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South Korea: Economy Growing in North Korea

South Korea's central bank says North Korea's economy grew for a sixth consecutive year in 2004. However, the North is still struggling with serious food shortages and income inequalities as it tries to implement economic reforms.

A Bank of Korea report says North Korea's economy expanded by 2.2 percent last year, up from about 1.8 percent growth the previous year. The report, issued Tuesday, says most of the growth came in agriculture and mining output.

North Korea's communist government does not reveal any economic statistics, but the South Korean central bank has used other sources to estimate a composite picture of the Northern economy every year since 1991.

The North's economy has shrunk over the past few decades, as central planning failures, poor management and natural disasters have shrunk output of electricity, factory goods and agriculture. In addition, after the old European Communist bloc fell apart in the early 1990s, it lost the economic support of many former allies.

Some economists criticize the South Korean report, saying it does not take into account changes in the North's consumer prices resulting from economic reforms. In 2002, Pyongyang began limited reforms in an attempt to ease chronic food shortages, loosening controls over prices and permitting some entrepreneurial activity.

The United Nations World Food Program says the reforms have only worsened conditions for millions of North Koreans. The WFP's Asia director, Tony Banbury, recently said food prices have skyrocketed, while attempts to link factory salaries to profits have put less money in North Koreans' pockets.

"For many, many factories in North Korea, there are no profits - and hence, for millions of workers, their salary is either less than it was before or they are not receiving them at all," said Mr. Banbury.

He warns North Korea is edging close to the famine conditions seen in the 1990s, when hundreds of thousands of North Koreans are thought to have died of malnutrition.

Professor Andrei Lankov, a North Korea specialist at South Korea's Kookmin University, says the reforms mainly benefit those who have access to money from outside the country. He says people with relatives in Japan and China, formerly the victims of discrimination are among North Korea's lucky ones.

"Now, if you have relatives overseas … you can get a few hundred dollars from your relatives and start a business," he said.

Nicholas Reader, who wrote a recent report on North Korea's economic reforms for the Brussels research agency the International Crisis Group, says Pyongyang still has not made basic changes.

"They haven't tackled the deepest structural and institutional problems they face, and that really speaks to the nature of the system itself," said Mr. Reader.

Mr. Reader says North Korea lacks basic infrastructure and the capital to fuel growth. He says Pyongyang is hesitant open up enough to attract capital from overseas, because that could threaten government control.

The United States and its regional partners also say the North's declared ambitions to build nuclear weapons blocks economic progress. They say the North could receive substantial economic aid if negotiations to dismantle its nuclear weapons succeed. Pyongyang has boycotted nuclear talks with China, Japan, Russia, South Korea, and the United States for almost a year.