IMF under fire from Asean leaders as S Korea floats won

South Korea bowed to intense IMF pressure yesterday and announced it would let its currency float on the open market from today. Richard Lloyd Parry reports from Seoul on the financial fire-fighting ahead of Thursday's elections, while Stephen Vines reports on the meeting at which Far Eastern heads of state criticised the IMF's response to the region's crisis.

The news that Korea would give up its struggle to limit movements in the won, and allow the currency to float against the dollar, came after the intervention by the Bank of Korea that boosted the exchange rate by its maximum daily amount of 10 per cent. It closed at 1,563.9 won to the dollar, while the key share price index climbed to 385.80.

A Bank of Korea official said: "The decision was made at the request of the IMF. At first we tried to resist, but the IMF request was so strong."

The move was welcomed by the financial markets, with analysts predicting that the prospect of billions of dollars in emergency credit arranged by the International Monetary Fund (IMF) could now restore confidence in the country's shattered markets. The benchmark stock index soared 7.22 per cent - its biggest one-day percentage rise - paring its loss for the year to 41 per cent.

But leaders of the Association of South-east Asian Nations (Asean), meeting in the Malaysian capital Kuala Lumpur, criticised the industrialised nations for not providing enough assistance. The official communique cast doubt on the effectiveness of the international rescue packages.

The nosedive in Asia's stocks and currencies eased a little yesterday, although confidence remained fragile in a week of political uncertainty throughout the region.

In South Korea, where a new president will be elected in two days' time, the central bank is reported to have sold some $200m to prop up the won on Friday. The election will be held on the same day that a $3.6bn installment of IMF credit is due to be delivered, on top of $5.6bn which has already been handed over.

The Bank of Korea had to step in after two leading presidential candidates said last week that they would renegotiate the terms of the IMF plan if elected. Over the weekend, however, a joint statement from the outgoing president, Kim Young Sam, and all three front runners pledged that the package would be put into action as agreed.

In Tokyo share prices were little changed yesterday, although the yen weakened after a deeply gloomy business survey. Much attention will be focused today on a tax-cutting plan due to be announced by the ruling Liberal Democratic Party; but few expect the measures to be radical.

The Bank of Japan admitted its next survey is likely to show even worse business morale. The yen weakened to 131.60 to the dollar, the lowest for more than five and a half years.

At the Asean leaders' meeting, Mahathir Mohamad, the Malaysian Prime Minister, yesterday admitted that South-east Asian countries themselves were at fault for building up a high degree of indebtedness. However, he returned to his familiar combative style in criticising the IMF for the high price it was extracting for its rescue packages for Indonesia, the Philippines and Thailand, as well as South Korea.

"I would think the IMF is looking purely at the macro-economic picture and not seeing the impact of measures required of client states," said Mr Mahathir. He predicted that "lots of companies, including very good companies, will probably fold up".

The Malaysian leader's comments were reflected in the meeting's communique, which noted that the IMF rescues had not restored confidence. It described the region's crisis as part of a global problem and said that Europe, Japan and the United States should be doing more to assist.

The leaders in Kuala Lumpur were torn between an anxiety not to provoke further market turmoil while wanting to emphasise the gravity of the crisis. As they met, the Indonesian and Thai currencies plunged to new lows while the Malaysian and Philippines currencies also declined.