The Outlook For 2013
BMI View: North Korea ' s relations with the South should improve in 2013 following the change of president in the latter country in February, although we do not preclude more provocations if Pyongyang decides to test the new leadership in Seoul. As for the North itself, the outlook is mixed, and much depends on whether leader Kim Jong Un will press ahead with economic reform s and retain control of the country ' s military.
North Korean leader Kim Jong Un delivered a New Year ' s address on January 1, outlining the country ' s goals for 2 013. The speech was significant because it was th e first of its kind since 1994 , the last year in which Kim ' s grandfather Kim Il Sung was alive ( Kim ' s late father Kim Jong Il virtually never spoke in public ). Kim Jong Un ' s speech was also noteworthy for being rela tively conciliatory towards South Korea , which elected a second consecutive conservative president, Park Geun-hye, on December 19, 2012. Kim also emphasised improving the economy and living standards as top priorities, with the words ' people ' and ' economy ' being mentioned 59 times and 24 times, respectively, in the 25-minute speech, whereas the country ' s ' military first ' ( songun ) policy was mentioned only six times. Overall, Kim ' s speech has fuelled hopes that Pyongyang will moderate its aggressive policies in 2013.
Improved Outlook For Inter-Korean Relations
North Korea ' s relations with the South should improve in 2013 after Park takes office on February 25. Although P yongyang had been hoping for the centrist-liberal candidate, Moon Jae-in, to be elected president in December 2012, its media was relatively quick to report Park ' s victory (albeit without naming her) , thus signalling a degree of acceptance. Park hails from the conservative Saenuri party of outgoing president Lee Myung-bak, but she has called for rapprochement with the North. By contrast, Lee pursued a much tougher policy towards Pyongyang from the beginning of his presidency in 2 008, thereby undermining a decade of relatively friendly relations. Furthermore, Park is one of few senior conservative Southern politicians who has actually visited the North - she met Kim Jong Il in Pyongyang in 2002. This suggests that she is a relatively acceptable conservative to the Northern regime.
Although the North ' s successful satellite launch on December 12, 2012 arguably spoiled the atmosphere for an immediate improvement in inter-Korean relations, the South ' s initial discontent with the rocket flight should have dissipated somewhat by February 25. Park ' s ministerial appointments and inaugural speech will be cl osely watched for more clues as regards her intentions. Even so, we would not expect both sides to move too quickly t o improve relations. Instead, they are likely to adopt a ' wait and see ' attitude as they assess each other ' s behaviour. During this time, we do not preclude the North staging more provocations, such as a new nuclear test or violations of the Northern Limit Line (NLL, the inter-Korean maritime border) in the West Sea, to gauge the South ' s response. The North may also seek to create a martial atmosphere ahead of July 27, 2013, which marks the 60 th anniversary of its self-proclaimed ' victory ' in the Korean War. Nonetheless, Pyongyang will need to be careful not to excessively antagonise Seoul, in case it ruins the opportunity for a major improvement in relations that would benefit the North ' s economy.
Other Foreign Policy Initiatives
We see scope for North Korea to improve relations with the US, although this will depend on Pyongyang refraining from major provocations against the South. President Barack Obama, who is set to begin his second term on January 20, 2013, could eventually seek to emulate his successful outreach to Myanmar in North Korea. However, this would require some sort of concession from Pyongyang, which does not appear to be forthcoming. Meanwhile, North Korea reportedly hopes to continue talks with Japan on improving relations. Low-level bilateral discussions were held in August and November 2012 after a four-year break , but were suspended following the North ' s December satellite launch. The biggest stumbling block is the fate of Japanese abductees in North Korea, especially given that Japan ' s new prime minister, Shinzo Abe, is a champion of this issue. Tokyo wants Pyongyang to provide more information on missing Japanese nationals.
Economic Reform Prospects Still Limited
Although Kim Jong Un emphasised the economy and living standards in his speech, we see only limited scope for reforms to be initiated ( see August 29, 2012, ' Reform Prospects: Five Factors To Consider ' ) . The regime is wary of taking any steps that could trigger widespread instability. Rather, we expect North Korea to pursue key economic projects, such as developing special economic zones (SEZs) with Chinese assistance. China will remain North Korea ' s main economic anchor for the foreseeable future , with bilateral trade having risen by 60% to US$5.63bn in 2011, according to South Korean estimates. China accounted for 70% of the North ' s external trade in 2011, up from 57% in 2010. Although we do not anticipate dramatic economic reforms, we see scope for the regime to undertake small economic changes over the coming years that could result in a big change in aggregate.
Risk Of Domestic Instability
During 2012, Kim Jong Un formally inaugurated his rule and consolidated power by purging or demoting several senior generals, including the chief of general staff and the defence minister (the latter was replaced twice) . However, it is unclear whether Kim is exercising absolute control or is still being guided by his powerful uncle, Jang Song Thaek, and his aunt Kim Kyong Hui. It is quite possible that Kim Jong Un will purge more old guard figures in 2013 , some of whom are in their late 70s or even 80s . However, if he moves too quickly, he could trigger a backlash from powerful cadres and destabilise the regime.
Although there are no visible cracks in the regime, we caution that political change could come faster than expected in North Korea.