South Korea has far outstripped North Korea in economic growth in the past decade and for the first time since the post-World War II partition leads the north economically on a per person basis, according to a new Central Intelligence Agency study.
If Seoul's export markets hold up as anticipated and there is no large-scale war on the Korean peninsula, the CIA predicted, South Korea should emerge in the early 1980s with an economy nearly three times larger than the north's and a per capita gross national product one-third greater.
The economic race between the two Koreas is of major importance at a time of uncertainty caused by the planned withdrawal of U.S. ground troops from South Korea over the next five years. Some U.S. observers have interpreted South Korea's growing economic strength as proof that Seoul can take care of itself. But others argue that the prospect of an ever-widening economic gap may impel North Korea to resort to military force to achieve unification sooner rather than later.
The unclassified report published last month by the CIA's National Foreign Assessment Center did not deal with the troop withdrawal issue nor did it consider political cohesion or economic equality, both of which are believed to be greater in the north than in the south.
The study cited North Korea's heavier military emphasis as one reason for its poorer economic showing. During the past decade North Korea allocated 15 to 20 percent of its GNP annually to defense, compared to an average of less than 5 percent of GNP spent by South Korea, according to the study. Seoul's military expenses are expected to increase to about 7 percent of GNP this year in view of the U.S. troop withdrawal, however.
Part of North Korea's heavy military drain, according to the CIA, has been due to a "high-cost underground construction program designed to protect important industrial and military installations." No details were given.
The division of Korea at the 38th parallel in 1945 created two unequal units. North Korea inherited most of the mineral and hydroelectric resources and two-thirds of the heavy industry. South Korea inherited about two-thirds of the population and roughly the same proportion of light industry and agriculture.
North Korea has stressed heavy and military-related industry while improving its agricultural base at a faster rate than the south, according to the CIA. South Korea has relied on export-oriented industries such as clothing, footwear and electronics to fuel an extremely rapid industrial growth.
The CIA reported that since 1965 South Korean industrial production grew almost 25 percent annually (after adjustment for inflation), "nearly double the rate of the north and perhaps the fastest in the world."
North Korea's foreign debt of $2.4 billion and its continuing default on payments, according to the CIA, have "cut its access to further imports of advanced western machinery and equipment."
South Korea's foreign debt is estimated by the CIA at $8.8 billion, more than three times that of the north, but Seoul's much higher foreign currency earnings make its payment ratio "manageable" and give "easy access to international financial markets."
Seoul's continuing access to outside capital, despite the uncertainty resulting from the planned troop withdrawal, is underscored in recent banking reports. Morgan Guaranty Banks' "World Financial Markets" reported that South Korea obtained Eurocurrency bank loans last year of $1.2 billion, almost twice as much as in 1976 and nearly four times as much as in 1975.