The latter, in accordance with their directives, are endeavoring to turn over to Koreans as rapidly as possible full administrative responsibility in governmental departments. In consequence with this plan they have organized an interim Korean legislative assembly and in general, are striving to carry out a policy of “Koreanization” of government in South Korea. ECONOMIC South Korea, basically an agricultural area, does not have the overall economic resources to sustain its economy without external assistance. The soil depleted, and imports of food as well as fertilizer are required. The latter has normally come from North Korea, as have most of the electric power, timber, anthracite, and other basic products. The economic dependence of South Korea upon North Korea, and of Korea as a whole, in prewar years, upon trade with Japan and Manchuria, cannot be too strongly emphasized. Division of the country at the 38° North parallel and prevention of all except smuggling trade between North and South Korea have reduced the Korean economy to its lowest level in many years. Prospects for developing sizeable exports are slight. Food exports cannot be anticipated on any scale for several years, and then only with increased use of artificial fertilizer. South Korea’s few manufacturing industries, which have been operating at possibly 20 per cent of prewar production, are now reducing their output or closing down. In part this is a natural result of ten years of deferred maintenance and war-time abuse, but lack of raw materials and essential repair parts, and a gross deficiency of competent management and technical personnel are the principal factors. A runaway inflation has not yet occurred in South Korea, because the Military Government has restrained the issuance of currency by keeping governmental expenditures and local occupation costs at reasonable levels; because cannibalization and the use of Japanese stocks have kept some industries going; and because the forcible collection of rice at harvest time has brought in sufficient food to maintain—with imports provided by the United States—an adequate official ration in the cities. Highly inflationary factors such as the exhaustion of raw material stocks, cumulative breakdowns in public services and transportation, and the cutting of power supply from the North might occur simultaneously. The South Korean economic outlook is, therefore, most grave.