North Korea: Growing Possibility Of A Third Nuclear Test
One thing which I believe is becoming increasingly likely is a third nuclear test by North Korea. Last May, when North Korea tested its second nuke, I suggested that the entire nuclear dispute had taken on the feeling of one too many a season of ‘24’ – i.e. it had lost the ability to shock us. I still feel that this is the case. As for the reasons for a third test, I see three factors:
- Technical reasons: North Korea needs to fine-tune its nuclear weapons.
- International reasons: North Korea wants to be formally recognised as a nuclear power. The more bombs it tests, the more it cannot be ignored as such.
- Internal political reasons: North Korean leader Kim Jong Il is reportedly ill and preparing his third son, Kim Jong Un, to succeed him. In this respect, Kim will need the support of the powerful military. Testing a nuke would play well with hardline generals. Also, creating a martial atmosphere at home would distract public attention away from the dire economic situation caused by last November’s bungled currency reform.
Despite the above, I believe there are some possible constraints on Pyongyang testing a third time:
- Chinese opposition: Beijing doesn’t want Kim to be too noisy. They would prefer if he kept his head down. However, Chinese influence over North Korea is limited, in my view, since Beijing will not cut off aid and investment lest it causes its neighbour to collapse.
- Nuclear fatigue: The more North Korea tests a nuke, the more mundane this becomes, and the less the shock value.
- Lesser options: Pyongyang has lesser options, such as testing a long-range missile, which would certainly grab international attention.
Overall though, I feel that the balance of factors is tilting towards a new nuclear test over the coming few months or year. To be quite honest, I think North Korea’s enemies should be in favour of more nuke tests, since Pyongyang would deplete its small nuclear arsenal (believed to number fewer than 10).
Keep An Eye On The Koreas
Also worth watching are the consequences of the sinking of a South Korean warship with the loss of 46 lives on March 26, which Seoul has all but officially blamed on a North Korean torpedo. Southern president Lee Myung-bak has been criticised for his handling of the incident, amid suspicions of a cover-up. If the current investigation formally accuses Pyongyang, Seoul has few options for retaliating, since any punitive military action could trigger a war – or quasi-war. Therefore, it will have to grit its teeth and perhaps push for more economic forms of punishment – if at all possible. But given that sanctions are already extremely tight due to North Korea’s past shenanigans, it remains unclear if much more can be done.
The good news is that assuming no abnormal developments on the Korean Peninsula, there are unlikely to be any economic repercussions for the South, which is enjoying an impressive recovery (in fact, BMI’s Asia Team has just raised its 2010 real GDP growth forecast to 5.5% from 4.6% previously). Furthermore, most investors are accustomed to Northern sabre-rattling, and if a nuke test does take place, the impact on the Kospi stock market and won currency is likely to be limited.