BMI Research: South Korea Defence & Security Report.

South Korea faces real risks in its security environment and as such it defence spending continues to grow. Expenditure is expected to increase to US$32bn in 2010 - a substantial increase from 2009 levels of US$26bn. North Korea presents the greatest threat at present with ongoing nuclear disputes still causing friction. Despite the disputes having been a feature of regional security for over 20 years, there has been little resolution. Testing of long-range Taepodong missiles by North Korea as recently as 2009 has added concern for analysts. Meanwhile, the sinking of the South Korean corvette Cheonan on March 26, 2010, as the result of a torpedo attack by the North Korean navy has seriously exacerbated the situation. The defence industry in South Korea is in robust shape, however, thanks to years of increasing investment and international collaboration. The T-50 Golden Eagle supersonic trainer jet are expected to play an essential part of the country's export mix. The jet, built jointly by Korea Aerospace Industries (KAI) and Lockheed Martin of the US, has received numerous orders to date with many headed for Iraq. The joint military drills between the United States and South Korea, launched in response to North Korea's sinking of a South Korean warship, are set to heighten regional tensions and further strain USChina military ties. What is more our short-term political rating for North Korea is still high at 73.5, reflecting our belief that policy continuity will prevail, at least in the initial aftermath of Kim Jong Il's retirement or death. Our long-term political ratings (LTPR) is much lower, at 55.1, because we do not envisage such a totalitarian regime being maintained ad infinitum. Although we expect robust economic activity momentum to support private sector employment over the coming months, we maintain a forecast of a 3.9% unemployment rate by end-2010. The defence industry has been a key driver of economic recovery with the government boosting manufacturing production by spending 60% of budgeted defence expenditure in the first half of the current fiscal year. [ABSTRACT FROM AUTHOR]