SEOUL, Feb 18 (Reuters) - North Korea again defied the
United States, Japan, Russia, the South and the United Nations
when it tested a nuclear bomb in February. The test, which
Pyongyang said was intended to counter hostility from
Washington, also drew condemnation from Beijing, its only major
ally.
The test effectively scuttled the remote prospect that young
leader Kim Jong-un was contemplating reform, however tentative,
and instead repeated a sequence of events straight from his
father Kim Jong-il's regime.
South of the border, most people were indifferent to or at
worst irritated by the nuclear detonation. Top of the list of
concerns for South Korea's President-elect Park Geun-hye, who
takes office on Feb. 25, is a deep slump in growth for its
export-driven economy.
The final quarter of 2012 was the seventh consecutive
quarter to feature sub-1 percent growth, its longest run of such
slow expansion for more than four decades.
SOUTH KOREA RATINGS:
S&P: A+
MOODY'S: Aa3
FITCH: AA-
These are the main political risks to watch:
NORTH KOREA: BACK TO THE OLD ROUTINE?
Kim Jong-un's public appearances last year at a pop concert,
on a rollercoaster, and with a wife in Western-style clothes may
have raised eyebrows and some hopes that he was ready to depart
from the traditional template of provocation and isolation, but
February's nuclear test showed he is very much his father's son.
Denunciation from the international community carries no
persuasive weight in the country which exists far beyond the
boundaries of normal diplomacy, while the one nation which does
have levers to pull in the North, China, is less likely than
ever to take meaningful action.
The U.S. military "pivot" towards Asia, combined with a
longstanding fear that a collapsed North would lead to a
pro-Washington unified Korea on its border, means Beijing feels
it has little choice but to carry on backing the Kim regime with
money and trade.
Barring a decisive intervention from outside, which is
extremely unlikely, the only threat to Kim's grip on power will
come from within.
Serious challenges will only arise if the army and the
handful of families who control practically all resources that
enter the country feel threatened, and with political reform not
even close to appearing on Kim's "military-first" agenda, there
is nothing to suggest this is on the horizon.
What to watch:
- Any sign of tough new sanctions against North Korea.
- More aggressive lines taken in Washington, Tokyo and
Seoul.
- Signs, however improbable, that Beijing is losing patience
with Kim Jong-un.
SOUTH KOREA: CHALLENGES FOR PRESIDENT PARK
President-elect Park Geun-hye, the daughter of South Korea's
former military ruler Park Chung-hee, won December elections to
become the country's first female leader, but will take over an
economy whose years of rapid growth seem unlikely to be repeated
soon, and a society increasingly haunted by inequality and fears
of unemployment.
The euro zone's fiscal crisis and slowing growth
elsewhere hit South Korea's export-reliant economy in 2012,
prompting the central bank to twice cut interest rates, while
the government took fiscal stimulus steps worth around $12
trillion.
The finance ministry has set its first growth target for
2013 at 3 percent while the Bank of Korea in January forecast a
2.8 percent gain for 2013 gross domestic product. The median
forecast from the latest Reuters survey in January was for a 3.0
percent rise for the year.
A common complaint among South Koreans is the behaviour of
big business groups known as 'chaebol', which include the
country's best known firms like Samsung and Hyundai. Often
accused of corrupt practices and exerting undue influence on
lawmaking, these family-owned firms control assets worth more
than half of country's GDP.
Park's left-wing challenger had threatened to end the web of
shareholdings that permit family control of such huge
enterprises, but she is unlikely to limit their scope.
The central bank held interest rates steady for a fourth
straight month at 2.75 percent, but warned that Japan's monetary
policy could impact growth.
A weakening yen means Japanese products are more competitive
overseas, and is bad news for the South Korean car and consumer
electronics firms which compete against Japanese exporters.
What to watch:
- Signs of a pickup in euro zone and other Western economies
where South Korean exports are consumed.
- If the weakening yen prompts South Korea to try to lessen
the value of the won.
- Interest rates and GDP figures throughout 2013.
(Editing by Daniel Magnowski)