Currency turmoil prompts review of IMF forecasts for South Korea

The International Monetary Fund (IMF) yesterday warned it would have to review its economic forecasts for crisis-ridden South Korea in the light of the won's steep fall. Meanwhile, as Reuters reports from Seoul, the incoming president has voiced his opposition to a package of reforms aimed at speeding up the IMF plan.

In an assessment on 3 December, the IMF predicted South Korea would see economic growth of about 2.5 per cent next year and record a current account deficit of $2.3bn (pounds 1.4bn).

But IMF Asia-Pacific mission chief, Herbert Neiss, said yesterday: "When we forecast in early December that the current account deficit would shrink ... the won had not depreciated as much as it has now. So we have a new situation, we will have to review our forecasts."

At the time, the won was trading at around 1,196 to the dollar. But as fears of a debt moratorium mounted, the won slid further. On Friday it hit 1,498 to the dollar, after dipping to a record 1,950 during the week.

Asked when the South Korean economy would fully recover, Mr Neiss said: "A lot depends on market psychology and on the confidence that foreign investors and the Korean people have in the strength of the economic programme."

Mr Neiss said South Korea's soaring interest rates were needed to stabilise the foreign exchange market.

"In the long run, interest rates must come down to permit the economy to recover. But in the really short term, when the markets are in turmoil and in chaos and speculation is rampant and the exchange rate plummets, there is no choice but to have a very high interest rate in order to discourage these developments and restore order in the exchange market," he said.

He said the IMF would help discussions between the South Korean government and foreign financial institutions.

South Korea's National Assembly is expected to pass 13 financial reform bills today, which had been shelved afterprotests from the central Bank of Korea (BOK) and workers in financial institutions.

But the passage of the bills seemed to face obstacles as president-elect Kim Dae-jung yesterday voiced concern over the legislation, which would give the finance ministry authority over a new unified supervisory body. The central bank also repeated its dissent over the bills.

South Korea has agreed to pass them by the end of this year to speed up restructuring of the financial sector in exchange for the $60bn bail- out package arranged by the IMF earlier this month.

But the Bank of Korea, whose 3,500 employees vowed to quit in November if the bills passed in their current form, repeated its objections.

The bills propose the integration of three financial supervisory bodies in the banking, securities and insurance sectors, while giving full authority to the central BOK to plan and implement monetary policy.

They failed to go through in November due to disagreements over the role of the central bank and who would supervise the watchdog. The current draft gives the Finance Ministry authority over the watchdog body. The BOK would be stripped of its supervisory power over the banking sector, a bone of contention between the Finance Ministry and the central bank.

Kim Dae-jung stressed that the supervisory body must maintain its independence and neutrality, according to a statement by the party.

Meanwhile, the Chinese central bank governor warned yesterday that China was facing "a serious threat from financial risk" though it was in no immediate danger of being caught in the Asian economic crisis.

In a speech highlighting the problem of non-performing bank loans, Dai Xianglong conceded that state-run commercial banks had lost control of their branches in certain areas.

Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
The Doctor and Clara have their first real heart to heart since he regenerated in 'Deep Breath'
TV
Arts and Entertainment
Jeremy Clarkson, left, and Richard Hammond upset the locals in South America
tvSpoiler alert: It has been talked about for months
Arts and Entertainment
James Hewitt has firmly denied being Harry’s father
arts + ents
Arts and Entertainment
Jamie Oliver
filmTV chef Jamie Oliver turned down role in The Hobbit
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
news
News
Sir James Dyson: 'Students must be inspired to take up the challenge of engineering'
i100
Arts and Entertainment
Man of action: Christian Bale stars in Exodus: Gods and Kings
film
Life and Style
Apple showed no sign of losing its talent for product launches with the new, slightly larger iPhone 6 making headlines
techSecurity breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Arts and Entertainment
Catherine (Sarah Lancashire) in Happy Valley ((C) Red Productions/Ben Blackall)
TV
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

A timely reminder of the bloody anniversary we all forgot

A timely reminder of the bloody anniversary we all forgot

Who remembers that this week we enter the 150th anniversary year of the end of the American Civil War, asks Robert Fisk
Homeless Veterans appeal: Former soldiers pay their respects to a friend who also served

Homeless Veterans appeal

Former soldiers pay their respects to a friend who also served
Downfall of Dustin 'Screech' Diamond, the 'Saved By The Bell' star charged with bar stabbing

Scarred by the bell

The downfall of the TV star charged with bar stabbing
Why 2014 was a year of technological let-downs

Why 2014 was a year of technological let-downs

Security breaches and overhyped start-ups dominated a year in which very little changed (save the size of your phone)
Cuba's golf revolution: But will the revolutionary nation take 'bourgeois' game to its heart?

Will revolutionary Cuba take 'bourgeois' golf to its heart?

Fidel Castro ridiculed the game – but now investment in leisure resort projects is welcome
The Locked Room Mysteries: As a new collection of the genre’s best is published, its editor Otto Penzler explains the rules of engagement

The Locked Room Mysteries

As a new collection of the genre’s best is published, its editor explains the rules of engagement
Amy Adams on playing painter Margaret Keane in Tim Burton's Big Eyes

How I made myself Keane

Amy Adams hadn’t wanted to take the role of artist Margaret Keane, because she’d had enough of playing victims. But then she had a daughter, and saw the painter in a new light
Ed Richards: Parting view of Ofcom chief. . . we hate jokes on the disabled

Parting view of Ofcom chief... we hate jokes on the disabled

Bad language once got TV viewers irate, inciting calls to broadcasting switchboards. But now there is a worse offender, says retiring head of the media watchdog, Ed Richards
A look back at fashion in 2014: Wear in review

Wear in review

A look back at fashion in 2014
Ian Herbert: My 10 hopes for sport in 2015. Might just one of them happen?

Ian Herbert: My 10 hopes for sport in 2015

Might just one of them happen?
War with Isis: The West needs more than a White Knight

The West needs more than a White Knight

Despite billions spent on weapons, the US has not been able to counter Isis's gruesome tactics, says Patrick Cockburn
Return to Helmand: Private Davey Graham recalls the day he was shot by the Taliban

'The day I was shot by the Taliban'

Private Davey Graham was shot five times during an ambush in 2007 - it was the first, controversial photograph to show the dangers our soldiers faced in Helmand province
Revealed: the best and worst airlines for delays

Revealed: the best and worst airlines for delays

Many flyers are failing to claim compensation to which they are entitled, a new survey has found
The stories that defined 2014: From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions

The stories that defined 2014

From the Scottish independence referendum to the Ice Bucket Challenge, our writers voice their opinions
Stoke-on-Trent becomes first British city to be classified as 'disaster resilient' by the United Nations

Disaster looming? Now you know where to head...

Which British city has become the first to be awarded special 'resilience' status by the UN?