The plans include measures to boost consumer demand and investment in the country as well as to provide much needed funds to restructure the troubled banking sector.

The news came as some of South Korea's largest companies prepare to undergo a painful restructuring programme.

President Kim Dae-Jung - forced into desperate measures

Five top South Korean conglomerates, known as chaebols, are expected to announce a series of deals in the next few days in an effort to orchestrate a financial recovery.

They are expected to reach an agreement to swap or merge major parts of their businesses after pressure from South Korea's President Kim Dae-jung, who has threatened to withhold loans to the debt-ridden and unwieldy groups.

South Korea's Finance Ministry plans to pump public money into the economy to stimulate the purchase of cars, electronic goods and houses.

Interest rates and taxes will also be cut and small businesses will receive financial support.

South Koreans have been left jobless

The South Korean economy is expected to shrink by 5% this year, but the Finance Ministry believes that the new stimulus package will help the economy to bounce back in 1999 when it is forecast to expand by 2%.

However doubts remain that the new measures, which were presented to President Kim Dae-jung by Finance Minister Lee Kyu-sung, will be enough to stave off South Korea's financial crisis.

"Something must be done now to stop the economy from collapsing," said Shin Hoo-shik, an economist from the Daewoo Research Institute.

"But unfortunately the financial system, still in a shambles, is unlikely to work properly," he added.

South Korea's stockmarket rose 1.5% on Wednesday.

South Korea has been forced to introduce a series of major reforms after receiving a crucial $58bn bail out from the International Monetary Fund.

Rising unemployment has created civil unrest in South Korea.