The world's seven largest economic powers and the International Monetary Fund have pledged to give $10bn to South Korea to stave off economic crisis.

Additionally six leading banks in the United States have said they are prepared to come up with money to supplement the aid.

The banks say they believe that a private-sector initiative offers the best solution to South Korea's short term problems.

News of the bail-out comes a day after the Government admitted its foreign currency debts exceeded $200bn. It was agreed following frantic negotiations with the IMF and the US Treasury Under-Secretary, David Lipton.

Mark Malloch-Brown, of the World Bank: "It's a matter of jumpstarting the economy" (2'50")

Two billion dollars will arrive next week, and $8bn in early January.

In return for the cash, Finance Minister Lim Chang-Yuel said here Seoul had finally bowed in tough last-minute negotiations to a massive IMF-demanded financial restructuring.

Finance Minister Lim Chang-Yuel told reporters in the capital, Seoul, that an economic reform programme will be introduced, making clear that Seoul had finally bowed to a no-nonsense, wide-ranging restructuring demanded by the IMF.

"Today the South Korean Government and the IMF negotiating team agreed to strengthen and speed up economic reform, focusing on monetary policy, financial reform, the opening of the capital market, trade policy and foreign exchange management," Mr Lim said.

"This will lay the ground for South Korea to carry out restructuring under the IMF framework," he added.

The G7 group of industrialised countries "and other advanced countries" would also pay risk funds to the tune of $8bn in January, he added.

Stock market worries

BBC correspondent Charles Scanlon reports on how Koreans are facing up to disaster

South Korea's near-default on foreign loans had panicked the world's markets in what has widely been seen as dangerous brinkmanship between Seoul and Washington over the stiff clauses of a $60bn IMF-led bail-out.

A statement released in Tokyo by G7 finance ministers and their central bank governors "welcomed" Seoul's announcement of "additional measures to strengthen macro-economic policy and accelerate structural reforms".

South Korean share prices closed 4% down on Wednesday, after the $3bn emergency loan from the World Bank steadied the won and reports that the Government may close more merchant banks by mid-January.

The World Bank pushed through a $3bn loan

After an overnight meeting of a 12-member crisis task force, Seoul also agreed to ease restrictions on foreign exchange transfers and commercial loans from abroad.

The task force decided to ease barriers on foreign ownership of banks and allow immediate lay-offs at the time of mergers and acquisitions.

Seoul will next week announce more reforms aimed at reviving South Korea's wrecked credit ratings, a task force spokesman said.

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