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Viewing cable 07SEOUL2596, DPRK ECONOMY SHRINKS IN 2006: BANK OF KOREA

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Reference ID Created Released Classification Origin
07SEOUL2596 2007-08-28 07:38 2011-08-25 00:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Seoul
VZCZCXYZ0000
PP RUEHWEB

DE RUEHUL #2596/01 2400738
ZNR UUUUU ZZH
P 280738Z AUG 07
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC PRIORITY 6255
INFO RUEHBJ/AMEMBASSY BEIJING 3035
RUEHKO/AMEMBASSY TOKYO 3173
RUEHMO/AMEMBASSY MOSCOW 8223
RUEHSH/AMCONSUL SHENYANG 3438
RHEHNSC/NSC WASHINGTON DC
RUEKJCS/SECDEF WASHINGTON DC//OSD/ISA/EAP//
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
UNCLAS SEOUL 002596 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
NSC FOR WILDER AND TONG 
STATE FOR EAP, NP, EAP/K AND EEB/IFD/OMA 
PASS USTR FOR CUTLER AND AUGEROT 
TREASURY FOR A/ISA/POGGI, ITI/CHRISTOPOULOS AND ITT/CHANG 
 
E.O. 12958: N/A 
TAGS: ECON EAGR PREL KS KN
SUBJECT: DPRK ECONOMY SHRINKS IN 2006: BANK OF KOREA 
PERSPECTIVES 
 
 
SUMMARY 
---------- 
1.  (SBU)  Relying on official but suspect DPRK data, the 
Bank of Korea's (BOK) report on the DPRK economy is 
noteworthy for spotlighting 2006 as a recession year, ending 
a seven-year growth streak.  The DPRK economy shrank 1.1 
percent in real terms -- compared with 3.8-percent growth 
reported for 2005. The BOK attributed this poor performance 
to international isolation stemming from the DPRK's pursuit 
of its nuclear weapons program, widespread energy shortages 
coupled with retarded infrastructural development, and lower 
agricultural output due to unfavorable weather conditions. 
Key sectors such as construction and agriculture led the 
decline, while manufacturing and mining posted negligible 
growth. Tourism dropped sharply due to security and political 
concerns in the wake of the North's nuclear test in the 
second half of 2006, limiting the DPRK,s access to hard 
currency. End summary. 
 
DPRK Real Economic Growth 
------------------- 
(Unit: percent) 
 
  ,97  ,98 ,99  ,00  ,01  ,02 ,03 ,04  ,05   06 
---   --- ---  ---  ---  --- --- ---  ---  --- 
-6.3 -1.1 6.2  1.3  3.7  1.2 1.8 2.2  3.8 -1.1 
 
 
2.  (SBU) In 2006, North Korea,s agriculture and fisheries 
output fell 2.6 percent from a year earlier, chiefly due to 
unfavorable weather conditions.  Manufacturing as a whole 
stagnated, but mining output grew slightly. Electric power, 
gas, and water production rose 2.7 percent, down from a 
4.4-percent increase in 2005, mainly because of weaker 
hydroelectric output.  Tourist visits to Mt. Geumgang and 
Pyongyang declined from 366,000 in 2005 to 265,000 in 2006. 
In the wake of this tourism drop, food and lodging industry 
income shrank 2.6 percent. The BOK linked this drop in the 
DPRK's hard-currency earnings to international concerns over 
its nuclear test in the second half of 2006. 
 
3. (SBU)  DPRK economic growth by Sector: 
 
Economic Growth by Industry 
---------------------------- 
(Unit: Percent) 
 
                  North Korea    South Korea 
                   ,05    ,06     ,05    ,06 
--------------------------------------------- 
Agriculture &      5.0   -2.6     0.7    -2.6 
Fisheries 
 
Mining & Industry  4.4    0.9     7.0     8.3 
   Mining          3.5    1.9    -1.7     2.7 
   Manufacturing   4.9    0.4     7.1     8.4 
  (Light Industry)(3.9) (-0.6)   (1.8)   (1.1) 
(Heavy Ind. &   (5.4)  (1.1)   (8.1)   (9.7) 
 Chemical) 
 
Electricity, Gas   4.4     2.7    7.8     3.5 
& Water Supply 
 
Construction       6.1   -11.5   -0.1    -0.1 
 
Services           1.3     1.1    3.4     4.2 
(Government)    (0.6)   (0.8)  (2.3)   (2.9) 
(Others)        (2.9)   (1.8)  (3.6)   (4.4) 
--------------------------------------------- - 
GDP                3.8    -1.1    4.2     5.0 
 
 
4. (SBU)  In 2006, North Korea,s primary industries 
(agriculture, fishing, and construction) shrank slightly as a 
share of total output, while services, mining, and industry 
expanded, reflecting longer-term structural changes to North 
Korea,s economy. For the past several years, agriculture and 
fisheries have accounted for a declining portion of total 
 
economic activity (30.4 percent in 2001 vs. 23.3 percent in 
2006,) while services and industry have grown steadily, 
albeit marginally, in importance. Food production made up a 
significantly large proportion of the DPRK's GDP, while 
non-governmental services, a major component of the South 
Korean economy, contributed fractionally to the North,s GDP. 
 
5. (SBU)  Sectoral Contributions to North Korea,s GDP 
          ------------------------------------------- 
              (Unit: Percent based on Nominal Prices) 
 
                  North Korea      South Korea 
                 ,05    ,06       ,05    ,06 
-------------------------------------------- 
Agriculture &   25.0   23.3       3.4    3.2 
Fisheries 
 
Mining & Industry  28.9   29.6   28.7   28.2 
   Mining           9.9   10.2    0.4    0.4 
   Manufacturing   19.0   19.5   28.4   27.8 
  (Light Industry) (6.7)  (6.7)  (5.1)  (4.9) 
(Heavy Ind. &   (12.4) (12.8) (23.2) (22.9) 
 Chemical) 
 
Electricity, Gas    4.3    4.5    2.3    2.3 
& Water Supply 
 
Construction        9.6    9.0    9.2    9.1 
 
Services           32.2   33.6   56.3   57.2 
(Government)    (22.6) (23.7) (10.1) (10.4) 
(Others)         (9.6)  (9.8) (46.2) (46.7) 
--------------------------------------------- 
GDP               100.0  100.0  100.0  100.0 
 
 
 
            DPRK GDP by Sector 
            ------------------ 
            Unit: Real prices based on 2000 index, 
                  in South Korean Billion Won) 
 
               Real Prices        Nominal Prices 
               ,05    ,06           ,05     ,06 
--------------------------------------------- --- 
Agriculture&  7,118.6  6,931.2  6,186.5  5,676.4 
Fisheries 
 
Mining/Industry5,289.4 5,336.4 7,156.3   7,216.3 
   (Mining)    1,616.2 1,646.8 2,456.3   2,474.9 
   (Manufac.)  3,673.2 3,689.6 4,700.0   4,741.4 
 
Electric, Gas  1,022.2 1,049.8 1,057.4   1,101.4 
& Water Supply 
 
Construction   1,688.2  1,494.2  2,368.6  2,182.6 
Services       6,333.9  6,404.5  7,966.1  8,181.2 
(Government) 4,247.3  4,281.4  5,599.2  5,784.1 
(Others)     2,086.6  2,123.2  2,366.9  2,397.1 
Whole, Retail, 
Food & Lodging 105.9    103.1    129.6    122.7 
 
Transportation 
& Communic.    597.2    637.4    664.1    691.7 
 
Finance, Insurance 
& Real Estate1,380.5  1,390.2 1,569.4   1,579.6 
 
Other Services   3.0      2.5     3.8       3.1 
--------------------------------------------- ---- 
GDP           21,452.3 21,216.1 24,734.8 24,357.9 
 
 
Economic Gap Widens Further between the Two Koreas 
--------------------------------------------- ----- 
6.  (SBU)  The economic differences between South and North 
Korea deepened further in 2006.  North Korea,s nominal gross 
national income (GNI - including total output and 
 
 
foreign-earned income) was estimated at USD 25.6 billion, 
while South Korea,s GNI totaled USD 887.3 billion-- 35 times 
larger than that of North Korea. 
 
7.  (SBU)  North Korea,s external trade, excluding 
inter-Korean trade, totaled USD 3 billion, down 0.2 percent 
from 2005. However, inter-Korean trade rose 27.8 percent in 
2006 to reach USD 1.3 billion, based on a 53-percent surge in 
the North's exports to South Korea (mainly KIC-made 
products). As a result, the DPRK's chronic trade deficit with 
South Korea shrank modestly. The North,s overall foreign 
trade deficit continued its perennial climb, approaching USD 
1.5 billion and spotlighting its need to earn foreign 
exchange. In contrast, South Korea's foreign trade totaled 
USD 635 billion, up 16.3 percent from 2005.  While the value 
of inter-Korean trade flows is still modest relative to the 
South's overall trade, inter-Korean trade has posted 
impressive growth from 2001 through 2006, with nominal trade 
more than tripling during that five-year period. 
 
8.  (SBU)  Economic Comparisons between the two Koreas: 
 
 
          2006 North ) South Economic Comparison 
          -------------------------------------- 
                Unit    North(A)  South (B)  B/A 
                ----    --------  ---------  --- 
Population      1,000    23,079    48,297    2.1 
 
Economic Growth  Percent   -1.1      5.0     - 
 
Nominal GNI   USD Billion  2.56    887.3    34.7 
 
GNI per Capita   USD      1,108   18,372    16.6 
 
External Trade 
Overall Trade USD Billion  3      634.9  211.9 
(Exports)        &         0.95   325.5  343.8 
(Imports)        &         2.05   309.4  151.0 
 
Exchange Rate    DPRK Won/USD 141   955.51    - 
 
Energy Industry 
(Coal Production) 10K Ton    2,468    280   0.11 
(Power Generation 10K Kw       782  6,551   8.4 
 Capacity) 
(Power Generation 100 Million  225  3,812  16.9 
 Output)          kWh 
(Crude Oil Imports)10K bbl     384 88,843 231.4 
 
Agriculture & Fishery 
Output 
   Grain       10K ton    448.3    530     1.2 
   (Rice)          &      189.4    468     2.5 
   Fishery         &       92.3    303.2   3.3 
 
Mineral Production 
Iron Ore      10K ton   504.1     22.7  0.05 
Non-ferrous Metal &       8.6    187.7  21.8 
 
Industrial Goods 
Output 
Auto        10K cars   0.44      384   872.8 
Crude Steel 10K ton   118.1    4,843.3  41.0 
Cement        &       615.5    4,920.9   8.0 
Fertilizer    &        45.4      318.3   7.0 
Synthetic Fiber &       2.9      145.7  50.2 
 
Infrastructure 
Rail Length     Km    5,235      3,392   0.6 
  Road Length     Km   25,544    102,061   4.0 
Unloading Capacity10Kton 3,700  69,213  18.7 
Shipping tonage  &     90.4    1,180.2  13.1 
--------------------------------------------- - 
Source: Bank of Korea (BOK) 
Note A: DPRK exchange rate denotes North Korea,s official 
exchange rate against the US dollar. 
 
COMMENT 
------- 
9.  (SBU)  The BOK report is notable for highlighting the 
first DPRK economic recession since 1998.  Estimating DPRK 
economic performance since 1991, the BOK collects DPRK data 
from the South's National Intelligence Service and various 
research institutes.  BOK analysts deem DPRK data to be 
suspect, but make their best-guess estimates drawing on South 
Korean market prices, value-added ratios, and exchange rates. 
 They were unavailable for comment on this report, but post 
will be following up with them in the coming weeks.  End 
comment. 
VERSHBOW