The North Korean Economy: Background and Policy Analysis

This report provides an overview of the economy of the Democratic Peoples Republic of Korea DPRK or North Korea, its external economic relations, attempts at reform, and U.S. policy options. The economy of North Korea is of interest to Congress because the it provides the financial and industrial resources for Pyongyang to develop its military, constitutes an important push factor for potential refugees seeking to flee the country, creates pressures for the country to trade in arms and illegal drugs, is a rationale for humanitarian assistance, is tied to Pyongyangs program to develop nuclear energy and bombs, and creates instability that ultimately affects the economy of South Korea. The North Korean threat to sell nuclear weapons material could be driven in part by its need to generate export earnings. The dismal economic conditions also foster forces of discontent that potentially could turn against the Kim regime especially if knowledge of luxurious lifestyle of communist party leaders becomes better known or as the poor economic performance hurts even Pyongyangs elite. The North Korean economy also is a target of economic sanctions. Along with the United States, North Koreas major trading partners China, Japan, South Korea, and Russia form the so-called Six Parties. In the current Six-Party Talks, economic assistance including fuel oil is a major bargaining chip in seeking the complete dismantling of the DPRKs nuclear program. Economic policy options include normalizing relations with Pyongyang, negotiating a trade agreement, lifting economic sanctions, allowing the DPRK to join international financial institutions, and removing the country from the terrorism list. This report will be updated as conditions warrant. Catalogers note of 2807 This report was updated 24 Jan 2006.