Korea, Democratic People's Republic of (DPRK) - Economic development

Until the 1990s, the economy operated on a planned basis, with priority given to the development of industry, particularly heavy industry. Planning began in 1947, when the economy operated first under two consecutive one-year plans (1947 and 1948), followed by a two-year plan (1949–50), which was interrupted by the Korean War in June 1950. After the war, economic reconstruction followed the terms of a three-year plan (1954–56) and a five-year plan (1957–61). The industrial goals of the five-year plan were fulfilled in just half the allotted time, so 1960 was set aside as a year of adjustment. An ambitious seven-year plan was then launched in 1961, with the general objectives of a 220% increase in industrial output and a 150% rise in grain production. This plan had to be extended until 1970, however, before its targets were fulfilled. In 1975, the DPRK announced completion of its six-year plan (1971–76) one year ahead of schedule, although certain outputs fell somewhat short of projected levels. Industrial growth slowed in 1976. A second seven-year plan (1978–84) called for a 12% annual industrial growth rate. Although the government claimed that its goals had been met or exceeded, neither the actual results nor a new plan was announced during the following three years. During this period the DPRK experienced the double trauma of ballooning international debt (to more than $5 billion, nearly $2 billion owed to Communist creditors), and watching South Korea's per capita income soar past its own. By 1980, per capita income in the DPRK was about a third of that in the ROK. (By 2002 the gap had widened such that the ROK's per capita income was 20 times greater in nominal terms.)

In 1982, the president announced a new economic policy giving priority to increased agricultural production through land reclamation (taken as a sign that food shortages had appeared), development of the country's infrastructure, a greater reliance on indigenously produced capital equipment, and an emphasis on light industry. In 1984, the government issued the Joint Investment Law in its first opening to foreign direct investment (FDI), designed to secure technology and outside capital. The law was abruptly withdrawn the next year, however, having attracted little investment.

There was a three-year hiatus, before the government set forth the Third Seven-Year Plan (1987–1993), which would turn out to be the last multiyear plan issued by the government as of 2003. (The death of President Kim Il Sung on 8 July 1994 marked the end of multiyear planning.) An annual growth of 10% was targeted under the Third Seven-Year Plan, part of which would be derived from missile production and export. Its stated targets were a 90% increase in industrial output, 40% in agricultural production, and 70% in national income. The DPRK government publishes no official economic data, but estimates by the SOK Bank of Korea, the most reliable source of information on the North Korean economy, suggest that actual performance fell far short of these targets, in some areas by as much as 50%, and that overall industrial output decreased. The plan period spanned the breakup and economic liberalization of the Soviet bloc in 1991. President Kim Il Sung made a gesture at keeping up with the trends, decreeing the establishment of the Rajin-Sonborg Free Economic and Trade Zone (FETZ). However, the lack of infrastructure and low investor confidence in the regime made the FETZ ineffective in attracting investments.

In late 1993 statements released by the Korean Workers' Party Central Committee for the first time admitted to the overall failure in achieving the goals of the economic plan. Another three-year period of adjustment was announced during which, again, agricultural production, light industry, and infrastructure projects were to be prioritized.

A serious problem the DPRK had in meeting its public goals, however, was that the international trade it had actually been fostering was clandestine. From the mid-1980s North Korea had become a prime source of missiles, missile technology, and nuclear technology for countries of the Middle East and Pakistan. The most fully developed relationships were with Iran's missile program and Pakistan's missile and nuclear programs. The weapons trade was estimated to have been worth roughly $500 million a year, a figure equal to between 30% and 100% of estimated exports.

When Kim Il Sung died in July 1994, this was not one of the aspects of the economy that was radically affected since his son and successor, Kim Jong Il, had been in charge of the military.

As of 1994, total development assistance outside the Soviet bloc amounted to $6 million. Famine struck the country in 1995 and 1996, and output contracted from 1995 to 1998 an estimated 46.8% (from $23.5 billion GDP to $12.5 billion GDP). No economic plan was issued by the government in the 1990s, a decade that was dominated from 1994 by an international effort to stop the regime's apparent nuclear ambitions with positive economic incentives.

The so-called Agreed Framework of October 1994 embodied the offer to replace the DPRK's heavy-water nuclear facilities (suitable for producing weapons-grade fuel) with light-water reactors (LWRs, not as suitable), with construction and financing arranged by the United States. An annual supply of 500,000 metric tons of heavy oil would be donated by a consortium of 17 countries. In exchange the DPRK committed to freeze and eventually dismantle its heavy-water facilities. The Korea Peninsula Energy Development Corporation (KEDO) was created to administer the agreement. Besides maintaining the freeze, the DPRK was also dissuaded in 1999 from test-firing its most advanced missile, the Taepodong-2, reported to have a range of over 2,400 km (1,500 mi).

The Agreed Framework began to unravel in early 2002, after US president George W. Bush, in his State of the Union address, branded North Korea as part of an "axis of evil." In July 2002, the DPRK introduced a number of market-based economic reforms. Three special economic zones were officially established in 2002, including a special autonomous region (SAR) in Sinuiji to attract Chinese investment, and zones at Mount Kumgang and near Kaesong to attract South Korean investment. The government also announced it would be presenting a formal economic plan in 2003. These gestures were overwhelmed by increased tensions following the October 2002 announcement from the US State Department that the DPRK regime had admitted it was pursuing a secret nuclear weapons program. Oil shipments through KEDO were stopped after November 2002, and by the end of December North Korea had expelled all IAEA inspectors and removed their monitoring devices. In February, the IAEA referred North Korea's nuclear program to the US Security Council. In April 2003, Kim Jong Il asked for a non-aggression pact with the United States, arguing that the US was planning to overthrow his regime. No economic plan had been issued.