Imf, G-7 Rush Help To S. Korea Quick Action Underscores Gravity Of Situation In Struggling Nation
Pressed to act faster to ease South Korea’s deepening financial woes, international lenders promised an early infusion of $10 billion in loans from a record bailout deal.
Ripples from the crisis forced the shutdown of most of South Korea’s auto assembly lines Wednesday. And South Korea’s stock market plummeted again on fears that more companies may be forced into bankruptcy.
President-elect Kim Daejung said talk of reform must be replaced by tough actions: “Companies must freeze or slash wages. If that proves not enough, layoffs will be inevitable.”
In a surprise announcement, the International Monetary Fund said it would provide $2 billion by Monday and the Group of Seven countries pledged $8 billion by early January, instead of later next year.
The money is part of a record $57 billion bailout deal the IMF put together Dec. 3. Fears have been mounting that disbursement of loans was moving too slow, as South Korea’s markets have continued to plunge.
In return for the early loans, South Korea has agreed to expedite financial reforms and open its domestic industrial market earlier than scheduled.
It also must fully open its lucrative bond market by year’s end, allow foreign banks and stock companies to set up wholly owned branch offices ahead of schedule and liberalize interest rates.
“The lending, along with anticipated cooperation from foreign banks in rolling over their loans, will greatly help ease our foreign currency crisis,” Finance and Economics Minister Lim Chang-yuel told a news conference early Thursday.
Lim said South Korea’s “useable” foreign currency reserves, which stood at $8.7 billion as of Wednesday, would reach $15 billion by year’s end - enough to meet its short-term debts due by then.
So far, South Korea has received $14 billion of the bailout money.
Earl I. Johnson, an economist with the Bank of Montreal in Chicago, said the early delivery might inspire foreign creditors to extend their loans to South Korea.
“It’s a confidence crisis as well as a liquidity crisis,” he said.
But Johnson said South Korea must live up to its promise of speedier economic reforms.