After weeks of haggling, international banks agreed Thursday to extend more than a quarter of South Korea's short-term debt - a total of $24bn.

The terms arrived at were more favorable than most analysts expected.

The banks initially wanted South Korea to pay rates 4-8% above the going rate, while Korean officials insisted that any more than 2% above would be exploiting its weakness.

In the end, the $24bn of renegotiated credit will only cost Korea between 2.25%-2.75% over the six-month London Interbank Offered Rate.

South Korea's Finance Minister is pleased with the deal

"This is the best deal for us", said South Korean Finance Minister, Lim Chang-Yuel.

"I expect the deal to remove instability in the financial markets, especially on the foreign exchange market, and to contribute to stabilising local interest rates."

Steve Xu, treasury economist for Standard Chartered Bank, was also optimistic. "I'm pretty pleased with the way it turned out," he said. "I think it's a good deal for Korea. The original deal put together was a horrible deal for Korea."

It will also clear the way for the disbursement of $8 billion in aid under the terms of a nearly $60 billion IMF rescue package agreed in early December.

According to the BBC's Seoul Correspondent Charles Scanlon, the South Korean position was strengthened by early signs of returning investor confidence in its economy.

None of this will forestall a drastic slowdown in the economy, however, which is projected to show little or no growth this year or even contract by a percentage point or two.

Under an IMF austerity programme, a number of insolvent financial institutions will either be liquidated, merged or acquired by other firms.

With credit already tight, a very high interest rate regime means many more companies will go bankrupt. Unemployment is expected to double to five or six percent this year and the government plans to cut spending by 10-15%.
 

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