10.0 12.2

Construction 1,020 1,155 1,270 1,384 1,501 % change 15.3 13.2 10.0 9.0 8.5Sources: Bank of Korea, Monthly Statistical Bulletin; National Statistical Office, Monthly Statistics of Korea.



Reference table 9

Population and labour(’000 unless otherwise indicated)

1992 1993 1994 1995 1996

Population 43,748 44,195 44,642 45,093 45,545 % change 1.1 1.0 1.0 1.0 1.0

Age 15 & over 31,898 32,400 32,939 33,558 34,182 % change 1.5 1.6 1.7 1.9 1.9

Economically active population 19,426 19,803 20,326 20,797 21,188 % change 2.0 1.9 2.6 2.3 1.9

Participation rate (%) 60.9 61.1 61.7 62.0 62.0

Employed 18,961 19,253 19,837 20,377 20,764 % change 1.9 1.5 3.0 2.7 1.9 of whom in: agriculture, forestry & fishing 2,991 2,828 2,699 2,541 2,405 manufacturing 4,828 4,652 4,695 4,773 4,677 mining 63 52 40 26 24 construction 1,658 1,685 1,777 1,896 1,968 social overhead capital & services 9,421 1,003 10,626 1,114 10,689

Unemployed 465 550 489 419 425 % change 2.4 2.8 2.4 2.0 2.0Source: Bank of Korea, Monthly Statistical Bulletin.

Reference table 10

Railways

1991 1992 1993 1994 1995

Track length (km) 3,091 3,092 3,098 3,101 3,101

Passenger-km carried (m) 33,470 34,787 33,693 31,912 29,292 % market share 24.3 25.5 25.8 25.3 23.7

Freight (m tonne-km) 14,494 14,256 14,658 14,070 13,838 % market share 29.1 23.1 22.1 21.8 18.2Sources: National Statistical Office, Korea Statistical Yearbook; Bank of Korea, Economic Statistics Yearbook.

Reference table 11

Road transport indicators

1992 1993 1994 1995 1996

Paved roads (km) 47,573 51,889 57,421 56,387 59,840

Passenger cars (’000) 3,461 4,271 5,149 6,006 6,894

Trucks (’000) 1,262 1,449 1,645 1,817 1,963

Buses (’000) 484 528 582 613 663

Commercial road transport Passenger-km (m) 83,152 77,998 74,167 72,324 n/a Freight tonne-km (m) 11,364 12,666 15,446 18,213 n/aSources: National Statistical Office, Korea Statistical Yearbook; Monthly Statistics of Korea; Ministry of Trade, Industry and Energy,

Yearbook of Energy Statistics.



Comparative economic indicators, 1996

0 100 200 300

South Korea

Taiwan

Indonesia

Thailand

Hong Kong

Singapore

Malaysia

Philippines

Vietnam

Brunei (a)

Gross domestic product$ bn

(a) Not available.Sources: EIU estimates; national sources.

490.1490.1490.1490.1490.1490.1490.1490.1490.1490.1490.1490.1

0 5,000 10,000 15,000 20,000

Singapore

Hong Kong

Taiwan

South Korea

Malaysia

Thailand

Philippines

Indonesia

Vietnam

Brunei (a)

Gross domestic product per head$

(a) Not available.Sources: EIU estimates; national sources.

30,85730,85730,85730,85730,85730,85730,85730,85730,85730,85730,85730,857

0 2 4 6 8 10

Philippines

Indonesia

Vietnam

Hong Kong

Thailand

South Korea

Malaysia

Taiwan

Brunei

Singapore

Consumer prices% change, year on year

Sources: EIU estimates; national sources.

0 2 4 6 8 10

Vietnam

Malaysia

Indonesia

Singapore

South Korea

Thailand

Taiwan

Philippines

Hong Kong

Brunei (a)

Gross domestic product% change, year on year

(a) Official estimate, 1995.Sources: EIU estimates; national sources.

42


Reference table 12

Marine freight(’000 tons unless otherwise indicated)

1991 1992 1993 1994 1995

Coastal freight 75.1 84.6 95.2 116.3 127.6 of which: oil & products 30.5 35.7 37.9 44.6 54.2 cement 11.2 12.3 12.3 13.6 15.5

International freight loaded 52.4 62.9 71.2 76.1 88.4 % of national vessels 32.3 24.5 23.8 23.1 20.1

International freight landed 210.5 222.7 245.6 277.3 316.0 % of national vessels 34.7 33.5 30.6 27.5 24.5Source: Bank of Korea, Economic Statistics Yearbook.

Reference table 13

Civil aviation1991 1992 1993 1994 1995

Passenger-km (m)International 38,521 45,219 47,627 n/a n/aDomestic 4,447 5,233 5,511 6,481 7,406

Freight-km (m)International 4,470 4,968 6,183 n/a n/aDomestic 79 94 105 116 123Source: National Statistical Office, Korea Statistical Yearbook.

Reference table 14

Communications

1992 1993 1994 1995 1996

Telephone subscribers (’000) 15,593 16,633 17,646 18,600 19,601

Telephone subscribers per 100 people 35.7 37.8 39.7 41.5 43.0

Public telephones (no.) 271,927 285,133 305,272 327,839 339,240Source: National Statistical Office, Monthly Statistics of Korea.



Reference table 15

Primary energy consumption(input basis; ’000 tonnes oil equivalent unless otherwise indicated)

1992 1993 1994 1995 1996

Coal 23,618 25,882 26,680 28,092 32,200 % change –3.7 9.6 3.1 5.3 14.6 % of total 20.4 20.4 19.4 18.7 19.5

Petroleum 71,740 78,495 86,343 93,955 99,898 % change 20.3 9.4 10.0 8.8 6.3 % of total 61.8 61.9 62.9 62.5 60.5

LNG 4,581 5,723 7,618 9,213 12,169 % change 30.8 24.9 33.1 20.9 32.1 % of total 3.9 4.5 5.6 6.1 7.4

Hydroelectricity 1,216 1,502 1,025 1,369 1,300 % change –3.7 23.5 –31.8 33.6 –5.0 % of total 1.0 1.2 0.7 0.9 0.8

Nuclear 14,133 14,535 14,663 16,757 18,481 % change 0.4 2.8 0.9 14.3 10.3 % of total 12.2 11.5 10.7 11.1 11.1

Firewood & others 723 742 906 1,051 1,161 % change 17.2 2.6 22.1 16.0 10.5 % of total 0.6 0.6 0.7 0.7 0.7

Total 116,011 126,879 137,235 150,437 165,209 % change 12.0 9.4 8.2 9.6 9.8Sources: National Statistical Office, Korea Statistical Yearbook; Ministry of Trade, Industry and Energy, Yearbook of Energy Statistics.

Reference table 16

Electricity

1992 1993 1994 1995 1996

Capacity (mw)Thermal 14,007 17,534 18,641 20,475 23,005Hydro 2,498 2,504 2,493 3,093 3,094Nuclear 7,616 7,616 7,616 8,616 9,616Total 24,120 27,654 28,750 32,184 35,715

Generation (gwh)Thermal 69,569 80,293 102,244 112,154 126,368Hydro 4,863 6,006 4,098 5,478 5,201Nuclear 56,530 58,138 58,651 67,029 73,924Total 130,963 144,437 164,993 184,660 205,494

Consumption (gwh)Manufacturing 67,426 73,437 82,553 91,990 101,831Public & services 22,943 27,293 33,633 38,531 45,091Residential 21,796 23,916 26,554 28,303 30,220Agriculture, forestry & fishing 2,157 2,220 2,916 3,370 3,857Total incl others 115,244 127,734 146,541 163,270 182,048 % change 10.4 10.8 14.7 11.4 11.5Sources: National Statistical Office, Korea Statistical Yearbook; Monthly Statistics of Korea; Ministry of Trade, Industry and Energy, Yearbook of Energy Statistics.



Reference table 17

Energy statistics

1992 1993 1994 1995 1996

PetroleumCrude oil imports (’000 barrels) 509,377 560,563 573,714 624,945 721,927Petroleum product imports (’000 barrels) 139,716 173,429 203,988 224,503 230,919

Production of selected refined products (’000 barrels)Diesel oil 152,577 167,967 169,040 180,908 216,446Naphtha 65,259 65,480 67,969 88,317 103,128Petrol 32,348 41,271 50,708 60,459 70,935

Consumption of selected refined products (’000 barrels)Diesel oil 127,434 138,021 147,269 163,113 172,406Naphtha 97,158 108,577 123,276 131,474 141,273Petrol 35,248 42,508 51,089 59,382 67,971

Coal & anthracite (’000 tonnes)Imports 29,444 30,106 35,977 39,406 n/aConsumption 39,453 39,814 42,419 42,660 n/a

Natural gas (’000 tonnes)Imports 3,425 4,454 5,928 7,060 9,595Consumption 3,524 4,405 5,860 7,087 9,361Sources: National Statistical Office, Korea Statistical Yearbook; Ministry of Trade, Industry and Energy, Yearbook of Energy Statistics.

Reference table 18

Banking statistics(W bn)

1992 1993 1994 1995 1996

Nationwide 136,987 151,049 176,316 225,053 264,034

Local 26,705 29,329 36,105 44,210 52,831

Foreign 16,924 14,610 16,541 19,425 24,694

Assets/liabilities of commercial banks 180,616 194,989 228,962 288,688 341,559Source: Bank of Korea, Monthly Statistical Bulletin.

Reference table 19

Stockmarket indicators

1992 1993 1994 1995 1996

Volume of shares traded (m) 7,064 10,398 10,911 7,656 7,785

Value of shares traded (W bn) 90,624 169,918 229,722 142,914 142,642

Stock price index (year-end; 1980=100) 678.4 866.2 1,027.4 882.9 651.2

Price/earnings ratio 10.9 12.7 16.2 16.4 17.8

Average dividend yield (%) 1.9 1.4 1.2 1.1 1.5Source: Bank of Korea, Monthly Statistical Bulletin.



Reference table 20

Tourism

1992 1993 1994 1995 1996

Foreign exchange receipts ($ m) 3,271 3,510 3,854 5,677 5,455

Visitor arrivals (’000) 2,499 2,568 2,775 2,294 2,880 of which from: Japan 1,373 1,468 1,625 1,652 1,517 US 324 340 356 408 460 Taiwan 306 161 162 167 160Source: National Statistical Office, Korea Statistical Yearbook.

Reference table 21

Principal manufactured items

1991 1992 1993 1994 1995

Cotton fabrics (m sq metres) 608 483 480 447 377

Shoes (m pair) 19.3 19.3 12.5 11.2 10.0

Sports footwear (W bn) 2,333 2,016 1,422 951 697

Newsprint (’000 tonnes) 569 602 742 867 956

Polyethylene (’000 tonnes) 1,164 1,781 2,042 2,216 2,201

Vehicle tyres (m) 33.7 38.1 42.3 47.1 53.5

Plate glass (m cases) 16.5 18.5 20.3 21.4 21.6

Cement (m tonnes) 39.2 44.4 47.3 52.1 56.1

Hot rolled strip steel (m tonnes) 7.8 8.7 10.1 10.2 10.2

Airconditioners (’000) 836 826 659 850 1,487

Household washing machines (’000) 2,157 1,896 2,199 2,443 2,827

Microwave ovens (’000) 7,174 7,172 8,279 10,209 10,487

Colour-TV receivers (’000) 13,449 14,992 15,375 16,999 18,555

VCRs (’000) 9,336 9,352 10,416 11,785 11,792

Passenger cars (’000) 1,120 1,259 1,528 1,755 1,999

Steel cargo ships (’000 gt) 1,382 2,484 1,923 2,833 n/aSource: National Statistical Office, Monthly Statistics of Korea.

Reference table 22

Industrial production indices

(1990=100)

1992 1993 1994 1995 1996

Food products & beverages 110.9 112.7 122.1 122.6 123.4

Textiles 94.6 86.5 86.2 83.7 75.7

Clothing 86.5 73.3 76.8 79.3 76.6

Chemicals 138.1 152.3 164.9 176.1 193.1

Basic metals 115.9 129.0 139.9 153.7 164.8

Motor vehicles 131.4 153.2 183.3 214.4 244.1

Manufacturing 116.2 121.1 134.4 150.6 163.2Source: Bank of Korea, Monthly Statistical Bulletin.



Reference table 23

Agriculture

1991 1992 1993 1994 1995

No of farm households (’000) 1,702 1,641 1,592 1,558 1,499

Cultivated land (’000 ha) 2,091 2,070 2,055 2,033 1,985

Rice production (’000 tonnes) 5,384 5,331 4,750 5,060 4,695

Barley & wheat production (’000 tonnes) 340 315 321 234 292

Soybean production (’000 tonnes) 183 176 170 154 160

Pigs (’000) 5,046 5,463 5,928 5,958 6,412Source: Bank of Korea, Korea Statistical Yearbook.

Reference table 24

Construction statistics

1992 1993 1994 1995 1996

Domestic construction orders (W bn) 27,861 33,247 39,394 47,727 58,566 of which: dwellings 10,225 15,108 16,126 18,396 21,033 offices & stores 3,006 4,100 4,919 6,121 7,168 factories 1,702 1,720 3,019 4,902 3,246

Floor area of construction permits (’000 sq metres) 94,647 117,790 116,221 117,327 113,820Sources: National Statistical Office, Korea Statistical Yearbook; Monthly Statistics of Korea.

Reference table 25

Merchandise exports($ m; fob)

1992 1993 1994 1995 1996

Machinery & transport equipment 32,547 36,960 47,068 65,646 67,584 of which: semiconductors etc 7,763 8,078 11,848 19,373 17,305 ships & floating structures 4,113 4,061 4,945 5,533 7,127 passenger cars 2,534 3,884 4,470 7,242 9,089 telecom apparatus 2,337 2,922 3,687 4,244 4,404 office machinery 3,091 3,474 3,607 4,967 5,673 sound & video recorders 1,479 1,582 1,757 1,834 1,747

TV receivers 1,537 1,463 1,698 1,901 2,207

Household electrical goods 1,091 1,213 1,485 1,685 1,909

Electrical power machinery 778 876 1,105 1,322 1,621

Radio receivers 1,184 1,126 1,092 909 530

Power generating equipment 784 845 1,002 1,212 693

Woven fabrics (cotton & non-cotton) 5,735 6,444 7,838 8,735 8,703

Chemicals etc 4,455 4,922 6,339 8,944 9,148

Apparel & accessories 6,770 6,166 5,653 4,976 4,221

Iron & steel 4,399 4,744 4,456 5,107 4,549

Footwear 3,184 2,309 1,780 1,506 1,236

Refined petroleum products 1,624 1,732 1,608 2,291 3,678

Rubber tyres & tubes 1,053 1,132 1,233 1,330 1,549

Textile yarn 1,042 944 1,055 1,331 1,470

Total incl others 76,632 82,236 96,013 125,058 129,715Source: Bank of Korea, Monthly Statistical Bulletin.



Reference table 26

Merchandise imports($ m; cif)

1992 1993 1994 1995 1996

Machinery & transport equipment 28,966 28,417 37,408 49,437 54,675 of which: semiconductors etc 6,012 5,650 6,983 9,838 11,448 power generating equipment 2,782 2,493 2,768 3,891 3,666 office machinery 1,735 2,001 2,615 3,570 3,992 telecom apparatus 1,377 1,645 2,221 2,659 3,069 aircraft 1,965 1,846 2,208 2,479 2,766 metal working machinery 1,582 1,184 1,788 2,341 3,192 electrical machinery 1,253 1,437 1,737 2,181 2,301 ships & floating structures 840 719 1,468 1,556 1,934 heating & cooling equipment 1,086 795 1,337 1,784 2,160 textile machinery 979 922 1,217 1,087 744 motor parts etc 675 774 1,118 1,304 1,245

Mineral fuels & lubricants 14,636 15,053 15,415 19,013 24,284 of which: crude petroleum 9,548 9,151 8,878 10,809 14,432 coal, coke etc 1,616 1,733 1,777 2,081 2,337

Chemicals etc 7,668 8,235 9,763 13,156 13,231

Inedible raw materials 8,315 8,870 9,405 11,713 10,965

Food & live animals 4,097 4,002 4,761 5,926 7,265

Iron & steel 2,778 2,488 3,734 5,504 4,647

Non-ferrous metals 2,025 2,226 3,066 4,617 4,126

Measuring & controlling instruments 1,776 2,049 2,664 3,607 3,886

Iron ore & scrap 1,338 1,663 1,644 1,847 1,858

Woven textiles 1,312 1,284 1,606 1,854 1,752

Textile yarn 901 965 1,321 1,601 1,555

Total incl others 81,776 83,800 102,348 135,119 150,339Source: Bank of Korea, Monthly Statistical Bulletin.

Reference table 27

Trade volume indices(1995=100)

1992 1993 1994 1995 1996

Exports 65.8 70.2 80.7 100.0 119.8

Imports 63.8 67.9 82.5 100.0 112.6Source: Bank of Korea, Monthly Statistical Bulletin.



Reference table 28

Main trading partners

1990 1993 1996 $ m % of total $ m % of total $ m % of total

Exports to:US 19,360 29.8 18,138 22.1 21,671 16.7Japan 12,638 19.4 11,564 14.1 15,767 12.2China n/a n/a 5,151 6.3 11,486 8.8Hong Kong 3,780 5.8 6,434 7.8 11,131 8.6Singapore 1,805 2.8 3,110 3.8 6,439 5.0Taiwan 1,249 1.9 2,296 2.8 4,005 3.1Indonesia 1,079 1.7 2,095 2.5 3,198 2.5Thailand 969 1.5 1,761 2.1 2,664 2.1Malaysia 708 1.1 1,430 1.7 4,333 3.3Germany 2,849 4.4 3,593 4.4 4,705 3.6UK 1,750 2.7 1,661 2.0 3,222 2.5Total incl others 65,016 100.0 82,236 100.0 129,715 100.0

Imports from:US 16,943 26.6 17,928 21.4 33,305 22.2Japan 18,574 26.6 20,016 23.9 31,449 20.9China n/a n/a 3,929 4.7 8,533 5.7Germany 3,284 4.7 3,955 4.7 7,239 4.8Indonesia 1,600 2.3 2,588 3.1 4,013 2.7Malaysia 1,586 2.3 1,947 2.3 3,007 2.0Taiwan 1,452 2.1 1,407 1.7 2,725 1.8Singapore 897 1.3 1,540 1.8 2,527 1.7Saudi Arabia 1,725 2.5 3,735 4.5 6,667 4.4Australia 2,589 3.7 3,347 4.0 6,272 4.2UK 1,226 1.8 1,401 1.7 2,994 2.0Total incl others 61,465 100.0 81,775 100.0 135,119 100.0Sources: Bank of Korea, Monthly Statistical Bulletin. IMF, Direction of Trade Yearbook.



Reference table 28

Balance of payments, IMF estimates($ m)

1992 1993 1994 1995 1996

Goods: exports fob 75,169 80,950 93,676 123,203 128,303

Goods: imports fob –77,315 –79,090 –96,822 –127,949 –143,609

Trade balance –2,146 1,860 –3,146 –4,746 –15,306

Services: credit 12,750 15,545 19,814 26,243 26,806

Services: debit –14,823 –16,714 –20,529 –27,884 –32,154

Income: credit 1,782 1,564 1,671 2,380 2,774

Income: debit –2,777 –2,810 –3,225 –4,656 –5,300

Current transfers: credit 3,358 3,644 3,937 4,315 4,407

Current transfers: debit –2,083 –2,073 –2,377 –3,902 –4,288

Current-account balance –3,939 1,016 –3,855 –8,250 –23,061

Direct investment abroad –1,208 –1,361 –2,524 –3,529 –4,424

Direct investment in South Korea 727 588 809 1,776 2,325

Portfolio investment assets 845 232 –230 –311 –2,414

Portfolio investment liabilities 4,857 10,298 7,097 11,136 16,787

Other investment assets –2,515 –4,224 –7,627 –13,084 –11,822

Other investment liabilities 4,263 –2,345 13,085 21,233 23,573

Financial balance 6,969 3,188 10,610 17,221 24,025

Capital-account nie balance –407 –475 –437 –487 –598

Net errors & omissions 1,101 –720 –1,704 –1,444 1,049

Overall balance 3,724 3,009 4,614 7,040 1,415

Financing (– indicates inflow)Movement of reserves –3,724 –3,009 –4,614 –7,040 1,415Use of IMF credit & loans 0 0 0 0 0Liabilities constituting foreign authorities’ reserves 0 0 0 0 0Exceptional financing 0 0 0 0 0Source: IMF, International Financial Statistics.



Reference table 30

Balance of payments, national estimates($ m)

1992 1993 1994 1995 1996

Merchandise exports 75,169 80,950 93,676 123,202 128,303

Merchandise imports –77,316 –79,090 –96,822 –127,949 –143,609

Trade balance fob –2,146 1,860 –3,145 –4,747 –15,306

Services & income credits 16,010 18,253 22,551 29,864 30,473 of which: freight 3,091 3,747 5,060 6,362 6,890 other transport 2,010 2,456 3,124 4,301 3,083 travel 2,690 2,964 3,340 5,150 4,880 investment income 2,555 2,012 2,123 3,002 3,202

Services & income debits 18,625 20,220 24,540 33,505 38,118 of which: freight 1,327 1,354 1,639 2,315 2,503 other transport 4,798 5,503 6,304 8,397 9,150 travel 3,213 3,533 4,513 6,341 7,482 investment income 3,698 3,345 3,790 5,400 5,699

Balance on invisibles –2,614 –1,967 –1.989 –3,640 –7,645

Unrequited transfers 232 491 604 –561 –765

Current-account balance –4,529 385 –4,531 –8,948 –23,716

Long-term capital 7,233 8,900 5,862 7,827 11,797

Short-term capital 1,110 –2,021 3,163 5,592 5,229

Errors & omissions 1,084 –721 –1,672 –1,437 1,023

Overall balance 4,898 6,542 2,822 3,034 –5,667Source: Bank of Korea, Monthly Statistical Bulletin.

Reference table 31

Foreign investment approvals by country of origin($ m)

1991 1992 1993 1994 1995

US 296.3 379.2 340.7 310.9 644.9

Japan 226.2 155.2 285.9 428.4 418.3

Hong Kong 9.7 9.5 75.0 43.1 58.0

Germany 67.9 120.5 35.9 60.2 44.7

UK 18.8 23.7 70.8 25.0 86.7

France 28.8 29.2 39.7 56.4 35.2

Netherlands 599.4 43.8 131.2 67.2 170.1

Switzerland 74.3 36.7 7.1 10.9 9.8

Others 74.4 96.9 58.0 314.3 473.7

Total 1,396.0 894.5 1,044.3 1,316.5 1,941.4Source: National Statistical Office, Korea Statistical Yearbook.

52 South Korea: Basic data


Reference table 32

External debt($ m)

1993 1994 1995 1996

Total external debt 63,924 81,476 108,496 137,671 Long-terma 24,567 27,103 32,532 41,196 Short-term 28,939 40,823 56,027 69,173 Use of IMF credit 0 0 0 0

Official creditors 9,432 9,413 9,236 8,451 Multilateral 3,202 3,100 2,456 1,401 Bilateral 6,230 6,313 6,780 7,050

Private creditors 25,731 31,240 43,233 60,047

Total debt serviceb 9,173 7,923 10,940 13,643 Principal 6,270 4,818 7,046 9,067 Interest 2,903 3,105 3,893 4,576 of which: short-term debt 788 848 1,249 1,390

Ratios (%)Debt-service ratio, paidc 9.4 6.9 7.2 8.6Total external debt/GDP 19.2 21.4 23.8 28.4Short-term debt/total external debt 45.3 50.1 51.6 50.2

a With an initial maturity of over one year. b Including publicly guaranteed private debt. c Long-term debt only.

Sources: World Bank, Global Development Finance; OECD, External Debt Statistics.

Reference table 33

Foreign reserves($ m; end-period)

1992 1993 1994 1995 1996

Foreign exchange 16,640 19,704 25,032 31,928 33,237

SDRs 42 58 76 98 118

Reserve position in the IMF 439 466 531 652 682

Total reserves incl gold 17,153 20,262 25,673 32,712 34,073Source: IMF, International Financial Statistics.

Reference table 34

Exchange rates(Won per currency unit; end-period)

1992 1993 1994 1995 1996

US$ 786.5 808.1 786.5 770.2 804.5

¥100 630 722 790 744 735

DM 485.1 464.8 507.6 535.7 533.1

SDR 1,084 1,110 1,151 1,152 1,214

NT$ 31.0 30.3 29.9 28.2 29.3

S$ 478.8 501.9 539.4 544.6 570.8

HK$ 101.6 104.6 101.6 99.6 103.9Sources: Bloomberg; IMF, International Financial Statistics.



North Korea

Basic data

Land area 122,762 sq km (official figure)

Population 24.3m (mid-1997 estimate)

Main towns Population in ’000, 1987 (official sources)

Pyongyang 2,355Hamhung 701Chongjin 520Nampo 370Wonsan 274Sinuiju 289

Climate Continental, with extremes of temperature

Weather in Wonsan(altitude 37 metres)

Hottest month, August, 20-27°C (average daily minimum and maximum);coldest month, January, minus 8-1°C; driest month, January, 30 mm averagerainfall; wettest month, August, 317 mm average rainfall

Language Korean

Measures Metric system; also Korean measures

Currency 1 North Korean won (Won)=100 chon. Non-convertible currency. The multipleexchange rates of earlier years seem in practice to have coalesced into a singlerate, currently Won2.15:$1. Black-market rates are much higher

Time 9 hours ahead of GMT

Public holidays January 1st; February 16th; April 15th, 25th; May 1st; July 27th; August 15th;September 9th; October 10th

54 North Korea: Reference tables


Political background

North Korea is the world’s last remaining unreformed Stalinist state. It is ruledby the communist party, the Korean Workers’ Party (KWP), whose institutionsshadow and control those of the state at all levels. Two minor parties have awholly nominal existence. In practice, as so often, real power was appropriatedby one man, Kim Il-sung, who ruled North Korea from its foundation until hisdeath in 1994. After a hiatus of three years, his son and heir, Kim Jong-il, wasproclaimed as KWP general secretary in October 1997; the presidency remainsvacant. Despite being almost friendless and with a collapsing economy on thebrink of famine, North Korea has so far shown remarkable staying power. Howlong it can continue to cling on is another matter.

Historical background

The ancient country of Korea, unified since 668 AD and with at least2,000 years of continuous cultural history, has had a tough and tragic passageto modernity. Less than a century ago the peninsula was still ruled by a feebleand faction-ridden feudal monarchy, whose retreat into a “hermit kingdom”and failure to modernise led to Korea’s harsh colonisation from 1905 by herrising neighbour, Japan.

Japan’s swift surrender after the two atom bombs of August 1945 prompted theUS to propose to the Soviet Union a “temporary” division of the peninsula atthe 38th parallel, for the limited purpose of accepting the Japanese surrender.That division hardened into two separate states, which were declared in 1948:the Republic of Korea in the south, and the Democratic People’s Republic ofKorea in the north. The latter was led by Kim Il-sung, a young (born 1912)former anti-Japanese partisan in Manchuria who had retreated to the SovietUnion, impressed the Russians, and came home in Soviet uniform in 1945.

1950-53: the Korean war In June 1950 the north invaded the south, and nearly overran it before massiveUS-led UN intervention turned the tide. This in turn would have wiped outNorth Korea, had not China entered the war. The eventual armistice of 1953(there is still no peace treaty) left the country still divided, as it remains today,by a demilitarised zone (DMZ) not far from the 38th parallel. Perhaps 4mpeople died, and the whole peninsula lay in ruins, especially the north, wherecities and industries were all but destroyed by bombing.

From this holocaust both the young Korean states made astonishing recoveries:with aid from their allies, but driven mainly by their implacable mutual hatred.Kim Il-sung blamed others for the debacle, and by 1956 had unchallengedcontrol of the KWP. North Korea thereafter built a monumental personalitycult around Kim, extreme even by the standards of Stalin and Mao. This turnedinto de facto hereditary monarchy from 1980, when Kim’s son, Kim Jong-il, wasrevealed as his father’s chosen successor.

Juche ideology Externally, like Nicolae Ceausescu in Romania, Kim Il-sung played the nat-ionalist card to keep his distance from his former sponsors in Moscow (who

North Korea: Historical background 55


nonetheless went on bankrolling him until as late as 1990). Ideologically,Kim’s own doctrine of juche (self-reliance) supplemented and increasingly sup-planted Marxism-Leninism. Institutionally, North Korea never joinedComecon (the Council for Mutual Economic Assistance). It was also the onlycommunist state which managed to stay neutral in the Sino-Soviet dispute,which Kim Il-sung milked to gain aid from Moscow and Beijing alike.

North Korea’s finest hour was in the early 1970s, when its rapid early indus-trialisation (see below) not only put it ahead of South Korea (by some measuresof economic advancement) but also impressed other developing countries,with which North Korea increasingly identified. Active in the Non-AlignedMovement (NAM), it succeeded in excluding South Korea from the NAMbecause of the presence of US troops (of whom some 37,000 remain today).There have been no foreign troops stationed in North Korea since 1959.

The end of the cold war Thereafter, however, increasing political and economic sclerosis left NorthKorea ill-equipped to adapt to a changing world. The end of the cold war andthe collapse of the Soviet Union undermined North Korea, diplomatically andeconomically. Both the Soviet Union in 1990 and China in 1992 openedrelations with South Korea; the north has as yet no equivalent formal ties withthe US or Japan, having long opposed such “cross-recognition”. It also opposedentry of two separate Korean states into the UN, but joined in 1991 when itbecame clear that the south would gain admission.

1993-96: the nuclear issue Growing concern that North Korea’s nuclear programme had a military dimen-sion came to a head in 1993, when the country threatened to withdraw fromthe Nuclear Non-proliferation Treaty. Tensions were defused by a frameworkagreement with the US, signed in Geneva in October 1994, to provide newlight-water reactors worth $4bn as a reward for shutting down the old ones atYongbyon. This remains on track, and has also opened channels to the USmore generally.

By contrast, relations with South Korea (whose economic prowess and diplo-matic clout now dwarf the north’s) remain as bad as ever. This is despiteintermittent talks ever since the 1970s, and even the signing in 1991 of wide-ranging agreements on co-operation, which remain on paper only. The mainbright spot is growing business co-operation with southern private companies,which is set to expand. On the political front, four-way talks between the twoKoreas, the US, and China opened in Geneva in December 1997. While this isprogress, it remains to be seen whether Pyongyang is yet ready to make realconcessions.

Still no head of state On July 8th 1994 Kim Il-sung died of a heart attack at the age of 82. Since thenNorth Korea has officially had no head of state, nor KWP general secretary untilKim Jong-il was appointed in October 1997. The junior Kim is projected asleader with all the cult trappings, but remains as reclusive as ever. His mainpublic activity is visits to military bases, often in the front line; which is one ofmany signs that real power in Pyongyang rests with the military.

Overall, the parallels between North Korea in the 1990s and the old Korea inthe 1890s are striking. In both cases, the attempt to retreat into a “hermit

56 North Korea: Historical background


kingdom” produced not strength but weakness in a changing and encroachingworld. The difference is North Korea’s formidable military capacity. Hard as itis to see how a fierce little Stalinist dinosaur will survive in the 21st century,there can be no guarantees that North Korea will try to adapt, let alone succeed;or that it will go quietly.

Important recent events

September 1990: The Soviet Union establishes diplomatic relations with SouthKorea.September 1991: Both Korean states admitted to membership of the UN.December 1991: Agreements with South Korea signed, but not implemented.March 1993: North Korea gives notice of withdrawal from the NuclearNon-proliferation Treaty.December 1993: First ever admission of non-fulfilment of a seven-year plan.July 1994: Death of Kim Il-sung.October 1994: Nuclear framework agreement with the US signed in Geneva.October 1997: Kim Jong-il becomes general secretary of the ruling KWP.

Constitution and institutions

• Formally, North Korea is governed by the constitution of December 1972, asrevised in April 1992. This is in many ways a typical communist constitution.

• The Democratic People’s Republic of Korea (DPRK) is defined as socialist,revolutionary and anti-imperialist, and organised on the basis of “democraticcentralism”.

• The state is committed to “maintaining the class line and ... strengtheningthe people’s democratic dictatorship” against “the destructive manoeuvring ofboth internal and external hostile elements”.

• The leadership of the KWP is explicitly recognised.

• “The means of production are owned solely by the state and cooperativeorganisations”.

• The role of the judiciary includes “opposing and actively struggling againstall class enemies and law-breakers”.

While all the above are openly stated, more duplicitous (and typicallycommunist) is the claim that “the Supreme People’s Assembly (SPA) is thehighest organ of power”. In fact the SPA is a rubber stamp, “elected” on what isalways claimed to be a 100% yes vote. Although elections are due every fiveyears, the last was in April 1990. The SPA seems not to have met since KimIl-sung died.

Some other aspects of the constitution are peculiar to North Korea, as follows.

• Ideologically, Marxism-Leninism disappeared from the 1992 version. Thestate is now said to be guided by the juche ideology alone.

North Korea: Constitution and institutions 57


• The 1972 constitution created the Central People’s Committee (CPC) as akind of supra-cabinet, directing the unwieldy large State AdministrationCouncil (SAC). In practice, CPC membership has come to comprise mainlywhat are virtually provincial governors (in that, at province level, the top stateand party posts are combined).

• The National Defence Commission, set up in 1972 as a committee under theCPC, became in 1992 a separate and seemingly higher body whose remit in-cludes the right to declare war. It is also no longer chaired by the president. (Infact it is chaired by Kim Jong-il, the only formal state post he yet possesses.)

The SAC currently contains 32 ministries and 13 “commissions” (supra-ministries). In a political system as opaque as North Korea’s, who really doeswhat is inevitably, and perhaps deliberately, unclear. Since real power lieselsewhere, it would serve little purpose to list ministers and ministries here.

Political forces

Real politics in North Korea goes on behind the mask of yuilsasang (ideologicalmonolithism). Although Kim Il-sung long ago eliminated both non-communistand communist opponents (the latter including domestic, South Korean, pro-Soviet and pro-Chinese factions), now that he is gone the rivalries and differ-ences which have inevitably remained may become more potent.

Deference to the military Institutionally, the three main hierarchies of power, namely state, party andarmy, do not necessarily see eye to eye. Government officials resent the party’sperks, and the technocrats among them bridle at the KWP’s resistance to re-form. Yet both must now defer to the military, who not only run their ownseparate economy but also seem to have at least veto power over policy gener-ally. Probably the most powerful body is one of the least known: the CentralMilitary Commission (CMC) of the KWP.

Main political figures

Kim Jong-il: Kim Il-sung’s son, heir-apparent, KWP general secretary, NationalDefence Commission (NDC) chairman and commander-in-chief.Kim Yong-nam: Foreign minister and politburo member.Kang Song-san: Prime minister (for second time) and politburo member. May be illKim Yong-sun: Party international secretary. Has handled relations with the US,Japan, and now South Korea.Kim Jong-ju: Formally only deputy minister for external economic relations, buthandles Western business. Chon Byong-ho: Politburo member, party secretary running the military economy.Kye Ung-tae: Politburo member, party secretary.Chang Song-taek: Kim Jong-il’s brother-in-law and principal confidant.Cho Myong-rok: Vice-marshal, army political director; now the most powerfulmilitary man.

58 North Korea: Political forces


Also important are generations, dynasties and cliques. Kim Il-sung’s ageingguerrilla comrades have yet to be shifted by Kim Jong-il’s younger men. Dynas-tically, there is no love lost between Kim Jong-il and either his uncle, KimYong-ju, back in senior posts after 20 years in the wilderness, or his half-brother Kim Pyong-il, kept well out of the way as ambassador to Finland.

Trusted cronies As for cliques, the reclusive Kim Jong-il relies heavily on a few trusted cronies.These are thought to include: the party international secretary, Kim Yong-sun;a politburo stalwart, Kye Ung-tae; the foreign minister, Kim Yong-nam; and,above all, his brother-in-law, Chang Song-taek. Overall, while at present themask of unity is maintained, North Korea’s dire economic and diplomaticstraits could precipitate open conflict over policies, or between factions, orboth. There have already been rumoured coup attempts.

International relations and defence

North Korea loses friends North Korea today has lost its old friends without acquiring any new ones.Relations with the Soviet Union had their ups and downs, but Soviet aidcontinued until 1990. However, there are almost no ties with the new Russia.That leaves China as North Korea’s main ally and aid donor. But China, too,has grown impatient with maverick tendencies and failure to reform and inpractice now has a far more thriving relationship with the south, while payinglittle more than lip-service to the north. (Although China, unlike Russia, hasnot formally revoked its 1961 treaty, which includes a commitment to assist incase of war, it has assured South Korea that that provision is a dead letter.)

Having also lost the developing world to South Korea (which can offer aid andinvestment rather than mere slogans and military training), North Korea haslately made odd efforts to cultivate old foes. There have long been de factocontacts with Japan, partly owing to a substantial pro-Pyongyang Korean min-ority there. Talks about diplomatic relations, held during 1990-92 withoutsuccess, may resume in 1998. But there are many stumbling blocks, rangingfrom long unpaid debts to allegations of kidnapping and drug smuggling. Withthe US, the nuclear framework accord has led to regular bilateral contact inseveral fields, including joint searches for MIA (missing in action) remains andfood aid. As for South Korea Pyongyang’s refusal bilateral dialogue since 1992led Seoul and Washington in April 1996 to propose four-way talks with NorthKorea and China. After much hesitation, the first round of these was due inGeneva in December 1997.

The million-strongmilitary

One reason why North Korea’s erratic blandishments arouse suspicion is thefact that the country remains an astonishingly militarised society. No fewerthan 1.2m men are under arms, in a total population of 24m, and most aredeployed offensively close to the DMZ. Militant rhetoric continues unabated,and two teams of infiltrators caught in the south in late 1995, as well as abungled attempt by the north to land a team of commandos by submarine ona southern beach in September 1996, suggest it is not just talk. Suspicionremains of nuclear ambitions, since plutonium may have been extracted tomake bombs; while chemical and biological stockpiles are also alleged. Missile

North Korea: International relations and defence 59


development is a known fact, and is regarded by Japan as its principal securitythreat. North Korea also barters improved Scud missiles to the likes of Iran andSyria in exchange for oil. Overall, the hope must be that, nonetheless, thegenerals realise that any southern adventure would spell suicide. (For data ondefence spending see Reference table 1.)

The economy

Economic structure

Main economic indicators, 1996

GNP ($ bn) 21.4

Real GDP growth (%) –3.7

GNP per head ($) 910

Population (m) 23.6

Exports ($ bn) 0.79

Imports ($ bn) 1.34

Current-account balance (m) –549

Foreign debt ($ bn) 10.3Sources: Bank of Korea, Seoul; Jetro, Tokyo.

North Korea’s economic structure is more akin to yesteryear’s eastern Europethan that of the rest of Asia. Detailed analysis is frustrated by the fact that nosystematic economic data have been published since the early 1960s. But thebasic picture is of rapid growth and industrialisation until around 1970, whichcreated a mainly urban and industrial society; followed by a quarter-century ofslowdown, stagnation and now decline. The economy remains officially cen-trally planned, the last on earth to be so; although increasingly de facto marketsare replacing the atrophied old system, above all in agriculture.

Industrialisation has hardly progressed beyond the typical Stalinist heavy bri-gade: coal and steel, chemicals and machine tools. Geographically, much is onthe east coast, partly because of the proximity of minerals (except for coal,where the centre is Anju in the west). Minerals and metals, including preciousones, are also exported. Light industry is mainly around Pyongyang, althougheach province is supposed to be self-sufficient in this domain. Farming is achallenge because of the mountainous terrain (the flatter south was alwaysKorea’s ricebowl). North Korea has subordinated variety and a balanced diet tomaximising output of just two grains, rice and maize; the latter is now themain staple. Most is grown in the western half of the country. Collectivisation,excessive use of chemicals, unwise terracing and serious floods in 1995 and1996 (followed by drought in 1997), have combined to bring North Korea tothe brink of famine. Since 1995 both UN aid agencies and non-governmentalorganisations (NGOs) have been active in North Korea, but the exact incidenceof hunger remains mysterious.

As if this litany of woe were not enough, the military is a huge drain. Itreportedly constitutes a virtual parallel economy at all levels, run by the

60 North Korea: Economic structure


Second Economic Committee based at Kangdong, east of Pyongyang. Untoldsums have also been wasted on the “grand monumental edifices” which litterthe capital, including an Arc de Triomphe bigger than the original and thenever-to-be-finished (because the money ran out) skeleton of a pyramid-shaped 105-storey hotel. According to the Ministry of National Defence inSeoul, the north’s military spending stood at some 25% of its GNP.

Economic policy

A centrally plannedeconomy

The North Korean economy is in dire straits. As long ago as the 1960s econ-omists warned that the rapid and extensive growth of initial industrialisationwas not sustainable, but should give way to slower and more intensive devel-opment focusing on quality. The then leader, Kim Il-sung, shut them up, butthe decline and fall of the economy ever since proved them right and himwrong. The malaise has several analytically distinct causes.

• The root problem is the classic malfunctioning of a centrally planned eco-nomy, as formerly seen in the Soviet Union and eastern Europe. With pricesignals still playing almost no part in resource allocation, inefficiency andshortages have reached crisis point.

• In true Stalinist style, North Korea overinvested in heavy industry whileneglecting consumer goods and farming. These priorities are supposed to bereversed now, but it is not clear if things have really changed. Agriculture hasits own severe problems, as mentioned above.

• The prevalent Soviet-model technology is both antiquated and worn out. Sonow are the turnkey factories bought (or rather stolen) in the 1970s fromWestern sources, with loans on which North Korea defaulted almost at once: afolly which has ruled out subsequent credits or investment.

• Like Cuba, North Korea suffered severely when Moscow turned off the tap in1991. Despite the boasts of juche (self-reliance), North Korea was, in fact, de-pendent on Soviet aid all along.

On top of these objective system problems, there are subjective peculiarities.One is infallibilism: the absurd burden of continuing to claim officially that allis brilliant, even when the world can see that it is not. Kim Il-sung was also aproblem in himself. His “on-the-spot guidance” was a loose cannon whichplayed havoc with planning: for example, ordering that machines alreadyinstalled in one factory should be ripped out and shifted to his pet projects.This Panglossian tone has become more muted since July 1995, when seriousfloods (which struck again in 1996) forced the regime to admit to problems (ifonly from the weather).

Rajin-Sonbong free zone It is obvious to most outsiders that North Korea should follow China andVietnam by embracing market reforms. A toe was dipped in the water with thedesignation in December 1991 of Rajin-Sonbong in the north-east, borderingChina and Russia, as a free economic and trade zone (FETZ). This was accom-panied by a sheaf of legislation on foreign-business activities (mainly, but not

North Korea: Economic policy 61


only, in the FETZ), which was detailed enough, unlike the earlier joint-venturelaw of 1984, to suggest seriousness of intent.

But Rajin-Sonbong, like the rest of the much-hyped “golden triangle” at theTumen river delta, is so far more dream than accomplishment. Pyongyang wasslow to commit funds for even the most basic infrastructure, such as upgradingroads and port facilities. This and the remote location have made investorscautious. Many have been to look, but very few have made firm commitments.In 1997 the authorities took drastic, even desperate measures: permitting pri-vate enterprise in the zone by North Koreans, and devaluing the won almost100-fold to its black-market rate of around Won200:$1. It remains to be seenwhether this will kick-start Rajin-Sonbong into life.

Investor reluctance also reflects other anxieties. Besides political worries suchas the nuclear issue, now perhaps resolved, business has two main concerns.One is North Korea’s debt crisis, now in its third decade, in which Pyongyanghas shown a unique insouciance towards foreign debts which have grown toover $10bn. Significantly, the first, and so far only, Western banks to set upthere, ING and Peregrine, are both too young to have had their fingers burnedin the 1970s.

No clear sign of economicreform

But the main puzzle is whether North Korea is yet firmly and irrevocablycommitted to reform overall, or whether Rajin-Sonbong is intended as a soli-tary enclave—and, if so, whether it will work. Official statements, includingtreatises by, or in the name of, Kim Jong-il (both before and after his fatherdied), consistently oppose market reforms as revisionism or even treachery. Yeta tape allegedly of the “dear leader”, published in Seoul in 1995, shows thateven a decade ago he was well aware of North Korea’s failings and the need forsome kind of opening. Moreover, the twin exigences of flooded farms andindustrial near-collapse have led to a double standard: de facto tolerance ofmarkets, which are still denounced in theory.

With no overt debate yet permitted in the North Korean media, such puzzlesare set to continue. A possible stand-off between hardliners and reformers maybe deduced from North Korea’s changes of line and apparent determination tohave it all ways. For example, formal agreements on economic co-operation(and much else) were signed between the two Koreas in 1991 but never imple-mented. Yet the north courts South Korean companies for trade and invest-ment as assiduously as it refuses (with occasional exceptions, such as to receiverice, albeit with ill grace, in 1995) contact with their government.

Plan targets were notachieved in the early 1990s

Internally, progress of a kind was the first ever admission, at the end of 1993, thatplan targets had not been met (foreigners were blamed). This was followed by aproclaimed adjustment period of three years, in which priority would go to lightindustry, farming and foreign trade. But in practice it is unclear whether a real shifthas occurred. No new plan has been announced for 1997 onwards.

Externally, a pitfall for the unwary (in both theory and practice) is the un-doubted fact that North Koreans at all levels are now under orders to earnforeign exchange by whatever means. Such activities range from legitimatebusiness, such as joint ventures with North Koreans in Japan to make cheap

62 North Korea: Economic policy


men’s suits, which are said to have taken a quarter of the Japanese market, tododgy deals like smuggling Japanese second-hand cars into China and outrightcriminality, such as heroin trafficking in Russia or passing forged $100 bills inMacau. While entrepreneurship may indeed be learned, such activities shouldnot be seen as signs of reform so much as of desperation.

Militant mendicancy The same goes for North Korea’s latest policy, which can only be called militantmendicancy. Having been bribed to freeze its nuclear programme with $4bn(now said to be $6bn) of new light-water reactors in 1994, North Korea thencoolly asked for rice from Japan, and got it from South Korea as well, whilecontinuing in all other respects to treat South Korea, Japan and the US asenemies. While such neo-dependency will not reinvigorate the economy, itmay stave off collapse, which is no doubt why all concerned consent to theseparadoxical new ties between old foes.

A few areas of foreignco-operation

Some forms of co-operation go beyond life-support. If North Korea permits,there can be complementarities with South Korea (and Japan) to parallel thosewhich now bloom between China and Taiwan. Southern capital, technologyand management, allied to northern resources and cheap disciplined skilledlabour, could be a winning formula to shift out of the Stalinist cul-de-sac intoexport-led light industry as a new basis for growth. But while there are certainlythose in the leadership who grasp this, it is not clear that they are yet in fullcontrol.

Latterly, even the formalities of economic policymaking have gone by default.The usual April budget has not been announced at all since 1994. In previousyears, careful scrutiny of the few figures available has shown that eventualspending often differs markedly from the planned figure. For example, socialwelfare in 1993 was originally slated for a 2.1% rise, but actually got an increaseof nearly 7%. This implies that in reality short-run crisis management andpolitical criteria prevail over planning. Also ominous was the halving since1993 of planned increases in both revenue and expenditure from around 6% tounder 3%. (For further details on government finances, see Reference table 2.)

Main policy events

1984: First joint-venture law.1985-86: Two “years of adjustment” between seven-year plans.Late 1980s: Tacit de facto abandonment of “ten long-range goals for 1980s”.January 1991: Abrupt end of Soviet aid and concessional trade.December 1991: Designation of Rajin-Sonbong as a free economic and trade zone.1991-95: More than 20 new laws and regulations for foreign business.December 1993: First ever admitted non-fulfilment of development plan (1987-93).1994-96: Declared as “period of adjustment”, with priority to agriculture, lightindustry, and foreign trade.1995: Non-occurrence of the usual budget report and speech.1995: Rice aid solicited from Japan, and received from South Korea too.September 1996: Investment forum at Rajin-Sonbong, although a last-minute rowwith Seoul meant that no South Korean firms attended.

North Korea: Economic policy 63


Government finance(Won bn)

1993a 1994b

Revenue 40.6 41.5

Expenditure 40.2 41.5

People’s economy 27.3 28.1

Social welfare 8.0 8.2

Defence 4.6 4.8

Administration 0.3 0.8

Note. No published budget since 1994.a Actual. b Budget.

Source: Budget speech cited in Vantage Point, Naewoe Press, Seoul, 1994.

Economic performance

A contracting economy As already described, North Korea’s economic performance over time is like thetrajectory of an arrow shot skywards. Western studies of the early years (whenthere were figures) confirm very rapid rates of growth in general and in indus-trial growth in particular (admittedly from a low baseline, and including post-Korean war reconstruction). Even in the 1960s, when the first signs of troubleoccurred (the seven-year plan of 1961-67 was extended to 1970, because ofdefence burdens) industrial output grew on average by 13% each year.

At this stage, incredible as it might now seem, the north led the south in perhead income and degree of industrialisation. But, as ever, forced-marchStalinism without reform could not sustain its initial dynamism. As the tablebelow shows, over the past 20 years growth has slowed and in the 1990s hasgone into reverse. While computing GNP for communist economies and com-paring them with capitalist ones is problematic, methodologically speaking, inbroad terms North Korea’s national income of around $20bn (or under $1,000per head) and falling is now dwarfed by South Korea’s $490bn in 1996 (or over$11,000 per head). (Seoul’s financial crisis and IMF bailout in late 1997, al-though likely to reduce the south’s dollar-denominated GDP, in no way ne-gates the vast economic gulf that has opened up between Korea’s two halves.)

In sectoral terms, estimates by the Bank of Korea (the central bank of SouthKorea) suggest that nowadays agriculture, industry (including mining) and serv-ices each contributes close to one-third of GDP. Farming ceased to be predomi-nant at least 30 years ago, but it is not clear whether its role has diminishedmuch since 1970, unlike in South Korea where it continues to shrink as aproportion of GDP. In fact the Bank of Korea figures to 1994 show a slightincrease in farming as a proportion of GDP, with industry falling while servicesare on the rise. (For historical GNP/GDP data see Reference tables 3, 4 and 5.)

Industrial decline While a growing services sector is normal (although North Korea follows com-munist tradition in not recognising any such sector, this being “unproductive”in Marxist terms), these counterintuitive tendencies of rising agriculture andindustrial decline bespeak North Korea’s current crisis: a serious food shortagecausing more resources to be committed to the farm sector and away fromindustry, where supply bottlenecks mean that underutilisation and de facto

64 North Korea: Economic performance


idleness of both plant and labour are now chronic. Although agriculture’scontribution to GDP fell in 1995 because of severe flooding, and the same maywell be true of 1996 and 1997, this will further intensify concentration onfarming in an effort to ensure that, if nothing else, people get fed.

Estimating living standards is as difficult as for all economic magnitudes inNorth Korea. Nominal wages are both low, in the range of Won100-200 ($50-100) per month, and fairly egalitarian, but they are supplemented by perkssuch as heavily subsidised housing and food rations which differ more widelyin quantity and quality. In 1997 reports suggest that rationing had brokendown in many areas, after three years of natural disasters in agriculture. A rareofficial figure in May 1996 claimed that annual average subsidies for a family offour total Won2,289.2 ($1,060 at the official exchange rate; much less if con-verted at the black-market rate). As in other communist countries, the privi-leged and their offspring form a nomenklatura which is self-perpetuating; while,at the very top, Kim Jong-il is rumoured not to distinguish between the stateTreasury and his personal coffers.

Growth in gross national product(% change; annual averages)

1957-61 20.9

1961-65 9.8

1966-70 5.5

1971-75 10.4

1976-80 4.1

1981-85 3.7

1986-90 1.4

1991-94 –4.5Source: Research Institute for National Unification, Seoul.

Gross domestic product by sector(% of total)

1993 1994 1995

Agriculture, forestry & fishing 27.9 29.5 27.6

Mining & manufacturing 32.9 31.4 30.5 Mining 8.2 7.8 8.0 Manufacturing 24.7 23.6 22.5 Heavy industry 17.9 16.6 15.7 Light industry 6.8 7.0 6.8

Electricity, gas & water 4.8 4.8 4.8

Construction 8.5 6.3 6.7

Services 25.9 27.9 30.3 Government 16.8 18.6 20.7 Others 9.0 9.3 9.6Source: Bank of Korea, Seoul, cited in Vantage Point, Naewoe Press, Seoul, July 1996.

Regional trends

North Korea may be small, but regional issues should not be overlooked. Thefact that the Central People’s Committee has come to comprise mainly provin-cial “governors” (unusually, the top party and state posts at this level are held

North Korea: Regional trends 65


concurrently) indicates the importance of the provinces. Economically, theyare supposed not only to provide their own light industry, farming and socialservices (everything, in fact, except heavy industry, which is centrally planned)without subsidy, but also to hand over surpluses to the central exchequer.

Regional disparities arewide

The consequences are predictable. Not only does light industry suffer from lackof investment and poor quality (to prevent this, some investment is, in fact,centrally provided), but unequal endowments inevitably produce regionalinequalities. This is seen in rare figures obtained by a Soviet source in the1980s, which reveal an interesting story. In all provinces except one, bothrevenue and expenditure fell between 1980 and 1984, while central govern-ment’s exactions grew by 20%. By region, the squeeze was worst in the twoPyongan provinces (around and north of Pyongyang); whereas the capital itselfand the north-eastern Hamgyong provinces seem to have held the line in termsof cuts. It may be no coincidence that many of the elite hail from Hamgyong.

Things got worse in the mid-1980s: 1985 and 1986 were both “planless” years,and aggregate provincial revenue and expenditure fell sharply. Both sides ofthe ledger rose in 1987, enabling the centre to cream off its largest ever surplus;but total provincial spending was still less in 1987 than it had been in 1980.Only in 1988 did the centre relent, with a budget allowing provincial expend-iture to rise three times faster than revenue in that year. Later data are unavail-able, but if the 1980s were so grim at a time when national GNP was still rising,its fall throughout the 1990s so far does not augur well for the fate of theprovinces.

Resources

Population

Rarely for North Korea, official data are available on population. Figures pro-vided to the UN Population Fund in 1989 for the purpose of getting aid havebeen used by US demographers to generate fuller data and projections. Thiswork (by Nicholas Eberstadt and Judith Banisher in 1992) is much fuller thanthe figures so far released from North Korea’s first ever official census, con-ducted in January 1994, which continues Pyongyang’s habit of apparentlyexcluding the million-strong military and possibly other categories as well aspolitical prisoners. The following account is thus based mainly onMr Eberstadt’s work. (It should also be noted that current and future demo-graphic trends will be affected by three years of hunger, with a probable but asyet unquantifiable impact on infant and child mortality in particular.)

As of mid-1997, North Korea’s population thus probably stood at about 24.3m.This compares with 9.3m in 1946 and only 8.5m by the end of the Korean warin 1953, by which time there were half a million fewer men than women. Thesex ratio in mid-1990 was still only 97.5 males per 100 females.

Death rates fell markedly from 17 per 1,000 in 1960 to less than 6 per 1,000 in1980, but have dropped only marginally since then. Life expectancy may have

66 North Korea: Population


risen by 20 years between 1960 and 1990, from 46 to 66 for men and from 52to 72 for women. Birth rates remain closer to developing world than first worldnorms (and are twice South Korea’s, but the north has only half as manypeople). However, a halving of the birth rate from its peak of 3.6% in 1970 to1.8% in 1995 suggests that birth control is being encouraged, although there isno overt or even acknowledged policy. This affects the age structure, in that thelargest population cohorts, North Korea’s “baby boomers”, are the 20-29 agegroup. In 1986, 16-year-olds were 40% more numerous than those aged 0-1years. (See Reference tables 6 and 7 for population data.)

Urbanisation slowed inthe 1980s

It was also just before 1970 that city dwellers became the majority. NorthKorea’s urbanisation pattern is unusual, in that very rapid change in the earlyyears (in 1953 more than 82% still lived on the land) slowed down markedlyafter 1970. Other data on relocation (only 5% of North Koreans move eachyear, a process controlled by government) also suggest a now largely staticpicture, with some 60% living in cities but a sizeable 40% still on the land.

Two features of most populations in other countries are largely absent. Thereare almost no ethnic minorities, except a dwindling group of Chinese number-ing a few thousand. There is also almost no migration in or out of the “hermitkingdom”, although in earlier years this was considerable due to refugee move-ments during the Korean war.

Population by age and sex, end-1986(’000)

Male Female Total % of total

0-5 1,282.9 1,232.3 2,515.2 13.2

6-15 2,235.5 2,164.7 4,400.2 23.1

16-54 4,551.3 5,810.1 10,361.4 54.4

55-59 222.6 351.8 574.4 3.0

60+ 418.1 790.7 1,208.8 6.3

Total 8,710.5 10,349.6 19,060.1 100.0Source: Nicholas Eberstadt, Population and Labour Force in North Korea.

Education

Educational attainmentis high

Education is one of North Korea’s success stories. As in South Korea, basicliteracy and primary education were early goals and quickly attained. Compul-sory 11-year schooling (between age 5 and 16) was introduced in 1972. Thereare 4,956 primary schools and 4,809 secondary schools, many of which sharethe same building. There are also over 200 universities and colleges, the major-ity of which specialise in a specific field of pure or applied science. Arts andsocial science (except economics) hardly seem to figure. Despite much tech-nical ingenuity with limited resources, isolation and shortages of foreign cur-rency (for example to buy journals or other necessary literature) suggests thatmost work will fall short of international levels.

At the other end of the scale, North Korea boasts what may be the world’s mostcomprehensive crèche and kindergarten system: there are around 16,000 in all,many based at work places. They serve a dual purpose: to free women for theformal labour force, in which they are the majority, and to begin the ideological

North Korea: Education 67


indoctrination which forms a major and avowed part of education at all levels.The latter is a negative feature: not only do students waste much time studyingthe works of Kim Il-sung, but ideological as well as technical proficiency isa prerequisite for advancement. Similarly, children from “bad” backgrounds (forexample, landlord, Christian and southern) are excluded from the elite KimIl-sung University.

Education statistics, 1988(’000 unless otherwise indicated)

University graduates 592 Male 421 Female 171

Specialised college graduates 761 Male 455 Female 306

University & specialised college graduates as % of adult population 13.7

Comparisons (%) South Koreaa 9.2 Japana 18.5 Chinab 0.9 USc 36.0

a 1980. b 1982. c 1987.

Source: Nicholas Eberstadt, Population and Labour Force in North Korea.

Health

Like education, health is—or had been—quite a success story. North Koreaboldly proclaimed the start of a free health service in 1953, in the middle of theKorean war. The claimed numbers in 1986 for hospitals (2,401), clinics (5,644),hospital beds per 10,000 population (135.9), doctors per 10,000 population(27), and much else are high by most world standards and well ahead of SouthKorea, except as regards clinics. But it is not clear how North Korea defines allthese categories, while quality is thought to vary sharply by locality (eg urbanand rural) and social status. By 1997, foreign aid workers were reporting thatboth real clinics and some urban hospitals, while stuffed by skilled profession-als, were all but devoid of medicines and other resources (for example heat).

In 1987 North Korea spent some Won948m ($440m at the market exchangerate) on health, or around 2% of that year’s “gross national income” of justover Won47bn. As in South Korea, that is quite a low figure by world standards.It is unknown whether it includes capital or recurrent costs or both, or if “state”spending includes that by provinces. It is clear that, as in other socialist sys-tems, the stress is on preventive and extensive medicine rather than intensiveand curative as in South Korea, although both Korean states have had quitesimilar mortality trends over time.

68 North Korea: Health


Healthcare statistics, 1986

North Korea South Korea

Hospitals 2,401 511

Clinics 5,644 8,570

Doctorsa 27.0 8.6

Nurses & paramedicsa 43.2 41.4

Hospital bedsa 135.9 19.2

Healthcare spending % of GDP 2.0b 2.6

a Per 10,000 population. b 1987.


This emphasis may have saved the country from epidemics in the wake of the1995 and 1996 floods, although there have been reports of cholera. But UNobservers in 1995 described children as wasted and stunted, and linked this toa narrow diet consisting mainly of maize. Observation of the physique ofteenagers (especially as compared to South Korea), plus the fact that there is anofficial “movement to grow taller”, suggests that even before the floods, dietwas spartan at best for many people. Without large-scale food aid, malnutritionwill worsen during 1997-98 and beyond.

Natural resources and the environment

North Korea constitutes the northern half (in fact some 55%) of the Koreanpeninsula, which protrudes south for about 1,000 km from the north-eastAsian mainland. Its northern borders are formed by the Yalu and Tumen rivers(Amnok and Tuman in Korean), both of which originate near Korea’s highestand most sacred mountain, the extinct volcano Mount Paekdu (2,744 metres).All of this 1,041-km border is with China, except for 16 km with Russia in theeast at the mouth of the Tumen. The southern border is the heavily fortifieddemilitarised zone (DMZ) which separates the two Koreas. Japan and Chinaagain are maritime neighbours, less than 200 km across what Koreans callthe East and West seas (the Sea of Japan and the Yellow Sea/Bohai gulf,respectively). The provinces are North and South Pyongan (north-west), Northand South Hwanghae (south-west), Kangwon (south-east), North and SouthHamgyong (north-east), Chagang and Ryanggang (north). All but the last twoare traditional. Pyongyang, Nampo and Kaesong cities have province status.

A mountainous terrain All of the Korean peninsula is mountainous, but particularly the north, whichcontains all peaks over 2,000 metres. Mountains, uplands and forests make up75-80% of the total area, leaving barely 20% for cultivable plains and lowlands,which are situated mostly in the western half of North Korea, and a strip alongthe east coast. The mountains form a T-shape: east-west along the northernborder, and a spine running north-south. The climate is typically continental,with bitterly cold winters and hot humid summers. It varies by latitude, hencerice is grown mainly in the south-west and maize in the north-west. NorthKorea, unlike the south, is well endowed with a range of minerals.

North Korea: Natural resources and the environment 69


The striking beauty of the North Korean landscape has been spoiled by thetypical depredations of Stalinist industrialisation, which, as in the Soviet Un-ion and eastern Europe, took little heed of environmental impact. The mainnavigable rivers are Yalu (678 km of 790 km navigable), Tumen (only 85 km of521 km) and Taedong (245 km of 397 km), and are heavily polluted by efflu-ents, as is the sea off Nampo and Wonsan; the air around Hamhung, thesecond city and main chemicals centre, is smog-ridden. Uniquely, mountainpeaks have been defaced by huge red slogans carved deep into the rock.

Economic infrastructure

Transport and communications

Transport in North Korea is primitive by today’s standards. The strongest pointis an extensive rail network, the main lines of which were first laid by theJapanese (as they also did in Manchuria). The officially claimed track length in1987 was 8,533 km, although foreign sources reckon it is barely half that.(Maybe North Korea double-counts double-tracking.) Rail carries 70% of allpassenger traffic and 90% of freight (of which almost 90% travels on electrifiedlines). The north-east ports of Rajin and Chongjin are also railheads for trans-shipment of goods to and from Russia and China respectively, since they areice-free and China has no coast of its own on that side. But, like other ports,they need modernisation to take larger vessels and to load and unload moreefficiently.

Roads are seriouslyunderdeveloped

The capacity of the rail system reflects the weakness of roads, of which NorthKorea claims to have 75,500 km (but others say 20,000 km). Either way, mostroads are unpaved and little improved since Japanese days. Those that pass formotorways are astonishingly empty. There are few private cars, or intercitybuses; even lorries are a rarity. The motorway network is “h”-shaped: startingwith the east-west Nampo-Wonsan highway in 1978, then in the west roadsrunning south from Pyongyang to Kaesong and now north to Hyangsan, while atthe east end a spur runs south from Wonsan to the Mount Kumgang resort area.

What the network lacks as yet is the north-east spur that would make it acapital “H” and end the isolation of the industrial north-east. (One might alsoexpect the north-western spur to continue to the Chinese border, but there isno talk of this.) Nothing illustrates the primitivism of North Korean transportas tellingly as the fact that its first free zone, the proudly proclaimed Rajin-Sonbong, can only be reached quickly by helicopter. There seem to be noregular internal air services. Internationally, Pyongyang’s Sunan airport seesless than 20 flights a week to just six destinations.

As for telecommunications, in theory international direct dialling is now avail-able to Pyongyang, and a few firms now publish telephone, telex and even faxnumbers. No telephone directory is published, and the telephone numbers andaddresses of ministries are kept secret. However, getting through is a hit-and-miss affair, even though some satellite links do exist; most technology is Soviet

70 North Korea: Transport and communications


and stems from the 1950s. Clearly, improving this state of affairs is a pre-condition for any economic opening.

Energy provision

North Korea has found no oil or gas and lacks coking coal. What it does have isbrown coal and hydroelectric resources. Oil used to flow at “friendship prices”from the Soviet Union and China, but the former has dried up while the latteris now much reduced. Oil imports fell from 2.5m tonnes in 1990 to 1.5m tonnesin 1992, and strong efforts are made to minimise the need for it (eg by convert-ing some tractors to run on methane). North Korea’s early Soviet-style indus-trialisation has led to high energy use. As late as 1987, annual per head energyconsumption ranked 42nd in the world at 2,708 kg of coal equivalent, wellahead of South Korea’s 1,760 kg and 54th place. But the north’s figure had beenstatic for at least a decade, while the south’s had risen and has continued to rise.In any case, in greener times it is now recognised that this index on its own,which used to be taken as a sign of development, says nothing about howefficiently energy is used, or whether the form of industrialisation is appropriate.

Chronic power shortages Both the good and bad sides of North Korean development can be seen in thepower sector. Thanks to hydro and coal resources, by 1980 North Korea hadbuilt one of the then most developed electricity networks in Asia, with capacityof 5.4m kw generating around 25bn kwh annually, or over 1,300 mw hoursper head. Yet a decade later, with capacity now more than 7m kw, it wasproducing hardly any extra power and barely half enough to meet demand,leading to chronic shut-offs and brown-outs. The reason, as in other sectors, isthat much equipment is now both technically obsolete and worn out. Trans-mission losses are at least 30%; lack of monitoring devices means the exactfigure is not known.

Ten years hence, if it happens, the coming on stream of the 2m kw in newlight-water reactors as part of the nuclear deal with the US will increase in-stalled capacity by more than one-quarter. In the interim North Korea is toreceive half a million tons of fuel oil per year. This will go some way toplugging the former Soviet gap, but it will do nothing to modernise the wholegrid as such, as is urgently required.

Energy balance, 1996(m tonnes oil equivalent)

Elec- Oil Gas Coal tricity Other Total

Primary production 0.0 0.0 18.5 6.2a 1.0 25.7

Imports 1.5 0.0 1.7 0.0 0.0 3.2

Exports 0.0 0.0 0.2 0.0 0.0 0.2

Primary supply 1.5 0.0 20.0 6.2 1.0 28.7

Net transformation 0.1 0.0 5.0 3.5 0.0 8.6

Final consumption 1.4 0.0 15.0 2.7b 1.0 20.1

a Primary electricity production, imports and exports are expressed as input equivalents on anassumed generating efficiency of 33%. b Output basis.

Source: Energy Data Associates.

North Korea: Energy provision 71


Financial services

As a communist command economy, North Korea lacks a financial servicessector in the capitalist sense. Most funding for industry comes from the state,which also earns revenue by creaming off a percentage of the value of trans-actions among enterprises. The Central Bank of North Korea, under theMinistry of Finance, has a network of 227 local branches. A newer state bankwith 172 branches is the Changgwang Credit Bank, founded in 1983, whicheven publishes figures. As of December 1991, it had capital of Won442m(around $200m at the official exchange rate), reserves of Won885m, and de-posits totalling Won6.9bn. Two reportedly unpopular changes of currency inrecent years suggest that some citizens are inclined to hoard rather than banksuch savings as they make on their meagre incomes.

Trade with the outside world is mainly handled by the Foreign Trade Bank,whose exact relationship with other newer entities such as the Daesong Bank isunclear. Insurance is monopolised by the State Insurance Bureau and the KoreaForeign Insurance Company. Two joint-venture banks were founded in 1989and 1991, with Chongryun and Hong Kong interests respectively. But the firstmajor names to go in are Hong Kong-based Peregrine and a Dutch bank, ING,both of which announced joint-venture banks in 1995 with branches inPyongyang and the Rajin-Sonbong free economic and trade zone (FETZ). Nei-ther has yet found much business. Other Western banks are unlikely to follow,since North Korea still owes them a lot of money from the 1970s and seemsuninterested in seriously discussing the matter.

Other services

Consumer goods are scarceand of poor quality

The retail sector is mostly state-controlled, under the People’s ServicesCommittee. Although shops, service establishments and “food processing andstorage bases” are said to total 130,000, North Korea is not a commodity eco-nomy in the usual sense. Not only are consumer goods of poor quality (due tolack of investment) and in short supply, but the basics are issued on a rationrather than a purchase basis.

Besides state-run stores and direct factory outlets for the masses, there arespecial shops with luxuries for the elite. The Ragwon chain of hard-currencystores (a joint venture with Chongryun, the association of pro-Pyongyangethnic Koreans living in Japan) has branches in major cities, to part returneesfrom Japan from yen sent by their wiser kin who stayed put. There are alsoco-operatives and local initiatives, the latter including the “August 3rd move-ment” which, since 1984, has encouraged underused labour to use spare re-sources to make locally needed goods. Although sales through this channelreached 13% of those in the central plan in 1991, opinions differ on whetherthis constitutes reform or desperation. The same goes for farmers’ markets,never wholly abolished and now less restricted in order to prevent food short-ages from becoming explosively severe. The sclerosis of the official economyhas reportedly led to a considerable upsurge in market activity, both locallyand crossborder with China. As yet, however, this is tolerated rather thanofficially acknowledged, let alone openly embraced.

72 North Korea: Financial services


Tourism is a potentialgrowth area

Tourism has huge potential, ranging from scenic mountains (where not de-faced by slogans) and skiing to the retro-Stalinist monumental kitsch of whichNorth Korea is now the last living instance. As a market, Japan is just an houraway, and nearly all 46m South Koreans would come to see mounts Paekdu andKumgang if they could. North Korea has built several new hotels in recent yearsand small groups of Western tourists have been visiting for a decade. Butventures which would make a real impact, such as the plans of the Hyundaifounder, Chung Ju-yung, to develop Mount Kumgang (near where he wasborn) for southern tourism, have not yet got off the ground.

Production

Industry

During the Japanese colonial period (1905-45) the fact that most minerals layin northern Korea led to export-oriented development of mining. Hydro-electric potential on the Yalu river was exploited, and Hamhung on the eastcoast became the chemicals centre that it remains today. Most light industrywas in the south. Such was the foundation on which Kim Il-sung sought tobuild Soviet-style industrialisation (albeit against Soviet advice) in NorthKorea. (Historical data on minerals production can be found in Referencetables 8 and 9.)

Emphasis on heavyindustry

The result is a classic Stalinist industrial structure, in which heavy industry hasall along been privileged at the expense of light industry and agriculture.Investment has gone mainly to coal, iron and steel, chemicals, metals,machine-building, energy and rail transport. As already mentioned, this didproduce rapid growth in the early years. Lack of data precludes a detailedsectoral breakdown, but by 1965 the engineering sector (machinery manufac-ture and metal processing) already contributed 30% of industrial production byvalue, followed by textiles (18%) and food processing (9%).

Using mainly Soviet technologies, North Korea has been able to produce loco-motives of up to 3,000 hp, ships of up to 20,000 tons, 200,000-kv amp trans-formers, 10,000-ton presses, and the like. Once this was impressive, but in thelate 1990s such output looks old-fashioned. Shifting into electronics has provedmuch harder, partly because quality (eg dust-free environments) is hard toensure given North Korea’s addiction to “storming” quantitative productiontargets. But computer components are produced, and a South Korean company,LG, now sells television sets which it has had made in the north. Other chaebol(large conglomerates) may follow suit, providing South Korea lets them.

Light industry, together with agriculture and foreign trade, was supposedly apriority in the three-year “adjustment period” (1994-96) which followed theadmitted failure of the last Seven-Year Plan. But without figures it is impossibleto know how far old habits have really changed. South Korean estimates sug-gest that the ratio of heavy to light industry in manufacturing output has fallenfrom almost 3:1 in 1992 to around 2.3:1 in 1995, which is a step in the right

North Korea: Industry 73


direction. It must be added that it is not clear how much of North Korea’sindustry, of whatever kind, is currently operational: it may run as how as amere 25% of capacity.

What North Korea needs, and to some extent now wants, to do is to producelight industrial goods for export. Garment joint ventures with Chongryun aresaid to have captured a quarter of the market for cheap men’s suits in Japan,while the southern conglomerate, Daewoo, has a factory near Nampo which in1996, after many delays, began exporting bags and blouses. If it gets going, theRajin-Sonbong free economic and trade zone (FETZ) is scheduled to produce anambitious range of export goods. But as yet all this is small-scale and marginalto the dying dinosaurs which still make up the main economy and gobble upmost resources.

Mining and semi-processing

North Korea is fairly well-endowed with a range of minerals, many of which arescattered throughout its territory. No deposits are large enough to be of globalsignificance except magnesite, otherwise found only in China and of whichNorth Korea’s 10bn tons of deposits are the world’s biggest. Despite claims ofjuche (self-reliance), North Korea has always exported minerals and metals(especially precious and non-ferrous) to earn foreign currency.

Coal takes priority Minerals have been crucial to North Korea’s industrialisation. But mining insufficient quantity to keep pace with demand has been a chronic problem.Pride of place must go to coal, “our first, second and third priority”, accordingto Kim Il-sung’s 1984 New Year address and similarly emphasised ever since.Independent estimates put the combined production of the more than40 anthracite mines in 1979 at some 35m tonnes. Brown coal and ligniteproduction was estimated at 8.6m tonnes in that year. There is little cokinggrade coal, so planned expansion of steel production is likely to require im-ports. The target for coal production by 1984 was 70m-80m tonnes, and 120mtonnes by the end of the 1980s (later put back to 1993). Anju, one of the “fivearea fronts” whose development is to get priority, is a major coal-mining area;its eventual capacity is to be raised to 70m-100m tonnes/year (t/y). However, arare official figure of 85m tonnes overall in 1989 suggests that intentions andactualities remain far apart. Flood damage in 1995 and 1996 has reportedlycripped some mines.

The iron ore production target for 1984 was 16m tonnes; actual production in1988 was estimated at 8.5m tonnes. Musan mine near Chongjin, with reputeddeposits of 1.3bn tonnes, was the scene of major expansion in the 1980s.

North Korea is also rich in non-ferrous metals. Gold and silver sales are animportant source of hard currency, and the long-flooded Unsan gold mine hasbeen reopened in a joint venture with Koreans in Japan. There are some1,000 tonnes of gold deposits and 5,000 tonnes of silver. Output of 310 tonnesof the latter in 1988 made North Korea the world’s ninth largest producer inthat year. Perhaps surprisingly, these days South Korea gets much of its goldfrom the north. Zinc is sold to Japan and now also to South Korea, and there

74 North Korea: Mining and semi-processing


are also deposits of copper and lead. Non-metals of importance include magne-site (of which the Tanchon mine’s 3.6bn tonnes is the world’s largest singledeposit), graphite, fluorite, pyrite, salt and talc. The Komdok Ore DressingPlant No 3 has an annual capacity of 10m tonnes.

Raw material reserves, 1991(bn tonnes unless otherwise indicated)

Lignite & anthracite 10

Iron ore 4.0-4.7

Zinc (m tonnes) 4.0-4.5

Lead ore (m tonnes) 3.0

Copper (m tonnes) 0.8

Gold (tonnes) 1,000

Silver (tonnes) 5,000

Magnesite ore 10

Hydro resources (m kw) 10

Tidal energy (m kw) 4.6Source: M Trigubenko, Industry of the DPRK, paper presented at Korea Development Institute symposium, Seoul, October 1991.

Major iron ore mines are at Musan, Unryul, Songhung, Komdok, Toksong,Tokhyon, Chaeyong and Hason. New mines have been opened at Tokonsongand Sohaeri. Total iron ore production may now be around 12m t/y, up from7.5m t/y in 1970. More than half of this comes from Musan, by far the largestmine, whose annual capacity has been expanded from 5.5m tonnes to6.5m tonnes. There is also overseas sourcing.

Zinc ore production was around 90,000 t/y in 1995. One smelter, processingindigenous ore, has a 65,000 t/y capacity. (North Korean sources give muchhigher figures.)

Lead production was about 55,000 t/y in 1995. The largest and newest smelteris at Tanchon on the east coast; there are smaller ones at Nampo, Haeju andMunpyong, and some lead is also smelted overseas. There is also a coppersmelter, using imported concentrates (mainly from Peru); output is estimatedat 13,000 t/y.

North Korea probably leads the world in dead-burnt magnesite. Kanyo districthas large deposits of high-grade magnesite; modern equipment has improvedproductivity and annual output is estimated at 1.5m tonnes. The output isconverted into high-quality dead-burnt magnesite, which is exported in con-siderable quantities to EU countries. The rest is converted into caustic-calcinedgrades for the refractory industry.

Cement production, based on indigenous limestone deposits, was to be raisedfrom 9.5m t/y to 12m-13m t/y by 1985. A rare official production figure of13.5m tonnes for 1989 suggests that progress has been slow, despite the com-ing on stream of a modern $130m German turnkey cement plant at Sangwon,near Pyongyang, with a capacity of 2m t/y.

Large quantities of barytes are shipped to the Commonwealth of IndependentStates (CIS) under a long-term agreement.

North Korea: Mining and semi-processing 75


Agriculture and forestry

Despite its current woes, North Korean agriculture appears at first to have beensomething of a success story, especially considering the unpromising terrain.Land was distributed to the tillers in 1946, taken away again during post-warreconstruction in the mid-1950s, and is now collectively owned by co-operatives in theory. In practice, the crisis of the past three years has led togrowing de facto marketisation in agriculture, including the reported intro-duction of Chinese-style contracts with households. There are some signs thatin 1998 these changes will be openly acknowledged and formalised. If so, thiswould mark North Korea’s first major move towards economic reform—notbefore time.

Intensive farming hascaused soil erosion

North Korea has laid major stress on four aspects of agricultural modernisation.Foreign observers accept a figure of 1.4m ha of irrigated land by 1989. Electrifi-cation of rural areas was claimed to be complete by 1970. Mechanisation hasreached a claimed level of six tractors per ha of arable plain land, althoughdraught oxen remain a common sight, and not only in hilly areas. Chemical-isation has also proceeded apace; the rate of fertiliser application is now statedto be 1.6 tonnes/ha, and some foreign observers predict soil exhaustion. Inaddition, there are major efforts to extend as well as intensify agriculture bybringing new land under cultivation (mostly tideland), although unchangingtargets over many years suggest more talk than action. Efforts to terrace toohigh up hillsides have caused soil erosion, especially in the floods of 1995 and1996.

Estimated land use, 1992(% of total)

Arable & permanent crops 16.8 Arable land 14.2 Permanent crops 2.5

Permanent pasture 0.4

Forest & woodland 74.5

Other land 8.3

Total 100.0Source: UN Food and Agricultural Organisation (FAO), Production Yearbook.

Concentration on rice andmaize

The approximately 2m ha of croplands are overwhelmingly planted with oneof just two grains: rice in the south, and maize in the north. Other crops havebeen largely supplanted in the effort to maximise output of these twin staples,thus sacrificing variety and quality of diet in a quest for quantity whichhas come up against its limits. Although for many years the UN Food andAgriculture Organisation (FAO) reproduced official claims of output rising toover 10m tonnes annually, disastrous floods in mid-1995 forced the regime toadmit what South Korean and other observers had maintained for years: thatthe true figure was barely half as much.

North Korea now says that in 1995 it was expecting to harvest only 5.67mtonnes of grain, of which floods destroyed almost 2m tonnes. It also concedesthat, even without this disaster, supply would have fallen short of demand(7.64m tonnes) by about 2m tonnes. Since, even before the flood, North Korea

76 North Korea: Agriculture and forestry


had felt compelled to beg 150,000 tonnes of rice from South Korea and 300,000tonnes from Japan, the food situation in 1996 was grim indeed. Also, it is hardto see how the country will avoid a chronic grain deficit for the foreseeablefuture, particularly since sludge and gravel from the floods has put some farm-land out of action indefinitely, possibly as much as 400,000 ha or 20% of thetotal.

More severe flooding in 1996, followed by drought and tidal waves in 1997,further battered North Korea’s main granary areas; leaving the country dependentfor the foreseeable future on international aid, which thus far has only sufficed tostave off disaster but has not come close to meeting the country’s full needs.

Construction

Construction was once a very active sector in North Korea, with both good andbad results. The good results include a large-scale housing programme, mostvisible in Pyongyang’s new suburbs of high-rise apartment blocks, but alsoapparent in the smaller modern flat complexes which are widespread in thecountry. (The latter are rendered somewhat less grim than their Romanianequivalents by the use of silica brick rather than concrete.)

The less good results include the “grand monumental edifices” with whichPyongyang, in particular, is festooned, and on which untold amounts of moneyand concrete have been wasted. Even the impressive Nampo lock barrage, whichprotected the capital from flooding in 1995 and 1996, may not be worth itsclaimed (indeed boasted of) $4bn price tag. Significantly, one of North Korea’smost modern plants (and probably the largest single investment since the debtcrisis of the 1970s) is the $140m Sangwon cement plant: a (West) Germanturnkey project built in the 1980s for cash, upfront. South Korean sources claimthat construction’s share of GDP fell by almost one-third between 1992 and1994, from 9.1% to 6.3%. This confirms visual impressions that the pace ofbuilding in all sectors has slowed, with the economy’s general rundown.

The external sector

Merchandise trade

The external sector in North Korea has had a chequered history. As in SouthKorea, after 1945 what had been an export economy wholly subordinated tothe needs of its Japanese colonial master was abruptly reoriented in a quitedifferent direction: in North Korea’s case, to face north instead of east. Al-though Kim Il-sung would not join Comecon, Soviet predominance replacedJapanese predominance in external economic relations. If this was no lessdistorting than Tokyo’s grip had been, at least Moscow was more benign,giving billions of roubles in aid (not all of it meant to be so) over the decades.

Trade peaked in 1988 The total value of foreign trade rose steadily to peak at $5.2bn in 1988. Thetypical pattern was exports of minerals and metals (the proportion of the latter,

North Korea: Construction 77


processed or semi-processed, increasing over time) and some manufactures, inexchange for imports of capital goods and fuels. By partner, the original near-monopoly of the Soviet Union widened in the 1970s with a bigger role forChina and, briefly, a turn to the West, which supplied more than half ofimports in 1974. But North Korea’s failure to pay for these led to more interestin the developing world later in the decade, before, in the 1980s, the SovietUnion re-established its traditional dominant role. Yet this, too, was shortlived.Trade with the Soviet Union shot up, but one-sidedly. The 1988 peak figure oftotal trade of $5.2bn included a merchandise trade deficit of $1.2bn, mostlywith the then Soviet Union. After two more years of bankrolling large NorthKorean deficits, in 1991 the then Soviet president, Mikhail Gorbachev,abruptly pulled the plug and North Korean trade has been in free fall ever since.The highest estimate for the 1996 total is $2.2bn, less than half what it hadbeen in 1988. Russia now hardly figures, ranking 7th in 1996 with barely 3% ofthe total. The fall in overall trade had at least been accompanied by a declinein the trade deficit, but this remains substantial as a proportion of all trade (seeReference table 10).

China will not tolerateNorth Korea’s deficits

forever

Apparently learning nothing (although suffering much) from this debacle,North Korea’s response was to take its overdraft elsewhere. In the 1990s thedual role of prime trading partner and involuntary lender has fallen to China,which appreciates it as little as the Soviet Union did. Chinese efforts to limit itswayward ally’s large deficits caused the total value of North Korea’s trade withChina to drop by 30% in 1994, while figures for 1995 (with imports of $589moutnumbering exports of $51m by more than 11:1) suggest that bad habits areincorrigible. China will not put up with this indefinitely.

Fortunately this is not the whole picture. A fairly constant bright spot amid thisturbulence has been North Korean trade with Japan, which has run at aroundthe half-billion dollar mark for several years. Tiny by world or regional stand-ards (South Korean aggregate trade is now more than a hundred times that ofthe north), this suffices to make Japan North Korea’s second biggest partner.Moreover, North Korea has usually been in surplus on this trade, althoughapparently not in 1995.

Inter-Korean trade However, the wave of the guture, ironically, involves North Korea lookingsouth. Until 1988 the two Korean states did no trade with one another (at leastnot openly). Since then a trickle has begun, amounting to some $200m annu-ally over the last few years; a mere bagatelle to the south, but enough to makeit the north’s fourth largest partner. In 1995 this rose to $300m, putting SouthKorea in third place. Nearly all of this is northern exports, which again helpsthe north to balance its books more generally. Although the 1996 total fell to$252m, seemingly due to the north’s economic crisis, for 1997 it is on target toreach $350m. If this trend continues, Seoul will soon be Pyongyang’s mainpartner.

In sum, paradoxical as it may seem, North Korea’s de facto trade policy isshifting from taking advantage of the comrades (a foolish as well as a dishonestgame, since the comrades soon tire of such impudence) to trading with theenemy. This new trend is as promising in pure economic as in political terms,

78 North Korea: Merchandise trade


since Japan and South Korea are of course the neighbours whose skills andneeds could complement and transform North Korea, much as Hong Kong andTaiwan are doing in China. What North Korea needs is to follow the tried andtested path of export-led growth, starting in light industry and then moving upinto higher value-added fields such as electronics. But it is not yet clear howready Kim Jong-il (or whoever) is to let this process rip. One solitary freeeconomic and trade zone (FETZ) at Rajin-Sonbong alone will not be enough.

Main trading partners, 1995($ m)

Exports to: Imports from: Balance

Total 986 1,806 –820 of which: China 51 589 –538 Japan 275 310 –35 South Korea 205 78 127 Germany 40 52 –12 Russia 12 85 –73Source: Marcus Noland, The North Korean Economy.

Invisibles and the current account

North Korean invisibles are doubly so, given Pyongyang’s secrecy with figures.(Even merchandise trade, which can in principle be wearisomely collated fromthe statistics of partner countries, is subject to widely differing estimates.) Sucha still relatively closed and state-run economy lacks much in the way of theusual trade in services. There should be a small profit on tourism, since noNorth Korean tourists are allowed out. In practice, there are signs that theregime earns foreign exchange via various shady activities, ranging from smug-gling used Japanese cars into China to passing forged $100 notes in Thailandand trafficking heroin in Russia.

Remittances from Japan More legitimate is a large item under net unrequited transfers, namely remit-tances from the much put-upon ethnic Koreans organised by Chongryun inJapan. Guesses about the size of this flow have run as high as $2bn annually,which seems incredible (the loyalists number 200,000 at most); but it could besome hundreds of millions of dollars. In the past North Korea was a recipientof aid on a substantial scale, both after the Korean war and subsequently. Aswell as aid so understood by both parties, North Korea’s failure to fulfil its sideof countertrade deals with the Soviet Union (formerly) and China (still)amounts to de facto aid (or free imports). The same could be said of NorthKorea’s failure during and since the 1970s to pay for imports bought with creditfrom Western banks (see below).

Capital flows and foreign debt

Unpaid debts North Korea has the dubious distinction of being first in and last out of thedeveloping world debt crisis, which it pioneered in the 1970s and is still en-mired in today. With unpaid instalments clocking up ever larger arrears ofinterest, the total debt now probably exceeds $10bn, towards which nothing

North Korea: Invisibles and the current account 79


has been paid for over a decade. Among governments, Russia (previously theSoviet Union) is owed anything up to $3bn, depending at what exchange rateold roubles are translated into dollars. China is owed around $1bn, Japan$500m, and various west European governments almost $1bn. The debt withRussia and China is a mix of loans still not repaid and imports not paid for;while in the Western cases (including Japan) it is mainly official credit guaran-tees for trade or imports where again North Korea failed to pay. All this haslong since been written off. (Historical data on foreign indebtedness can befound in Reference table 11.)

More active in pursuit of their money have been four syndicates comprisingover 100 commercial banks, which as of the end of 1993 were owed around$1.6bn in total: some $700m in principal from the 1970s, plus $900m in inter-est. Of the two main syndicates, that led by Australia’s ANZ Bank is chasing over$1bn, while another led by Morgan Grenfell is owed some $400m. Having beenpaid sporadically until 1984 and not at all thereafter, in a rare instance ofco-operation a steering committee on behalf of all the creditor banks has takenthe North Koreans to court in several jurisdictions. These include England andWales, where an injunction freezing North Korea’s assets was obtained inJuly 1992; France, in 1990; and above all the International Court of Arbitrationof the International Chamber of Commerce in Paris, which in April 1992 foundfor the plaintiffs and ordered immediate payment in full.

External debt by creditor($ m; end-1989)

Amount Date incurred

Western bloc 2,742 n/a Morgan Grenfell (lead manager) 240 1973 ANZ Bank (lead manager) 643 1973-74 Japan 530 1972-75 France 227 1970-74 West Germany 350 1973-77 Sweden 146 1970-74 Austria 102 1971-75 Others 504 n/a

Communist countries 4,036 n/a Soviet Union 3,133 1971-89 China 903 1971-89

Total 6,778 n/aSource: South Korean National Unification Board.

North Korea has not responded to any of this, nor to more peaceful overtures.As time has passed this has attracted contrarians in the Hong Kong moneymarkets, who now recommend North Korean debt as a good buy. Nor has thistrack-record deterred the Hong Kong-based Peregrine and a Dutch bank, ING,from forming joint-venture banks in North Korea in 1995. Both these boldspirits were too young to have got their fingers burned in the 1970s; andcapitalisation is very small.

Foreign investmentinflows are very low

Notwithstanding its appalling record and insouciant refusal to do anythingabout it, North Korea is actively soliciting foreign investment for the Rajin-Sonbong free zone. A raft of detailed legislation (see box) does suggest

80 North Korea: Capital flows and foreign debt


seriousness of intent and tacitly, no doubt, the hope that bygones can bebygones. Taken at face value, many of the new provisions are liberal andattractive, with tax rates priced rather obviously so as to undercut China. Themain concern, apart from basic trust, is high wage rates (of which the state,which insists on being involved, takes a substantial cut); although the drasticdevaluation in June 1997 of the won in Rajin-Sonbong (nowhere else, so far) inprinciple transforms the picture. There are few confirmed large foreign directinvestment commitments, although Shell has leased a modest 1.7 ha in Rajin-Sonbong. An investment seminar held in the Rajin-Sonbong zone in Septem-ber 1996 ended with apparently firm commitments of $286m, but nearly all ofthis comprises a Chinese proposal for a hotel and casino. An important cate-gory to watch is South Korean investment, which will grow despite Seoul’svacillating attitude and the lack of any protection guarantees. Large projectshave been canvassed, but the only one on the ground so far is Daewoo’s exportfactory at Nampo, worth $5.1m.

Key investment laws

1992: Law on Foreigners’ Investment.1992: Law on Foreign Enterprises.1993: Law on Taxation of Foreign Investment Enterprises and Foreigners.1993: Law on the Administration of Foreign Exchange.1993: Law on Free Economic and Trade Zone.1993: Law on the Leasing of Land.1993: Law on Foreign Investment Banks.1993: Specific Regulation on Immigration Control.1993: Labour Regulation for Foreign Enterprises.1994: Revision of the Joint Venture Law.1994: Regulations on Free Trade Ports.1994: Enforcement Law on Foreign Enterprise.

Source: Marcus Noland, The North Korean Economy.

Foreign reserves and the exchange rate

North Korea’s foreign reserves are unknown, but from its trade situation mustbe assumed to be exiguous unless secret stashes have been stored away. This isin fact quite likely. Defectors have alleged that Room 39 of the Korean Workers’Party headquarters manages many trading enterprises on behalf of Kim Jong-il,and that the dear leader has billions of dollars in Swiss bank accounts.

Like other communist countries, North Korea used to operate multiple ex-change rates which further complicated such tasks as computing national in-come. Until the late 1980s the official exchange rate of the won was close toparity with the dollar, while the real rate used in trade was about half that. Thelatter has now been enshrined as the official rate, and as of December 1997stood at Won2.20:$1 (see Reference table 12). Reported black-market rates aremuch less favourable, and as mentioned in the Rajin-Sonbong free zone therate floats at around Won200:$1.

North Korea: Foreign reserves and the exchange rate 81


Appendices

Sources of information

National statistical sources As already bemoaned, North Korea publishes no systematic official statisticsand has not done so for over 30 years. This is the more frustrating since, unlikein some developing countries, it is not that data do not exist. On the contrary:as a totalitarian state and a planned economy, on both counts the regimecollects statistics thoroughly and in great numbers. But it keeps them to itself.

North Korea’s Central Statistical Bureau was founded in 1952 and has branchesin all provinces. Below that, city and even county administrations have statis-tical sections which keep and transmit data on all citizens; a task which, signif-icantly, also involves local offices of the public security ministry. Economicdata are handled by the State Planning Commission, presumably in conjunc-tion with specific ministries in particular fields. The fact that enterprises areexhorted to fulfil their annual, monthly, ten-day and even daily targets with-out fail presumably means that old-style planning at a minute level still exists,but targets are not being met.

Very broad budget figures by major category are normally presented to parlia-ment by the finance minister, currently Yun Ki-chong, each April, althoughthis has not happened since 1994. Puzzlingly, Ms Yun’s retrospective report onspending increases in particular sectors often differs, sometimes widely, fromthe figures she announces prospectively the year before. It is likely that thecracked shell of planning bears increasingly little relation to real economicactivity.

The one shaft of light amid the gloom is the demographic data released to theUN Population Fund in 1989, which was followed up and published by a USresearcher, Nicholas Eberstadt (see Select bibliography). Thanks to his efforts, wenow have good data runs (and projections) for North Korea on most areasrelated to population such as births and deaths, urbanisation, labour force,education and health. Typically, the North Koreans subsequently disowned thedata they had provided. For Pyongyang to stop treating economic statistics asstate secrets would be the surest sign of a serious will to reform.

International statisticalsources

Inevitably, North Korea’s failure to publish statistics hamstrings the efforts ofinternational organisations to collect them. Even the exceptions are not alwaystrustworthy; for instance, the inflated figures for farm output given to andpublished by the UN Food and Agriculture Organisation (FAO) in successiveyearbooks are now undermined by the far lower magnitudes admitted to theUN’s Department of Humanitarian Affairs after 1995’s floods. (The unprece-dented numbers of UN and non-governmental organisations aid workers al-lowed to roam around in the wake of the floods have added considerably toboth quantitative and qualitative knowledge of North Korea.)

Organisations which make a serious effort to collect and/or estimate NorthKorean data include the Japan External Trade Organisation (JETRO) in Japanand (in recent years) a number of official and private bodies in South Korea,

82 North Korea: Sources of information


including the National Unification Board, the Korean Institute for NationalUnification, the Korean Overseas Trade Association (KOTRA), and the CentralBank of North Korea. The Central Bank goes furthest in its efforts to imputemagnitudes for specific sectors of the economy, but not all experts accept itsmethodology.

In the case of trade, which in principle is easier (if laborious) since data can becollected from North Korea’s partners, one pitfall is that South Korean sourcesdo not count inter-Korean trade as being international. Another problem isMexico. JETRO has twice reported a baffling burgeoning of trade betweenMexico and North Korea. It transpired that the Mexican customs authoritieshad got Seoul and Pyongyang muddled up.

Select bibliography Advisory Services Ltd, North Korea Report (monthly), Hong Kong

Asia Watch and Minnesota Lawyers International Human Rights Committee,Human Rights in the Democratic People’s Republic of Korea. Washington DCand Minneapolis, 1988

BBC Monitoring, Summary of World Broadcasts Part 3: Asia Pacific (six issuesweekly), Caversham

BBC Monitoring, Weekly Economic Report: Asia Pacific, Caversham

Breen and Gustaveson Consulting (formerly Merit Consulting), North KoreaReport (formerly Korea Countdown), monthly (1993-97), Seoul

Andrea Matles Savada (ed), North Korea: a country study, Federal Research Division, Library of Congress, for US Department of the Army, WashingtonDC, 1993

Nicholas Eberstadt and Judith Banister, The Population of North Korea, BerkeleyCenter for Korean Studies, University of California, 1992

The Economics of Korean Reunification (quarterly), Hyundai Research Institute,Seoul

Far Eastern Economic Review (weekly; also annual yearbook), Hong Kong

Foreign Broadcast Information Service, Daily Report: East Asia (five issuesweekly), National Technical Information Service, Springfield, Virginia. Since1997 only available electronically

Aidan Foster-Carter, Korea’s Coming Reunification: Another East Asian Superpower?, Special Report No M212, EIU, London, 1992

Aidan Foster-Carter, North Korea after Kim Il-sung: controlled collapse?, ResearchReport No M219, EIU, London, 1994

General Association of Korean Residents in Japan, The People’s Korea (weekly),Tokyo

Eui-Gak Hwang, The Korean Economies: A Comparison of North and South, OxfordUniversity Press, 1993

Institute of Asian Affairs, North Korea Quarterly, Hamburg (ceased publication in1997)

North Korea: Sources of information 83


Naewoe Press, Vantage Point (monthly), Seoul

Marcus Noland, The North Korean Economy, Institute for International Economics, Washington DC, 1995

Pang Hwan Ju, Korean Review, Foreign Languages Publishing House, Pyongyang, 1988

The Pyongyang Times (weekly)

Radiopress, North Korea Directory 1997 (updated annually), Tokyo

Korean Institute for National Unification, Korean Journal of National Unification (annual since 1992; plus other publications), Seoul

Hazel Smith et al (ed), North Korea in the New World Order, Macmillan, London,1996

Dae-Sook Suh, Kim Il Sung: The North Korean Leader, Columbia University Press,New York, 1988

Marina Trigubenko (ed), Koreiskaya Narodno-Demokraticheskaya RespublikaNauka, Moscow, 1985

Sung Chul Yang, The North and South Korean Political Systems: A ComparativeAnalysis, Westview Press, Boulder, Colorado, 1994

Reference tables

Reference table 1

Defence spending

1990 1991 1992 1993 1994

Defence spending as % of government budgeta 12.1 12.2 11.5 11.4 11.6

a It is thought that much defence spending is concealed under other items.

Source: Bank of Korea, Seoul.

Reference table 2

Government finances(Won bn)

1990 1991 1992 1993 1994a

Revenue 35.7 37.2 39.5 40.6 41.5

Expenditureb 35.5 36.9 39.3 40.2 41.5

People’s economyc 24.1d 25.0 26.6 27.3 28.1

Social welfare 6.7d 6.9 7.5 8.0 8.2

Military 4.3 4.5d 4.5d 4.6 4.8

Administration 0.6d 0.5 0.7 0.3 0.3

Note. No budget data have been issued since 1994.a Planned. b Figures may not add due to rounding. c Includes capital investment. d Calculated fromother figures given.

Sources: Naewoe Press, Vantage Point; Foreign Broadcast Information Service, Daily Report; BBC, Summary of World Broadcasts.



Reference table 3

Estimated gross national product

1991 1992 1993 1994 1995

% change –5.2 –7.6 –4.3 –1.7 –4.6Source: Bank of Korea, Seoul; cited in Vantage Point, Naewoe Press, Seoul, July 1995 and July 1996.

Reference table 4

Estimated gross domestic product

1991 1992 1993 1994 1995 1996

Total ($ bn) 22.9 21.1 20.5 21.2 22.3 21.4 % of South Korea 8.2 6.9 6.2 5.6 4.9 4.4

Per head ($) 1,038 943 904 923 957 910 % of South Korea 16.0 13.5 12.1 10.8 9.6 8.4Source: Bank of Korea, Seoul.

Reference table 5

Gross domestic product by sector(% real change)

1991 1992 1993 1994 1995

Agriculture, forestry & fisheries 2.8 –2.7 –7.6 2.7 –10.5

Mining & manufacturing n/a –15.0 –3.2 –4.2 –4.6 Mining –6.8 –6.1 –7.2 –5.5 –2.3 Manufacturing –13.4 –17.8 –1.9 –3.8 –5.3 Light industry n/a –7.3 5.0 –0.1 –4.0 Heavy industry n/a –21.0 –4.2 –5.2 –5.9

Electricity, gas & water –4.5 -5.7 –8.7 4.2 0.1

Construction –3.4 –2.1 –9.7 –26.9 –3.2

Services 2.5 0.8 1.2 2.2 1.5 Government n/a 2.4 2.3 3.3 2.8 Others n/a –1.7 –0.5 0.4 –0.7Sources: Bank of Korea, Seoul; cited in Vantage Point, Naewoe Press, Seoul, July 1995; Bank of Korea report.

Reference table 6

Population

1992 1993 1994 1995 1996

Total population (m) 22.2 22.6 23.1 23.5 23.9

Annual growth (%) 1.86 1.84 1.80 1.76 1.71

Labour force (m) n/a 11.0a n/a n/a n/a

a North Korean Central Bureau of Statistics.


North Korea: Reference tables 85


Reference table 7

Population trendsa

(’000 unless otherwise indicated; mid-year estimates)

1970 1975 1980 1985 1990

Male 7,012 8,070 8,838 9,650 10,568

Female 7,376 8,410 9,161 9,952 10,844

Population sex ratio (%)b 95.1 95.9 96.5 97.0 97.5

Annual average population growth (%) 3.4 2.8 1.8 1.7 1.8

Total population 14,388 16,480 17,999 19,602 21,412

a Includes the military population. b The number of males per 100 females in the total population.


Reference table 8

Estimated production of main industrial minerals(m tonnes unless otherwise indicated)

1986 1987 1988 1989 1990

Cement 8 9 10 n/a n/a

Coal 70 70 48-70 n/a 48.5

Iron ore 8.0 8.5 8.5 n/a n/a

Steel 4.5 4.5 4.7 4.8 5.1

Non-ferrous metals (’000 tonnes) 50 700 800 n/a n/aSource: Mining Journal, Mining Annual Review.

Reference table 9

Minerals production(tons unless otherwise indicated)

1991 1992 1993 1994 1995

Cadmium 200 200 200 200 202

Coppera (’000 tonnes) 0.0 0.5 n/a n/a n/a

Gold 5 6 0.5 0.5 0.5

Lead (’000 tonnes) 80 70 70 55 55

Silver 300 280 250 200 200

Tungsten 1,000 400 n/a n/a n/a

Zinc (’000 tonnes) 120 120 120 90 90

a Exports to the West of refined copper.

Source: World Bureau of Metal Statistics, World Metal Statistics Yearbook.

Reference table 10

Merchandise trade($ m)

1991 1992 1993 1994 1995

Exports 1,960 1,010 1,020 1,020 840

Imports –2,760 –1,710 –1,640 –1,620 –1,270

Balance –800 –700 –620 –600 –430

Note. These figures exclude inter-Korean trade.

Source: Bank of Korea, Seoul.



Reference table 11

External debt by maturity and source($ m)

1986 1987 1988 1989 1990

Gross external liabilities 3,643 4,232 4,080 4,456 4,717 Long-term debt 3,041 3,581 3,437 3,716 3,775 OECD 376 371 286 187 185 CEECa 2,666 3,210 3,150 3,529 3,589 Short-term debt 602 651 643 739 943 Banks 196 259 215 331 451 Export credits 406 392 428 408 492

Total service payments 76 117 82 109 303 Amortisation, long-term debt 19 74 30 54 175 Interest, long-term debt 38 26 33 30 95 Interest, short-term debt 19 17 19 25 33

a Central and east European countries.

Source: OECD, Financing and External Debt of Developing Countries.

Reference table 12

Exchange rates(annual averages)

1992 1993 1994 1995 1996

Won:$ 0.96 2.16 2.17 2.17 2.20Source: Financial Times.

Editor:All queries:

Robert WardTel: (44.171) 830 1007 Fax: (44.171) 830 1023

North Korea: Reference tables 87


Date post:	18-Sep-2020
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

South Korea North Korea · 2007. 7. 24. · South Korea Basic data Land area 99,314 sq km...

Documents