SEOUL, Aug 5 (Reuters) - North Korea's young leader has said
he wants to develop the country's moribund economy and raise
living standards, a sign that he may be planning economic
reforms.
Since he came to power after his father's death last
December, Kim Jong-un's leadership style has been vastly
different from that of Kim Jong-il. Kim the younger has made
smiling public appearances at a pop concert and on a
rollercoaster, and been sighted with his miniskirt-wearing wife.
Despite these departures from tradition, it is far too early
to say Kim has made substantive changes to the running of the
desperately poor, internationally isolated country.
On April 15, the centenary of his grandfather Kim Il-sung's
birthday, Kim insisted he would persist with his father's
"military first" policies.
Tensions rose after the North's failed launch of a
long-range rocket in April, and though there is worry that it
will carry out another nuclear test, the immediate threat North
Korea poses to stability in east Asia and beyond has faded.
In a rare and surprise move, Pyongyang admitted that the
much-anticipated launch of what it said was a satellite had not
worked. Less surprisingly, it ditched an agreement it made in
February with the United States to suspend nuclear and missile
programmes after Washington decided not to provide food aid
under the deal.
Deep-rooted problems have not gone away either: in early
August, the U.N.'s World Food Programme said it will send a
first batch of emergency food aid to North Korea, where a series
of floods and a typhoon left hundreds dead or missing. North
Korea's agricultural sector has become increasingly vulnerable
to floods and drought as a result of widespread deforestation.
In South Korea's parliamentary elections in April, the first
time in two decades they have been held in the same year as the
presidential race, voters seemed unperturbed by the rocket
launch.
Park Geun-hye, the daughter of Park Chung-hee, an
iron-fisted ruler assassinated by his disgruntled spy chief and
often referred to as the founder of modern South Korea, helped
her governing New Frontier Party retain a majority in elections
it was widely forecast to lose.
She is now its likely front-runner for the December
presidential poll.
SOUTH KOREA RATINGS (Unchanged unless stated):
S&P: A
MOODY'S: A1
FITCH: A+
These are the main political risks to watch:
NORTH KOREA: WHAT NEXT?
International speculation is mounting that Kim's one-party
state is considering reforms to revivify an economy wrecked by
decades of mismanagement and sanctions, and rarely far from
famine.
In response to wide-ranging sanctions over its missile and
nuclear weapons programmes, the North has become dependent on
Chinese aid. In a sign Kim may be looking to emerge from this
isolation, he has dispatched his head of parliament, Kim
Yong-nam, to Vietnam and Laos, the North Korean KCNA news agency
reported. Kim Yong-nam, ceremonial head of the reclusive state,
visited Singapore and Indonesia in May.
In June, U.S. Secretary of State Hillary Clinton urged North
Korea's new leader to take a different path to his father Kim
Jong-il, saying he could steer his nation away from a dark
history of starvation and oppression.
Still, genuine change may be a distant prospect.
April's attempted satellite launch was an inglorious
failure, and experts say it will encourage North Korea to soon
test a nuclear device to regain credibility for the leadership
at home and abroad.
What to watch:
- Any steps taken towards greater international engagement
and economic reform. If there is such a move, it is likely to be
in extremely small increments in order to avoid disrupting the
entrenched military figures who profit from their control of the
country.
- Whether the North carries out a third nuclear test, and
how the international community responds. Experts suggest that
in its next test, North Korea will for the first time use a
nuclear device containing highly enriched uranium, something it
had long been suspected of developing, but which it publicly
admitted two years ago.
- Talks between the two Koreas, the United States, and
China.
- The possibility of either Seoul or Pyongyang making
concessions which could end a long dispute over the joint Mount
Kumgang tourist resort in the North.
SOUTH KOREA: DIFFICULTIES FOR RULING PARTY
Economic growth slowed more than expected in the second
quarter, to a seasonally adjusted 0.4 percent over the previous
quarter, the central bank said in July.
The figure increases the likelihood of another interest rate
cut in Asia's fourth-largest economy, which relies heavily on
exports of smartphones, ships and cars. The central bank cut
rates in July, its first such move for more than three years.
It also cut its economic growth projection for 2012, putting
growth at 3 percent, down from its previous forecast of 3.7
percent. Economic troubles are likely to make the going tougher
for the ruling party in an election year.
April's parliamentary elections set up a tantalising contest
for the presidency in December - a vote that will determine how
the country deals with North Korea and addresses pressing
domestic issues such as corruption and the widening gap between
rich and poor.
The ruling conservative New Frontier Party beat its main
challenger, the Democratic United Party, in elections for the
300-seat national assembly.
The victory was seen as boosting the presidential ambitions
of the conservative party's front-running candidate Park
Geun-hye.
Amid low ratings and public disgust with corruption scandals
linked with President Lee Myung-bak's administration, Park
managed to bring her party back from the dead, giving it a new
name and replacing several of the lawmakers running for its
seats.
It staged an unexpected win over the main opposition party,
which was formed in a merger with a minority leftist party late
last year, and which is now seen as having squandered a chance
to take back parliament.
The Democratic United Party had pledged to repeal a free
trade agreement with the United State, and curb the power of
huge business conglomerates such as Hyundai and Samsung.
A liberal victory in this year's presidential election would
mean a shift toward more welfare initiatives, and possibly
closer engagement with North Korea. Such a result could also
recalibrate Seoul's close ties with Washington.
What to watch:
- Economic data, and more signals that the central bank will
cut rates further.
- The ruling party has lost its overall majority in
parliament after two members elected to assembly quit the party
over scandals. It weakens the party's legislative agenda, but
the conservatives may try to form a coalition with a minority
party.
- Popular software mogul turned professor Ahn Cheol-soo has
not ruled out entering politics. Were he to declare himself a
contender, the political landscape would change dramatically.
- The Democratic United Party's strongest presidential
hopeful Moon Jae-in, who declared his own bid in June, could
become the sole candidate for the entire opposition camp.
(Additional reporting by Sung-won Shim; Editing by Daniel
Magnowski)