Overview: North Korea has long had a socialized, centrally planned, and primarily industrialized command economy isolated from the rest of the world. The means of production, which are largely obsolete, are owned by the state through state-run enterprises or collectivized farms. Prices, wages, trade, budget, and banking are under strict government control. Traditionally, poor domestic economic performance was offset with infusions of Soviet aid. But after the collapse of the Soviet Union in 1991, the aid stopped and the economy was adversely affected. This situation was then further complicated by severe food shortages that began in 1995–96 and continued in 2004. Massive international food aid deliveries have allowed North Korea to escape mass starvation since the mid-1990s, but the population remains the victim of prolonged malnutrition and deteriorating living conditions. This situation was brought about by a shortage of arable land, collective farming, weather-related problems, and chronic shortages of fertilizer and fuel. In addition, large-scale military expenditures consume resources needed for investment and civilian consumption.

On July 1, 2002, the government announced “economic improvement measures” (use of the term “reform” is avoided), such as creating incentives for factories to operate on a more profitable basis by allowing salaries to increase and prices to rise. Thereafter, more products became available to cash-paying consumers. The state rationing system also was abolished, foreign-exchange rates were adjusted, free currency exchange was allowed to strengthen popular consumption, and the economy was partially monetized. The adjustments were all aimed at developing a market economy. New management techniques also were introduced with the goal of creating incentives and accountability. Product markets were established, improvements were made to agricultural organizing principles, and agricultural products were allowed to be brought to market using self-managed distribution systems. In June 2003, restrictions also were relaxed on farmers’ market activities, which led to an expansion of market activity. At the same time, the regime showed flexibility by increasing the pace of economic reforms, allowing younger-generation, more reform-minded individuals into the leadership, and encouraging further economic cooperation with the South.

Gross Domestic Product (GDP)/Gross National Product (GNP): The GDP growth rate was 1 percent per annum in 2003. At the same time, GNP was up 3.1 percent from the 1999–2002 period. GDP per capita was US$1,000 in 2003. Based on 2003 estimates, North Korea’s purchasing parity power was nearly US$22.9 billion.

GOVERNMENT Budget: In 2002 projected total revenue and expenditures were 22.2 billion w4n (US$10.1 billion).

Inflation: The government’s all-at-once approach to economic adjustments had the expected effect of generating high levels of inflation. Estimates on the inflation rate are not available, but since the government lifted controls over wages and prices in 2002, the w4n decreased in value by some 300 percent in a year and inflation has been chronic.

Agriculture, Forestry, and Fishing: Agriculture has long been the traditional source of employment and income but, under state control, was secondary to industry in emphasis. The agricultural sector was collectivized by 1958. An estimated 30 percent of the land was in agricultural use in 2002, and agriculture produces approximately 30.2 percent of gross domestic product (GDP). Most agricultural land is on plains in the south and west and was subject to flooding in 1995 and 1996 and to drought in 1997 and 2000. The principal crops, according to the size of the yield in 2002, are: rice, potatoes, corn, cabbages, apples, soybeans, pulses, and sweet potatoes. Other vegetables, fruits, and berries also made up important parts of the annual crop.

In 2002 North Korea reportedly had 48,000 horses, 575,000 head of cattle, and 2.6 million goats. Livestock production, in order of volume, includes pig meat, poultry eggs, cows’ milk, poultry meat, beef and veal, and goat meat. Until the mid-1990s, North Korea was largely self-sufficient in food production, but since then there have been severe food shortages.

Because of oil shortages, most forestry products are used for fuel, with only small amounts of timber (roundwood) going for construction and manufacturing. In 2002, according to Food and Agriculture Organization (FAO) estimates, North Korea produced 7.1 million meters of roundwood. Fishing provides an important supplement to the diet and for export. The catch in 2001 totaled 200,000 tons of fresh and saltwater fish, shellfish, and mollusks and about 63,700 tons produced using aquaculture.

Mining and Minerals: North Korea’s major minerals, which are found throughout the nation, are coal, iron ore, cement, nonferrous metals (copper, lead, and zinc), and precious metals (gold and silver). It also has large deposits of magnesite. North Korea exports many of its minerals in order to gain foreign currency but also uses them domestically for industrial and military purposes. Mining contributed 7.8 percent of gross domestic product (GDP) in 2002.

Industry and Manufacturing: The major industries are machine building, armaments, electric power, chemical, metallurgy, textile, and food processing. Industry produced 33.8 percent of gross domestic product (GDP) in 2002.

Energy: The predominant domestic sources of commercial energy are coal and hydropower. In 2001 about 86 percent of North Korea’s primary energy consumption was coal. In that year, North Korea produced an estimated 44.2 million tons (in oil equivalent) of hard coal, lignite, and peat. In 2001 hydroelectric power plants generated about 69 percent of North Korea's electricity, and coal-fired thermal plants produced about 31 percent. Thermal generating capacity is underused because of the shortage of fuel. Electricity consumption in 2001 was only 58 percent of what it was in 1991. About 6 percent of North Korea’s primary energy consumption is from oil. North Korea consumes about 85,000 barrels of oil per day and is wholly dependent on imports, some of which have been suspended because of international disputes over North Korea’s nuclear weapons program. In 2001 an estimated 1.1 million tons of light petroleum products and 1,534 tons of heavy petroleum products were produced. There may be some oil reserves in Korea Bay, but exploration efforts have failed to find commercially viable quantities. Seismic survey data have indicated modest deposits of probable oil and natural gas in the Tachon-Najin (Rajin) area near the Tuman River border with China. The nuclear energy generation sector is involved in major international political discord because of suspicions of the militarization of this capability. Several agreements have been signed that would have led to the construction of light water reactors and training for technical staff to operate them. However, disclosures about North Korea’s nuclear weapons program raised international protests and have kept this energy sector from developing.

Services: This sector produced 36 percent of gross domestic product (GDP) in 2002.

Banking and Finance: Banks in North Korea, with the exception of the Central Bank and the Farmers Bank, were closed in 1946 and 1947. In 1959 the Farmers Bank was incorporated into the Central Bank, and the Foreign Trade Bank was founded to conduct international business for the Central Bank. Since 1978, six other state banks have been founded to deal with foreign exchange and foreign enterprise exchanges. Moreover, between 1987 and 1996, nine joint-venture and foreign-investment banks were established to attract Koreans overseas to invest in North Korea. North Korea also has four insurance companies.

Tourism: North Korea has been a member of the World Tourism Organization since 1987 and allows tourism via the National Directorate of Tourism. By 1999 there were 60 tourist hotels with some 7,500 beds. North Korea’s tourist attractions are its extensive mountain scenery and skiing and, for some, its “retro-Stalinist atmosphere.” In 1998, the latest year for which tourism figures are available, some 130,000 tourists visited the world’s most reclusive state. Prices are extremely high. Officially sponsored tourism from South Korea has been allowed, initially to Mount Kumgang (Mount Diamond), a joint venture between the government and the South Korean Hyundai corporation for a scenic sport area on the southeast coast, near the Demilitarized Zone (DMZ), since 1998, and to P’y4ngyang since 2003. As of October 2004, North Korea held the vice chairmanship of the World Tourism Organization’s Commission for East Asia and the Pacific.

Labor: The labor force was estimated at about 11.5 million in 2001, approximately 38 percent of which in the mid-1990s worked in agriculture, 31.6 percent in industry, and 30.4 percent in services. There is a shortage of skilled and unskilled labor.

Foreign Economic Relations: North Korea’s major import partners are China (39.7 percent in 2002), Thailand (14.6 percent), Japan (11.2 percent), Germany (7.6 percent), and South Korea (6.2 percent). As of 2002, imports were at slightly more than US$2 billion c.i.f (cost, insurance, and freight). The major imported commodities were petroleum, coking coal, machinery and equipment, textiles, and grain. North Korea’s main export partners in 2002 were South Korea (28.5 percent), China (28.4 percent), and Japan (24.7 percent). In 2002 exports totaled an estimated US$1 billion f.o.b (free on board). The main export commodities were minerals, metallurgical products, manufactures (including armaments), textiles, and fishery products. Until 1988 there was no trade between North and South Korea; since then it has increased steadily, reaching US$642 million in 2002 (US$272 in exports and US$370 in imports, 80 percent of which were food).

Trade Balance: North Korea has a poor balance of trade. In 2002 imports totaled US$2 billion while exports were only US$1 billion.

Balance of Payments: No information available.

External Debt: Since the 1970s, North Korea has been in debt to many nations, including France, Germany, Sweden, Austria, and Japan. Additionally, North Korea is in debt to its communist allies, the Soviet Union—with Russia as the successor to old Soviet debts—and China. Only a few of these creditors have been paid since the 1980s. As of 1997, North Korea had US$12 billion in external debts, mostly owed to Russia and China (US$7.4 billion, or 62 percent) and the rest to Western nations and Japan (US$4.6 billion, or 38 percent). Between 1999 and 2001, North Korea received a total of US$394.8 million in bilateral and multilateral official development assistance. In 2001 and 2002, P’y4ngyang was the recipient of some US$367.9 million in socioeconomic development assistance from the United Nations (UN) system.

Foreign Investment: North Korea has a limited ability to attract foreign investments because of the amount of debt that is owed to so many different countries. However, this impediment has not stopped North Korea from pursuing new foreign investments, particularly for its first special economic, or free-trade, zone at Najin (Rajin)-Sonb4ng in northeast North Korea. This zone is accessible to Russia by railroad and to China by road but to the rest of North Korea only by helicopter. The Sinßiju special district, located on the western end of the border with China, is a self-managed entity aimed at fostering bilateral trade. Two other economic zones are the Mount Kumgang scenic and sport-tourist zone, in southeast North Korea, and the Kaes4ng industrial zone, in southwest North Korea, both close to the Demilitarized Zone (DMZ) and connected to South Korea by multilane transit routes. The nuclear proliferation issue also has had a negative impact on foreign investment.

Currency and Exchange Rate: The unit of currency in North Korea is the w4n (KPW). As of May 1, 2005, the interbank exchange rate was US$1 = 2.20 w4n. The internal rate was much different. In an effort to reduce the gap between the official and black-market rates and to remove U.S. dollars used on the black market (in favor of the euro), the government devalued the w4n in 2003, making the internal exchange rate 900 w4n to the dollar.

Fiscal Year: Calendar year.

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This series of profiles of foreign nations is part of the Country Studies Program, formerly the Army Area Handbook Program. The profiles offer brief, summarized information on a country’s historical background, geography, society, economy, transportation and telecommunications, government and politics, and national security. In addition to being featured in the front matter of published Country Studies, they are now being prepared as stand-alone reference aides for all countries in the series, as well as for a number of additional countries of interest. The profiles offer reasonably current country information independent of the existence of a recently published Country Study and will be updated annually or more frequently as events warrant.