Former unification minister criticizes Bank of Korea statistics on North Korean growth rate

Posted on : 2019-01-01 14:05 KST Modified on : 2019-10-19 20:29 KST
Lee Jong-seok says BOK data conflicts with observable reality in N. Korea
Former South Korean Unification Minister Lee Jong-seok
Former South Korean Unification Minister Lee Jong-seok

For the past ten years, former Minister of Unification Lee Jong-seok has criticized and questioned the estimates of North Korea’s economic growth rate announced officially each year by the Bank of Korea (BOK), which he calls “unrealistic and unbelievable.” In an Oct. 15 column published by the Hankyoreh, Lee responded to the bank’s July estimates putting North Korea’s real gross domestic product (GDP) growth rate at -3.5% (30.8823 trillion won/US$27.7 billion).

“BOK’s estimates have a significance that goes beyond their mere value as economic statistics to influence the formulation of North Korea policy,” he argued at the time.

“There has been a failure to properly estimate North Korea’s GDP and ascertain its economic trends, and it is not clear why we need statistics that could potentially distort the reality in North Korea,“ he added.

Lee’s argument is that the BOK statistics – which present North Korea’s gross value-added production as having grown by just 1.4% in the five years since full-scale reform and openness policies were implemented in the 2013 – are belied by images and phenomena visible throughout the North Korean economy, including large construction of new buildings in Pyongyang and border cities and a rapid proliferation of various kinds of automobiles. Lee previously called for fundamental improvements to statistics in 2008 after BOK’s announcement of the estimated per capita national income in North Korea, which he claimed “appears not to have grasped the actual situation in the North.”

Difficulty of gathering precise data on North Korean economy

It remains very difficult to get a precise grasp of the North Korean economy, facts about which become available to the outside only intermittently or take the form of unofficial “estimates.” Between 1992 and 2004, North Korean authorities indirectly provided the outside world with basic economic figures in the hopes of drawing aid from the international community, but official announcements have not been forthcoming since the mid-1960s. Estimates of North Korea’s per capita national income by the UN and US Central Intelligence Agency (CIA) have varied widely – differing by roughly three times in the case of 2011.

“BOK’s estimates for income in North Korea have placed it roughly midway between the UN’s and CIA’s figures for practically the entire period since 1996,” BOK’s North Korea economic research office explained.

The basic reasons for the differences between institutions are the differing price and exchange rate standards used to draft the statistics and fundamental constraints in terms of available information.

The various North Korean indices tracked by the BOK, including its gross national income (GNI, US$1,295 in 2017), are estimated using the exchange rate, the value added rate and the cost of goods for each industry in South Korea. Because of the difficulty of determining the price of each product and the value added rate for each industry in the North, the bank substitutes the level of prices in South Korea at a time when its economy was roughly similar to North Korea’s today.

The estimated indices published by the bank are composed using basic data on the output of each North Korean industry that have been provided each year since 1991 by related organizations, including the Export-Import BOK, Korea Development Bank, Korea Trade-Investment Promotion Agency (KOTRA) and National Intelligence Service.

The BOK also has access to statistics that the South Korean government compiled prior to 1990 to compare income levels in South and North Korea. The bank used to apply the South Korean exchange rate to its estimates of nominal income (themselves based on South Korean prices) and then convert these to dollars in its publications. Since 2007, however, the bank has only published figures prepared by applying the South Korean currency standard in order to eliminate the overestimates and underestimates that occur in international comparisons with other poor countries.

Implicit goal of earlier data is demonstrating South Korea’s economic superiority

The BOK explains that its estimates of North Korea’s economic growth are designed “to be used in North Korean policy” and that “assessing this by the same standards as South Korea makes it easier to compare South and North Korea’s economic strength.”

Since one of the implicit goals of these estimates since the early 1990s has been to demonstrate the superiority of the South Korean economy, some argue, this goal may still remain in force to a certain extent. The bank emphasizes in a footnote that “the North Korean economic indices that we publish should not be directly compared with those of other countries.” This is akin to the disclaimer a company gives its customers informing that that the company will not be liable for damage resulting from the misuse of its products.

The BOK mentions how realistic the North Korean economic indices that it estimates and publishes are, but it does acknowledge the difficulty of piecing together these figures.

“We look at the evidence for the economic indices that occasionally appear in research papers at Kim Il-sung University, collect and synthesize the information provided by defectors and combine this with the data about North Korean foreign trade provided by international organizations. We also take into account how many smokestacks are releasing smoke at operational factories throughout the North and how many cargo trucks are traveling to and from industrial complexes, but there’s no way to tell the volume of goods contained in those trucks.”

“It’s obvious that the North Korean economy has recently been undergoing rapid change. While North Korea hardly releases any figures to the outside world, it’s clear that structural and constitutional reforms are quietly being implemented inside its economy and industries,” the Bank of Korea also said.

By Cho Kye-wan, staff reporter

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