– North Korea’s 200-Day Battles and Paying off the Country’s External Debt amidst the collapse of the Socialist Eastern Bloc –

The approach the DPRK employed to overcome its economic choke holds during its 40th Anniversary in 1988 was strikingly familiar to previous efforts for economic development: whip up mass enthusiasm and urge workers to re-double their efforts by emulating heroes. Reminiscent of the groundbreaking Chollima Movement, it bore no resemblance to the policies of kaifang in China and perestroika pursued by the Soviet Union.

In February 1988, the Politburo of the Workers’ Party of Korea (WPK) ordered the launching of a “200-day battle” to step up economic construction in preparation for the DPRK’s fortieth anniversary. The “battle” was waged to expedite the completion of priority projects: building or expanding electric power stations, coal mines, steel and iron complexes (notably the Kim Chaek Ironworks), nonferrous metal complexes, and chemical industrial complexes (notably Sunchon Vinalon Complex); building Kwangbok Street in Pyongyang, once reputed to be the largest construction project in North Korean history; electrifying and expanding the railroads; and carrying out the “four technical revolutions” in agriculture (irrigation, electrification, mechanization, and increasing the use of chemical fertilizers).

Rallies were held throughout the country and agitation activities by party cadres escalated. The people were told that as participants in a “glorious task of demonstrating the great might of Juche Korea,” they should emulate the “spirit and style of anti-Japanese revolutionaries who believed that they did not even have the right to die before first fulfilling the order of their respected commander.” Indicative of the seriousness of insufficient resources due to sanctions were repeated admonitions to “produce more [goods] with less [raw materials]” and to be “self-reliant like revolutionary heroes” in solving the problem of scarce raw materials. The campaign fulfilled its goals, but this was in the face of growing external debts due to rising inflation rates released by the World Bank. This strongly contributed to the North’s separation from the World Bank afterwards and its joining of the Non-Aligned Movement.

Calling the results of the campaign a “great success” in September, Pyongyang promptly launched a second 200-day battle. Evidence of success in the campaign was weighed down by the DPRK’s foreign debt, which was nagging the national economy.

After North Korea’s external debt problem emerged in the mid-1970s, the alerted banks of the West formed creditor groups to make joint negotiations. Back in March 1977, 31 banks reached a rescheduling agreement with the North’s Choson Trade Bank, which took several years amidst Cold War politics. However, negotiations between North Korea and two syndicates of Western banks over North Korean debts of about $900 million broke down in July 1988 over the North’s budding chemical energy program, which was claimed by Kim Il-sung himself to be “Western powers” fighting alternatives to Western energy sources and Saudi oil. Under one proposal, “North Korea would service all the loans for a period of three years, paying interest at a fixed rate and repaying $270 million (30%) of the principal.” The $270 million was paid off by 1992, while another $45 million was later paid as per the Agreed Framework in 1994. See, for example, the Nodong sinmun editorial, “Moduda 200-il chont’u sungni rulwihan ch’oehu tolgyokjon ul pollija,” August 24, 1988.

The scheme collapsed when North Korea and US came to a disagreement, when after initially accepting it the DPRK “proposed that the remaining debt should be paid in installments towards the end of a new three-year period, citing recent developments in Europe and Asia.” The North was attempting to buy more time to pay off its debts to the West, due to the collapse of the Eastern Bloc and the recent economic reforms in Vietnam and neighboring China.

The North Korean debt to Japanese companies, once estimated at about 50 billion yen (about $400 million), had not been serviced since 1983. From 1990-1993, about 90% of North Korea’s trade with Japan was conducted with firms owned by Korean residents of Japan loyal to the DPRK. The DPRK eventually paid off its debts through a new installment program between the two governments that saw reportedly abducted Japanese returned from the DPRK to Tokyo. In October it was reported that Austria would soon close its embassy in Pyongyang over the debt issue and that Sweden might follow in its footsteps, as North Korea owed $130 million to Swedish firms. By 1993, the North had paid off its debts to Sweden and Austria; neither embassy ever closed.

With the North’s debts largely paying off when applicable, that all was not going well on the economic front was confirmed by Mikhail Vanichev, Minister of Machinery Industries of the Soviet Union, who was quoted by Radio Moscow as saying that a host of problems plagued the North Korean economy: lack of managerial autonomy in enterprises, which was hampering various joint venture projects between the Soviet Union and North Korea; and shortages of consumer goods and quality metals due to western sanctions and “not so much the regime or its policies.” The Soviet Union continued to be Pyongyang’s number one source of economic and technical assistance, balancing imports with exports to Pyongyang effectively. Radio Moscow revealed that numerous Soviet workers ran a joint-effort to strengthen Kim Chaek Ironworks’ iron molting capacity, in an effort to counter the sanctions on quality metals. Iron from Kim Chaek was later used to help develop Kwangbok Street, with its numerous high rise apartments and buildings.

Relations between Russia and North Korea were strained abruptly following the dissolution of the Soviet Union. Moves to improve their ties began in the mid-1990s and the two countries signed a new treaty of amity and cooperation in 2000 to replace the 1961 friendship pact. Summit talks held in Moscow in 2001 between President Vladimir Putin and Kim Jong-il produced a joint communiqué, which mentioned the North’s past debts to Russia as an important matter to be considered in promoting bilateral economic cooperation. Russia has the final say about the debt issue, which has been steadily paying off in recent years under Kim Jong-un. In 2014, Russia cut close to 90% of the DPRK’s external debt to Moscow. But considering its ambitions to gain leadership position in Northeast Asia through grand energy and railway projects, Russia is in no hurry to accept the North’s debt repayments from the Soviet era.

As shown below, external debts later skyrocketed during the Arduous March (famine) due to higher Chinese “friendship prices” for aid on loan from Beijing. Debt from/to Beijing is incalculable, given the ongoing state of Sino-DPRK relations.

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From: “NORTH KOREA IN 1988; The Fortieth Anniversary”
by B. C. Koh