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Saturday, November 22, 1997 Published at 03:43 GMT


IMF to bail out South Korea
image: [ South Korea's falling financial market led to IMF loan bid ]
South Korea's falling financial market led to IMF loan bid

The International Monetary Fund has promised financial help for South Korea, once the fastest-growing of the tiger economies in southeast Asia.

Now South Korea wants an emergency loan to help stem its financial crisis.

The South Korean president, Kim Young-sam, apologised for the crisis on national television and asked people to tighten their belts to overcome it.

In his speech, Mr Kim said his government would use the IMF system to raise foreign currency urgently.

The country, once gripped by poverty, rose to become the world's 11th largest economy but in recent months the South Korean currency has been in trouble.

On Friday, the South Korean public was left reeling after the government said it was going cap in hand to the IMF for what will probably be the fund's biggest-ever rescue package.

This move is being seen by the South Korean media as an infringement of the country's economic sovereignty.

IMF Managing Director Michel Camdessus said he welcomed the request, adding that the country was committed to restoring confidence in its economy.

"I am confident that the authorities are resolved to put in place a strong adjustment programme that will restore confidence, recreate the ground for sustainable growth and contribute significantly to financial stability in the region," he said.

He said an IMF mission would start talks in South Korea next week, helping the authorities draw up a strong programme of reforms.

Measures announced earlier this week would provide a good basis to restructure the South Korean financial system, he added.

"I welcome today's announcement by the Korean authorities that they intend to enter into a financial arrangement with the IMF and I have already assured the Korean authorities of our full support."

The IMF has already offered large loans to Indonesia and Thailand.

Sources in Washington could not say how much money might be on offer to South Korea, where the banking sector has big problems but where economic indicators are otherwise sound.

The Finance and Economy Minister Lim Chang-Yuel Lim said that Seoul and the IMF believed a $20bn loan would solve the nation's problems. But that amount is far below the $50-60bn most observers had predicted would be needed.

"To help expel concern among investors, we will also open a standby credit line" with the IMF, Mr Lim added.

Only last week, the government said it would never ask for IMF assistance, calling the idea "unthinkable."

Earlier reports quoted officials as saying a bail-out package had already been requested as the government tackles a growing economic crisis.

The state media had reported that ministers would ask for up to $72bn. The national currency, the won, stabilised after several consecutive days of falls on news of the government's decision.

[ image: Investors fear a looming crisis]
Investors fear a looming crisis
The financial markets reacted positively to the news and in the first hour of trading, shares on the Korean Stock Exchange rose more than 1%.

President Kim Young-sam is to outline the government's plan in a televised speech on Saturday.

The BBC's Seoul correspondent says the decision to seek help from the IMF will be seen by the Korean public as a national humiliation.

IMF help "inevitable"

The crisis has been brewing for months. Every day, the won has fallen by the maximum amount allowed by the regulations. Foreign banks have become increasingly reluctant to roll over short term credit loans to South Korean institutions and the result has been a severe credit crunch.

Ministers had previously rejected seeking a loan, preferring to try to solve the crisis with bi-lateral help from other countries.

[ image: The won lost 10% of its value on Thursday]
The won lost 10% of its value on Thursday
But a change of heart appears to have taken place after the currency fell a further 10% on Thursday, despite the unveiling of a programme designed to restore investors' confidence in the country's economy.

The unsuccessful rescue programme came after the President sacked his former Finance Minister, Kang Kyung-Shik, and another senior economic adviser, Kim In-Ho.

Looming crisis

Investors have feared that South Korea could be heading for a financial crisis that would dwarf the turmoil in the South East Asian markets.

The dramatic fall in the currency on Thursday was partly due to pent-up demand for dollars from Korean companies.

Our correspondent added that the country's problems could be traced to over ambitious expansion during the boom years and an accumulation of huge debt by big industrial groups.

A string of corporate collapses following a slow-down in exports has left banks with billions of dollars in bad debts.

The South Korean economy is the size of the Malaysian, Thai and Indonesian economies combined, and should it falter, the impact would be felt around the world.

Seoul correspondent Charles Scanlon reports there are political as well as economic problems for the government

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