November 3, 2011 / 5:46 AM / 8 years ago

North Korea economy contracts again as sanctions bite

SEOUL (Reuters) - North Korea’s closed economy contracted for a second year in a row last year due to international sanctions, sluggish agricultural production and a slowdown in manufacturing, South Korea’s central bank said on Thursday.

North Korean leader Kim Jong-il (C) visits the Rakrang Ponghwa Garment Factory in Pyongyang in this picture released by the North's official KCNA news agency May 7, 2011. KCNA did not state expressly the date the picture was taken. REUTERS/KCNA

In a report issued by the Bank of Korea (BOK), the North’s centrally-planned economy was estimated to have shrunk 0.5 percent year-on-year in 2010 compared with a 0.9 percent contraction in 2009.

“Last year, the North Korean economy contracted as economic conditions at home and abroad worsened amid energy shortages and international sanctions and its manufacturing sector remained sluggish,” said BOK official Park Yung-hwan.

Seoul’s assessment of its neighbor’s economy does not auger well for the North’s ambitious drive to become a “strong and prosperous nation” by 2012 when it celebrates the 100th anniversary of the birth of the state’s founder Kim Il-sung.

The North currently ranks as one of the world’s poorest and least developed states.

It does not release economic data, and the South calculates the figures through specialist institutes which monitor the North’s economy.

The BOK report said North Korea’s nominal gross national income (GNI) amounted to 30 trillion won (US$26.5 billion) last year, which is only 2.56 percent of South Korea’s GNI of 1,173 trillion won.

Meanwhile, inter-Korean trade grew 13.9 percent year-on-year to $1.91 billion, the BOK said.

The secretive state was subjected to a new raft of international sanctions in 2009 after it tested a long-range missile, compounding sanctions imposed in 2006 for testing a nuclear device. It carried out a second nuclear test in 2009.

Last year, Seoul and Washington tightened sanctions against the North after they accused Pyongyang of sinking a South Korean warship, killing 46 sailors. The North denies it was responsible.

AGRICULTURE, MANUFACTURE DECLINE

The North’s moribund economy has also been affected by poor agriculture production, as a result of summer flooding and a particularly harsh winter.

The BOK said its agricultural and fishery industry contracted 2.1 percent last year from a year earlier, and its manufacturing sector declined 0.3 percent in 2010, the BOK said.

The North has suffered chronic food shortages for about two decades due to mismanagement, isolation and natural disasters, making it dependent on foreign donors to fill the food gap.

Aid agencies say the food situation has worsened this year as foreign aid deliveries have slowed.

Seoul and Washington, which had been the North’s biggest food donors until a few years ago, have suspended food aid to the North over monitoring concerns. South Korea has also said it will only resume aid when the North denuclearizes.

The United States sent a team to the North earlier this year to assess the food situation, but has said it is still undecided on resuming aid.

Pyongyang has reached out for help this year, saying it wants to rejoin regional aid-for-denuclearization talks. The North quit the talks more than two years ago.

The two Koreas and the United States and the North have held a series of bilateral talks aimed at restarting the six party forum, which also involves China, Russia and Japan.

But Seoul and Washington are skeptical about the North’s push to rejoin the forum, saying it cannot be trusted to fulfill its pledges to abandon its nuclear weapons program.

Editing by Sanjeev Miglani

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