SCENARIOS: Post Kim, how might events unfold in North Korea?

SINGAPORE Sun Jul 12, 2009 9:46pm EDT

SINGAPORE (Reuters) - North Korean leader Kim Jong-il has pancreatic cancer and the illness is life-threatening, South Korean broadcaster YTN said on Monday based on information gathered by Chinese and South Korean intelligence sources.

Kim, 67, is believed to have also suffered a stroke last August. Kim's poor health and apparent moves to anoint his youngest son to succeed him have raised questions about the longevity of the regime in Pyongyang.

Following are scenarios for how the situation may play out in North Korea over the coming months and years.

SMOOTH TRANSITION

The longer Kim lives and remains in reasonable health, the greater the chance of a smooth transition of power to his youngest son, Kim Jong-un, 25. If Jong-un has 15 or 20 years to cement his position, he may be able to continue the Kim dynasty.

Kim junior is also believed to have the backing of Jang Song-thaek, effectively the country's number 2 leader. Kim Jong-il in April promoted Jang, his 63-year-old brother-in-law, to the powerful National Defense Commission, which many analysts saw as an attempt to establish a mechanism for the transfer of power, with Jang as kingmaker.

Under this scenario, financial market players would watch events in North Korea with interest but not trade dramatically either way. Global powers would seek to ascertain the intentions of the new leadership as it took shape. North Korean policy toward the outside world may not alter much.

MESSY TRANSITION

The early death or incapacitation of Kim would complicate the transition. Under this scenario, the regime may rally around Jong-un with Jang heading a collective leadership until the son is ready to assume power.

Given his youth, inexperience and the fact few North Koreans even know of his existence, it is hard to see Jong-un taking over in the near future. That puts the onus on the elite to manage the transition. The one thing they have in common is regime survival.

If Kim died suddenly, expect North Asia's financial markets to drop while world powers try to work out who rules a state that has detonated two nuclear devices and has enough fissile material, experts say, to make at least 5-7 more.

Under this scenario, North Korea could become even more bellicose to build internal support.

MILITARY TAKES OVER

The sudden death of Kim Jong-il could prompt a military coup. The country's recent nuclear test, missile launches and threats of war all indicate the military has a major say in policy.

The New York-based Council on Foreign Relations, in a report in January called "Preparing for Sudden Change in North Korea," said a military coup was possible.

"Unconfirmed reports of past assassination attempts and military purges, not to mention the apparent precautions Kim takes to ensure his personal security when traveling around the country, all suggest that a military-led coup is quite plausible," the report said.

A coup would be bearish for financial markets given that the military is seen as a prime backer of recent belligerence.

COLLAPSE OF THE STATE

Economic disintegration or a protracted leadership crisis could lead to North Korea's collapse, sending millions across the border into the wealthy and more populous South or across the more open northern border with China. For South Korea, this would wreck its economy and create social upheaval.

While many analysts believe this scenario is unlikely, the Council of Foreign Relations report noted North Korea is a weak state with an economy that has never recovered from a 1990s' contraction and whose population is chronically short of food.

"Under these circumstances, the uncertainty and stress imposed by a lengthy and perhaps ultimately inconclusive leadership struggle on the overall system of governance might prove too much," it said.

South Korean estimates have said it would cost $1 trillion or more to absorb the North.

Financial markets in Seoul would plunge given how expensive and messy such a transition could be.

(Editing by John Chalmers)