Bloomberg News

N. Korea Presses Kim Succession Plan as South Braces for Impact

December 29, 2011

(See EXT2 <GO> for more coverage on the North Korea transition.)

Dec. 20 (Bloomberg) -- North Korean media sought to rally support for a leadership transition to Kim Jong Un as uncertainty around the succession unsettled stock markets from Seoul to Hong Kong.

Kim’s father, Kim Jong Il, died Dec. 17 from a heart attack brought on by mental and physical strain, the official Korean Central News Agency said yesterday. State media urged citizens to “loyally follow” Jong Un, Kim’s little-known third son, who the media said is at the “forefront of the revolution.”

Kim’s death ended a 17-year tenure in which North Korea built nuclear weapons even as about 2 million of its people died from famine. About 1.7 million troops are stationed on the Korean peninsula.

“Kim’s death happened at a very bad time for the North Korean regime,” said Brian Myers, a professor of international studies at Dongseo University in Busan, South Korea. “It has really not proceeded very quickly with the glorification of the heir apparent, Kim Jong Un. An average North Korean is still in the dark about his upbringing, his biography, why he is uniquely well qualified to take over the country.”

South Korea pledged that, if needed, the central bank would take steps to stabilize financial markets, and called in police officers for emergency duty while keeping the alert level for the military unchanged. The transition in the north adds to risks for Asia’s fourth-largest economy, which is already contending with slowing export growth as Europe’s debt crisis dents global demand.

Stocks Drop

The Kospi index of shares closed down 3.4 percent in Seoul yesterday, and the MSCI Asia Pacific Index lost 1.8 percent as of 6 p.m. Korea time. South Korea’s won sank 1.4 percent to 1,174.80 per dollar.

During a state television broadcast monitored in Tokyo, the announcer wept as she read the news of Kim Jong Il’s death. Footage was aired of thousands of people in the main square of the capital, Pyongyang, chanting in unison and waving Kimjongilia, a flower named after the deceased leader. While official reports give Kim’s age as 69, Russian records indicate that he was born in Siberia in February 1941.

Kim Jong Il set in line his succession plan last year. Kim Jong Un, believed to be 28 or 29, was first mentioned in official KCNA dispatches on Sept. 28, 2010, in an announcement of his appointments as general and vice chairman of the party’s Central Military Commission.

At Father’s Side

Jong Un stood at his father’s right at a military parade the next month, wearing a black suit with a mandarin collar similar to the style worn by his grandfather, who founded the nation after World War II. The younger Kim, educated in Switzerland, also emulates Kim Il Sung’s slicked-back hairstyle, rather than the bouffant favored by his father.

Jong Il was known in official media as “dear leader,” with Il Sung known as “great leader.” KCNA today said that Jong Un is a “great successor” to lead the juche project, referring to the North’s state ideology of self reliance.

“It comes at a time when there was a slight indication North Korea was going through one of its good-boy phases,” said Carlyle Thayer, a politics professor at the Australian Defense Force Academy in Canberra, referring to signs of a North Korean pledge to suspend parts of its nuclear program. “I don’t expect an outbreak of war, but it takes the positive trends that were beginning to emerge and perhaps puts them on hold.”

Brinkmanship With U.S.

North Korea for years has engaged in a strategy of brinkmanship with the U.S. and South Korea following the 1950-53 Korean war, which ended without a peace treaty. The U.S. became one of North Korea’s biggest aid donors as its negotiators forged periodic agreements with Pyongyang to suspend its nuclear armaments program.

In recent talks in Beijing, the U.S. agreed to provide food aid to North Korea on conditions that included a suspension of the North’s uranium enrichment, South Korea’s Yonhap News reported Dec. 17, citing diplomatic officials in Seoul it didn’t identify.

The Obama administration resumed direct talks with Kim Jong Il’s regime in October after increased sanctions had no effect in persuading it to abandon the nuclear program. The U.S. special envoy on North Korea, Glyn Davies, told reporters in Tokyo last week that further bilateral talks would hinge on the totalitarian state changing its “provocative” behavior.

Meetings in Washington

President Barack Obama spoke at midnight yesterday with South Korean President Lee Myung-bak about the situation, the White House said in a statement. Obama “reaffirmed the United States’ strong commitment to the stability of the Korean Peninsula and the security of our close ally, the Republic of Korea,” the White House said.

North Korea moved to the top of Secretary of State Hillary Clinton’s agenda yesterday. She met with Davies and later held talks with Japanese Foreign Minister Koichiro Gemba, whose visit to Washington was planned before Kim’s death.

There has been no change in the alert level for U.S. forces in South Korea, where about 28,500 troops are stationed, Defense Department spokesman George Little told reporters at the Pentagon. Defense Secretary Leon Panetta has spoken with his South Korean counterpart, Little said.

“Both men agreed that it is critical to remain prudent with respect to all matters related to our security posture there,” Little said.

Emergency Police Duty

All police officers in South Korea were called to work for emergency duty and commanders are discussing “a detailed course of action” in response to developments in the North, the National Police Agency said in a statement on its website yesterday. The South’s military has no immediate plans to change monitoring and combat-alert levels after finding no unusual movements among North Korean forces, said a spokesman for the joint chiefs of staff who declined to be named in keeping with military policy.

Jung Seung Jo, the chairman of South Korea’s joint chiefs of staff, and U.S. Army General James Thurman, commander of U.S. forces in Korea, agreed to respond calmly by strengthening military preparedness and not creating “unnecessary tension,” the official said.

South Korea’s central bank will “closely monitor” any developments and will take steps to stabilize markets and seek international cooperation if needed, Bank of Korea Governor Kim Choong Soo said at a meeting in Seoul yesterday. The BOK said in a statement that it will run a 24-hour market monitoring system.

‘Severe Implications’

Thomas Byrne, a senior vice president at Moody’s Investors Service in Singapore, said in an interview that “we recognize that the collapse of the North Korean state or an outbreak of war pose an event risk for South Korea, which will have severe implications.” He added that “we consider that likelihood to be remote even under the current uncertain situation.”

Yang Moo Jin, a professor at University of North Korean Studies in Seoul, echoed Byrne’s assessment.

“The possibility of a public uprising or military coup in North Korea seems low since the North has prepared for the succession for the past year,” Yang said. “Kim Jong Un’s complete takeover of the helm will not take place for a while due to his young age and inexperienced leadership. The North will be under the control of a governing body, I expect, for about a year.”

Rising Tensions

Tensions on the peninsula have risen since attacks last year that killed 50 South Koreans. North Korea shelled a South Korean island last November, killing four people. It has denied an international report blaming Kim’s regime for the torpedoing of a South Korean warship eight months earlier that killed 46 sailors.

North Korea last month said that it was making progress in building a light-water atomic reactor and producing low-enriched uranium. The U.S., Japan and South Korea have all urged China, North Korea’s biggest ally, to persuade Pyongyang to return to six-nation nuclear disarmament talks that were abandoned in April 2009.

“Kim’s death was one of the critical Black Swan risks on the Korean peninsula,” said Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc. “The initial shock will be negative for South Korean markets. What’s important is the policy makers’ responses. The South Korean government probably has contingency plan and international cooperation with the U.S. and China is also very important.”

Speco Co. led gains among defense-related companies in Seoul stock trading. A defense equipment manufacturer, it jumped by the daily limit 15 percent to 2,350 won. Victek Co., an electronic warfare equipment maker, and Huneed Technologies, a military communication equipment manufacturer, also rallied 15 percent.

The inexperience and youth of Kim Jong Un “increase the likelihood of miscalculation” with South Korea and the U.S. and raises the potential risk of “provocations,” Thurman said in written answers to the Senate Armed Services Committee in June. “Our primary concern is the potential for additional North Korean provocations, which is a tool of choice as part of its coercive diplomacy.”

--With assistance from Seyoon Kim in Seoul, Stuart Biggs in Tokyo, Daniel Ten Kate in Bangkok and Indira A.R. Lakshmanan and Nicole Gaouette in Washington. Editors: Terry Atlas, Leslie Hoffecker

To contact the reporters on this story: Sangwon Yoon in Seoul at syoon32@bloomberg.net; Eunkyung Seo in Seoul at eseo3@bloomberg.net; Taejin Park in Seoul at tpark31@bloomberg.net

To contact the editor responsible for this story: John Brinsley at jbrinsley@bloomberg.net


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