Memo from K. Koval to the CPSU CC, on preparations for the DPRK’s Five-Year Plan for 1957-1961

[CPSU CC stamp:

18025

2 May 1956

Subject to return to the

CPSU General Department]

Secret

[logo of the Main Directorate

for Matters of Economic Relations

with Countries of People's Democracy]

[date left blank] April 1956 to the CPSU CC

to Cde. L. I. BREZHNEV

In accordance with your instructions I submit a memo concerning the main issues of the economic situation of the Democratic People's Republic of Korea and about the aid of the USSR, China, and other countries of people's democracy in the revival of the DPRK economy.

[signature]

K. Koval'

[handwritten:

to the archives

The material was used in connection with a trip by a CPSU delegation to the 3^rd congress of the Korean Worker's Party.

I. Shcherbakov

23 July 1956

V. Gorbunov

25 July 1956

[illegible signature]

[…]

Copy

Secret

Draft

RECOMMENDATIONS

concerning the draft directives for the preparation of the five-year plan for the development of the DPRK economy for 1957-1961

I.

The three-year plan for the revival of the economy of the Democratic People's Republic of Korea for 1954-1956 envisioned reestablishing and surpassing the prewar 1949 level in gross industrial production by approximately 1.5 times as a whole. It provided for exceeding the 1949 level in the production of pigs, the rolling of ferrous metals, mining equipment, farm implements, cement, cotton fabric, the fish catch, and other production. However, restoration to the prewar level was not provided for individual types of industrial production - mineral fertilizer, copper, zinc, tungsten concentrate, and electrical energy.

The results of 1954 and the first quarter of 1955 demonstrate the successful fulfillment of the targets of the three-year plan in the sphere of industry. In 1955 the total volume of industrial production will be almost at the level established for 1956 by the three-year plan. For individual types of industrial production - steel, rolled metal, copper, brick, commercial timber, paper, and silk fabrics - the 1955 plan provides for a considerable exceeding of the targets established for 1956 by the three-year plan.

It was envisioned to increase the gross grain yield in 1956 by approximately 19% compared to 1949, including rice by 31%; it was intended to restore the prewar total head of cattle in 1956 to 88%.

The established targets of the three-year plan for agriculture are being unsatisfactorily fulfilled. As a consequence of a bad harvest in 1954 the grain situation in individual provinces has not improved compared to 1953 and the rice situation is somewhat worse.

The 1954 plan for the gross grain yield was only 85% fulfilled, including 82% for rice. The targets for 1955 for grains are considerably lower than was previously stipulated according the three-year plan.

The targets for the development of animal husbandry are not being met. The number of cattle was not increased in 1954, but decreased compared to 1953 and is only 57% of the 1949 prewar level. A considerable slaughter of cattle took place on peasant farms in the first quarter of 1955.

The data cited demonstrates the serious backwardness of agriculture, as a result of which, in spite of considerable deliveries of food from China and the USSR, has great difficulties in supplying the population with the necessary food products and industry with raw material. The backwardness of agriculture and the shortage of food in the country is fraught with the danger of an emergence of widespread discontent with the current regime in the population, with all the consequences which ensue from this.

Concern is not being exhibited and the necessary aid is not being given to working peasant farms which have suffered from the war, which retards the development of the production of agricultural goods.

Haste is being permitted in the production cooperation of peasant farms, and material conditions and the possibilities of the development of cooperation are not being taken into account in establishing the norms of cooperation.

From September to December 1954 the number of production cooperatives increased from 998 to 10,098, and the number of cooperated farms from 18,700 to 332,700 farms. As of 1 April 1955 there were 11,400 cooperatives encompassing about 40% of peasant farms and cultivated land.

The organizational and economic strengthening of agricultural production cooperatives is not being ensured, and the conditions are thereby not being created to overcome the backwardness of agricultural production.

The target of the three-year plan to prepare the conditions for the abolition of the ration card system and to switch to broadly-developed trade is not being met. Commercial trade in rice and other grain products was completely abolished beginning on 5 March 1955 and has come down to rationed trade at commercial prices. The prohibition on free trade in grain has led to an increase of prices for other agricultural products and weakens the peasants' incentive to increase the production of grain.

The difficult situation is further complicated by the fact that great excesses were permitted when conducting grain procurement from the 1954 harvest.

The curtailment of the activity of private businessmen is also unjustified since in contemporary conditions this leads to a reduction of the production of consumer goods for the population and a contraction of market trade.

A serious threat of a breakdown in monetary circulation and currency depreciation is being created as a result of the disruption of economic ties with the countryside and restrictions of free trading by the peasants.

All this creates serious difficulties in the country's economic and political life, especially in the conditions of the division of Korea into two parts.

II.

When determining the prospects for the further development of the economy of the Democratic People's Republic of Korea one ought to proceed not from the position of the creation of a closed economy, as is seen in the draft directives, and in particular in the section about machinebuilding, but from the economic advisability of creating and developing individual sectors, taking into consideration every possible strengthening of economic ties with the countries of the socialist camp and the division of labor forming between them.

Bearing in mind the presence of rich natural resources and also the accumulated work experience, the main attention ought to be concentrated on the development of the mining, metallurgical, power, and chemical industries.

The economy's need for equipment and machines and consequently the development of machinebuilding ought to be linked with the possibilities of the supply of equipment from the countries of the socialist camp.

It is necessary to provide for a serious improvement of agriculture in the five-year plan, grain growing first of all, in order to ensure that the country's needs in the main agricultural products and raw materials for industry are fully met, and also the formation of the necessary food reserves, as a guarantee against any surprises, which is especially important in the conditions of North Korea.

The production of consumer goods should be increased on the basis of the development of industry and agriculture. The development of a large state industry in the DPRK ought to be combined with the development of small-scale and cottage industries which could manufacture products which the population needs on a wide scale. Private capital also ought to be used in the development of small-scale cottage [SIC] industry. The excessive taxes ought to be reexamined in the process, bearing in mind that the activity of private business should promote the expansion of the production of consumer goods.

The direction of capital investments ought to be reexamined, in particular bearing in mind a reduction of them in machinebuilding and an increase in agriculture, most of all in irrigation construction, which can produce a rapid economic effect and ensure that the main task of increasing grain production is accomplished.

The implementation of these measures would allow a serious increase in the people's standard of living to be ensured, the abolition of the ration card system of supplying food and manufactured goods, and a strengthening of the democratic system of North Korea and the moral and political unity of the Korean people.

The successful development of the economy and an improvement of the material and cultural level of workers' lives would be a serious incentive in the Korean people's struggle to reunify the country and would increase the authority of North Korea in the eyes of the population of South Korea.

It is recommended that the following comments be taken into consideration with respect to the plan to develop individual sectors of the economy:

In the area of industry

1. The planned average annual industrial production growth rates, 21%, are not supported by the corresponding resources and are inflated. These projections ought to be reexamined in the direction of a decrease, intending to establish more realistic rates of industrial development.

2. Concerning ferrous metallurgy forces ought to first of all be concentrated on restoring the cast iron, steel, and rolled metal production capacities which existed before the war. The construction of a new open-hearth shop and rolled metal shops at the Kim Chaek plant ought not be done in the first five-year plan.

The effective-volume utilization factor of blast furnaces of 0.5-0.53 adopted when determining the production capacities is inflated. It ought to be reexamined and brought into line with the technical capabilities.

3. In the area of non-ferrous metallurgy special attention ought to be paid to strengthening the raw material base. As of 1 January 1956 the initial reserves of ore in the ground in category A₂+B+C₁ can support the operation of the zinc-lead, copper, and tungsten industry for four or five years. Therefore it is necessary to considerably increase exploration and prospecting work so that non-ferrous metallurgy be provided with sufficiently prospected reserves of ore.

4. To increase the extraction of coal it is necessary to provide for speeding up work to restore and build coal mines to ensure the planned targets, for which it is necessary to accelerate exploration work for the commercial development of coal deposits (Aoji, Shincheon, Anju); to determine the amount of work for the mechanical drilling and for a detailed exploration of the deposits, ensuring the preparation of new slope mines.

5. In the area of machine-building efforts ought to first of all be concentrated on the full use of existing capacities, and also on accelerating the commissioning of the machine-building plants being built and the rapid launch of production at them. The planned construction of new machine-building plants to product textile machines, motorcycles, ball bearings, woodworking machines, construction machinery, and a heavy machine-building plant ought not be done, for as a consequence of the small amount of production they will be unprofitable and be a heavy burden on the country's economy. The demand for motorcycles, ball bearings, and textile machines can be supplied from imported supplies, and the production of woodworking and construction machinery can be organized at the machine tool construction plants being built.

It is also inadvisable to build a tire plant in view of the republic's small need for motor vehicle tires and the possibility of satisfying it through imports.

6. The target of the five-year plan to bring the inventory of machine tools in the economy to 20-25,000 metal-cutting tools against the approximately 5,500 tools established for 1 January 1955 is inflated; consequently, this needs to be reexamined in the direction of a decrease.

7. Complete assurance of the targets to produce cotton fabric, fabrics from artificial silk, paper, and shoes needs to be provided with production capacities and raw material resources. The sharp reduction of the production of the national shoe, komusin, is considered incorrect when there is great demand for them and also a shortage of leather footwear.

8. In view of the shortage of fats and bearing in mind the low yield of vegetable oil from seeds, it is advisable to provide in the plan for reequipping existing creameries with more modern technological equipment, screw presses, which would allow an approximately 10% increase in the production of butter with the planned raw material resources.

9. The planned volume of production of soap of about 1.5 kilograms a year per capita in 1961, or half the 1944 level, is insufficient. It is advisable to reexamine these projections in the direction of increasing them.

10. The question of the construction of sugar mills ought to be examined and decided depending on the creation its own raw material base for sugar beets.

In the area of agriculture

11. Examine the question of the possibility of an additional expansion of irrigated land and an increase at the expense of this rice harvest, providing the necessary capital investment in irrigation construction for this purpose.

Check whether it is possible to increase the planned target in the gross harvest of cotton to the prewar level in order to more fully supply the needs of the country's cotton textile industry with its own raw material.

12. Prepare and implement measures for a material incentive to peasants to expand the production of agricultural products.

It is advisable in this connection to examine and decide the issue of the possibility of imposing an agricultural tax in kind depending not on the specific assessment of the expected harvest, but from each jeongbo of cultivated land owned by peasant farm owners, establishing firm, specific rates considering the size of the land plots and the fertility of the land.

13. The planned increase of approximately doubling the size of the cattle herd during the five-year plan, and of sheep of about eight times is not ensured by the available breeding stock.

A plan for the development of animal husbandry and the development of measures to create a forage reserve which supports both a growth in the number of cattle and an increase of their productivity ought to be refined.

14. Consider the directive about the complete cooperation of peasant farms in the first five-year plan to be premature and incorrect.

It is necessary to concentrate attention and efforts on the organizational and economic strengthening of the agricultural production cooperatives which have been created.

The main thing is to increase the productivity of agricultural goods in the agricultural production cooperatives which have been created through the good organization of work, the correct use of land, an increase of the standard of agricultural technology, and to ensure the skillful combination of the personal and public interests in the peasants who join the production cooperatives.

The production cooperation of peasant farms should be carried out firstly through the formation of the simplest forms of cooperation. When this is done it is necessary to strictly observe the principle of the peasants voluntarily joining the cooperatives.

Along with strengthening production cooperatives it is necessary to display concern and help individual peasant farms for the sake of an increase of the productivity of agricultural goods in every possible way.

15. It is advisable to set a target in the plan for the size of the commercial yield of agriculture.

In the area of capital construction

16. The amount of capital investment ought to be reexamined in the direction of reduction, tying it with the material and financial resources.

Develop measures providing a concentration of capital investments in the most important construction sites for the economy, the timely preparation of design estimate documentation, and an improvement of the work of construction organizations.

In the area of transportation

17. Reexamine the freight turnover of rail transportation in the direction of an increase by somewhat reducing motor vehicle shipments, intending to somewhat reduce the import of vehicles and fuel.

In the area of the development of domestic trade

18. in order to prepare the conditions to abolish the ration card system it is necessary to ensure the broad development of open commercial trade, along with the creation of stocks of commodities and budget reserves, and reduce commercial prices as trade turnover expands and somewhat increase the rationed prices for individual commodities (rice and other grain products) in order for the difference between the rationed and commercial prices to be substantially reduced by the time the ration card system is abolished.

When this is done it is necessary for manual laborers and office workers to be compensated for losses from the increase of rationed prices with the expectation that this increase does not worsen their material situation.

According to available information, the abolition of the ration card system for soy products, fish, and salt might be accomplished in the near future, but for the remaining rationed goods, approximately in 1958-1959, based on the economic development plan.

19. Ensure a comprehensive increase of state purchases of agricultural products; to do this, reexamine the system of prevailing purchase prices, introduce incentives for purchases by trade-ins of manufactured goods, and vigorously improve the operation of commodity procurement organizations in the countryside.

20. Cancel the prohibition against peasants engaging in the free trade on rice and other grain products introduced in March 1955 as being counter to the goals of the development the production of grain.

Take steps toward the development of peasant trade in agricultural products in all possible ways.

In the area of finances

21. Eliminate the existing considerable excess of expenses over income in the financial plan, for which it is necessary:

- to increase the profitability and accumulated profits of state and cooperative enterprises, reexamining the planned targets to reduce the prime cost of industrial production and the cost of construction in the direction of an increase;

- reexamine the volume of the influx of resources from private businessmen and traders, bearing in mind the groundlessness of the intended sharp curtailment of private business activity;

- refine the size of the influx of resources from commercial trade, taking into consideration its development in the next few years;

- reduce the size of the expenses for capital construction, taking into consideration the recommendations for the development of the economy;

- develop measures to bring about a very strict regime of thrift in the economy, the elimination of any sort of excesses, and a reduction of administrative and managerial expenses;

- examine the question of the advisability, when military credits are available, of the planned increase of expenses for military needs compared with the expenses at the present time.

22. Bearing in mind the existence of a growth of the issue [of currency] and the imbalance of the budget for 1955 it is necessary to direct special attention to ensuring a self-supported nature to the execution of the budget in the current year and succeeding years, and the formation of credit reserves. It is also necessary to implement measures to regulate the circulation of money, ensuring a regular removal of excess money and the strengthening of the country's currency.

In the area of foreign trade and the foreign exchange balance

23. The deficit in the foreign exchange balance ought to be eliminated [by] bringing expenses in accord with income.

24. It is desirable to provide for an increase of the export of zinc concentrate and again check the potential of realizing the export of fluorspar and silk fabrics.

25. It is advisable to reexamine the projections for the delivery of cotton fiber, bare copper wire, natural rubber, and petroleum products in the direction of some reduction.

The delivery of equipment and materials needs to be put in accordance with the volume of capital investments and the availability of resources in the hard currency plan.

Authenticated: [illegible signature] 17 April 1956