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North Korean economy suffers its steepest decline in two decades

North Korean leader Kim Jong Un tours a factory in Sinuiju in an undated photo released by the Korean Central News Agency on July 2. Kim has pledged to foster his country’s economic development.
North Korean leader Kim Jong Un tours a factory in Sinuiju in an undated photo released by the Korean Central News Agency on July 2. Kim has pledged to foster his country’s economic development. (Korean Central News Agency/Reuters)

SEOUL — North Korea’s economy saw its biggest decline in two decades amid tightening international sanctions last year, according to a new Bank of Korea estimate released Friday.

The estimates lend weight to the argument that the Trump administration’s “maximum pressure” campaign has left the North Korean state in economic distress, although Pyongyang officials have repeatedly denied that sanctions led them to enter into negotiations with the United States this year.

North Korea’s real annual gross domestic product fell by 3.5 percent in 2017, the South Korean central bank said in a statement. The last time the bank observed a larger decline in the North’s economy was in 1997, when the GDP dropped by 6.7 percent as the country struggled through a devastating famine estimated to have killed millions.

The North Korean economy largely stabilized by the end of the 1990s, producing either small declines or some growth, according to the Bank of Korea’s yearly estimates. In 2016, it was estimated to have grown by 3.9 percent, the largest annual increase in more than a decade.

Sanctions imposed by the U.N. Security Council and the U.S. government appear to have hit the North Korean economy hard last year, despite speculation to the contrary. The Bank of Korea estimated that North Korea’s total external trade dropped 15 percent, to $5.55 billion, with exports declining 37.2 percent in a single year.

North Korea has not tested any weapons since Nov. 28, 2017, when it fired a new kind of intercontinental ballistic missile that it claimed could carry a heavy warhead. In April, North Korean leader Kim Jong Un said he would suspend all testing of missiles and nuclear weapons.

Video: In April, Trump declares, ‘Maximum pressure will continue until North Korea denuclearizes’

Kim met President Trump in Singapore on June 12, and the two agreed to work toward the denuclearization of the Korean Peninsula. 

North Korean state media outlets have portrayed the decision to move away from weapons testing as evidence of the advanced state of the country’s program, while North Korean diplomats have downplayed the effects of sanctions. 

Nuclear negotiator Kim Yong Chol told Secretary of State Mike Pompeo in May that Pyongyang’s shift away from weapons was “not a result of sanctions that have been imposed from outside.”

The country’s secretive nature makes it difficult to measure North Korea’s economic activity.

However, researchers consider the Bank of Korea’s estimates to be among the most accurate. Notably, the details of the latest report suggest that China’s willingness to enforce sanctions played a big role in their effectiveness.

“The sharp decline in North Korea’s exports last year is a direct effect of the sanctions,” said Kim Byung-yeon, an expert on the North Korean economy at Seoul National University. “The sanctions imposed by China last year, the biggest export destination of North Korean products, dealt a huge blow.”

China announced last year that it would ban the import of North Korean iron ore, iron, lead and coal to bring its policy in line with U.N. sanctions. The Bank of Korea’s data showed that mining production in the North fell 11 percent last year, largely because of a sharp drop in the coal sector. The export of mineral products was estimated to be down 55.7 percent year over year.

China bans North Korean iron, lead, coal imports as part of U.N. sanctions

Sanctions on North Korea were expanded after it tested a variety of increasingly sophisticated intercontinental ballistic missiles and a nuclear weapon it said was a hydrogen bomb. Under the “maximum pressure” strategy, the United States spearheaded a global plan to diplomatically and economically isolate North Korea. 

U.N. sanctions announced last August stepped up the pressure by removing the parts of prior sanctions that had attempted to avoid humanitarian consequences.

Pompeo said this week that sanctions would remain in place during negotiations with the North, while Trump tweeted Wednesday: “There is no rush, the sanctions remain!”

It may prove difficult to maintain the international consensus, however. Russia’s ambassador to North Korea, Alexander Matsegora, suggested that the U.N. Security Council should be ready to discuss lifting sanctions on North Korea, the RIA news agency reported Wednesday, while Reuters reported Friday that China and Russia have blocked attempts to limit refined-petroleum sales to the country.

North Korean state media outlets have long declared that after the country developed its weapons capability, it would turn to economic development. During a recent tour of factories in North Korea’s northeast, Kim was shown berating local officials for poor workmanship and low rates of productivity.

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