At Last, Accord Reached On $82 Bn Bailout

Sydney Morning Herald

Thursday December 4, 1997

By JOHN LARKIN in Seoul

South Korea finally reached agreement yesterday with the International Monetary Fund on huge loans for its besieged economy, amid reports the bailout will total $US57 billion ($82.6 billion).

A spokesman for South Korea's Finance Ministry confirmed the agreement was struck last night and would soon be ratified by the IMF board.

The spokesman refused to confirm the reported $US57 billion but said Finance Minister Lim Chang-yuel and IMF managing director Michel Camdessus had sealed the pact during talks yesterday in Seoul.

Stocks rose for the first time in nearly two weeks amid reports the deal had been settled, carrying with it guarantees of major reforms to the debt-crippled banking system.

The agreement came after two days of stalling and cancelled announcements which left South Korea with precious little time to pay off $30 billion in foreign debt due before the end of the year.

The Finance Ministry said in a statement that all points of difference between the two sides had been resolved.

It appears the timing of the announcement was also delayed by the IMF's insistence that all three candidates in the December 18 presidential election give written guarantees they will abide by its terms.

Mr Camdessus and Mr Lim appeared to have ironed out their differences on the future of indebted banks and on foreign stockholding limits.

Earlier, hopes of an agreement were low after the cancellation for the third successive day of a planned announcement of the size and terms of the deal.

A report on Yonhap Television News put the size of the package at $US57 billion. The amount accords with market expectations and will help service South Korea's mounting foreign debt, $US66 billion of which is due within a year.

The South Korean negotiating team is believed to have bowed to an IMF demand that foreign companies be allowed to merge and acquire local banks.

South Korea also submitted to the IMF condition, in exchange for the loans, that the limit on investment by individual foreign investors in local companies be lifted from 26 per cent to 50 per cent.

News of this concession swept Seoul, boosting stock prices, which rose slightly after nineconsecutive days of decline into 10-year lows. The main stock index rose just over two points.

Blue chip shares rebounded appreciably and banks made long-overdue gains as signs emerged that foreigners would be allowed to purchase Korean financial institutions.

The won rebounded significantly after falling close to 1,300 against the US dollar this week.

According to reports, South Korea agreed to IMF demands for the quick opening of the short-term bond market and the closure of debt-ridden banks.

The future of the merchant banks - which sparked Korea's foreign exchange crunch - and commercial banks has been a major sticking point between the two teams. The IMF wanted a couple of merchant banks closed but Seoul resisted vigorously.

In return for the rescue loans, South Korea has agreed to set economic growth at only 3 per cent while keeping inflation at less than 5 per cent and the current account deficit at 1 per cent of GDP.

The reforms will be excruciating for Seoul and could triple unemployment as highly leveraged companies go out of business.

The stock market's rally came despite disclosures of the debt problems of one of Korea's biggest conglomerates, Halla.

© 1997 Sydney Morning Herald

Back to News Index | Back to Home