North Korea's economy will face a drastic slump if the international community takes economic sanctions against the reclusive country for its claimed nuclear bomb test, a report said Friday.
"It is highly likely that North Korea's economy will contract sharply if its trade is restricted by sanctions," the Korea Institute for International Economic Policy (KIEP) said in the report.
"External trade is very important for the North... If its trade with other countries is curbed, its economy will face a sharp decline, greater than the situation in the mid-1990s," the KIEP said.
North Korea shocked the world Monday by claiming to have conducted its first nuclear bomb test, triggering a U.S.-backed move to have the U.N. Security Council sanction the country.
The council is expected to adopt a U.S.-drafted resolution this weekend imposing broad, non-military sanctions on North Korea. The draft is expected to prevent the sale of luxury goods to the North and prevent trade in materials and goods that can contribute to the communist country's weapons of mass destruction production (WMD). In addition, the international body supports freezing financial accounts of WMD-related money and could permit limited inspection of cargo from North Korea.
According to the report, trade with its strongest ally, China, helped the North's economic growth by 3.5 percentage points annually in the 2000-2004 period.
North Korea's economy posted a 2.1 percent gain on average during the cited period, which means that the economy might have had minus growth without trade with China, the research institute said.
The KIEP said a food shortage could occur if there is a suspension of fertilizer and grain, while inflation may become a problem as well.
The North will also see a sharp decline in income if inter-Korean economic cooperation projects are restricted, it said.
Last year, the North earned US$13.5 million from tours of scenic Mount Geumgang on the North's east coast, which are run by South Korea's Hyundai Asan Corp.
Also, Pyongyang has pocketed a total of $20 million as of May from running an inter-Korean industrial park at the North's border city of Kaesong, according to the report.
Related to Kaesong and Mount Geumgang, Finance Minister Kwon O-kyu told lawmakers during a parliamentary audit that even if the projects were halted, the economic fallout for South Korea will not be too great.
"The Korea Land Corp. has invested 120 billion won to build the industrial park, but this amount is not great compared to the state-run company's total assets," Kwon said. The minister said some companies in Kaesong have taken out insurance to cover possible losses, while those that have not could consider applying.
He said in such cases the government could endorse taking out insurance.
On the Mount Geumgang tours, Kwon said the venture did not entail any state involvement, and no bank had outstanding loans to recoup from Hyundai Asan. The project turned a profit starting in 2004, so it is not a burden on the domestic banking sector.
Seoul, Oct. 13 (Yonhap News)
Economic sanctions may lead to sharp slump in N. Korean economy: report |
