For Koreans on both sides of the divided peninsula, 1998 was a year of considerable adversity. Although the nature and extent of this adversity differed greatly between the two countries, the resulting challenges tested both severely. This analysis reviews the major developments in 1998 in both North and South Korea, as well as in North-South relations, and contrasts the respective responses. These sharply divergent responses tell much about the underlying fundamentals of the two systems. How they play out in the coming year will shape the short-term outlook for each country and help determine longer-term prospects for regional security. It also will help answer basic questions raised by developments in 1998 about key assumptions underlying Western policies.