Outlook: Korea will accept IMF's conditions - probably

On the IMF package, the National Grid plan and the Liberty Bunfight

The pendulum of international attention swept away from Japan yesterday and back to South Korea, where the government seems to be limbering up for outright rejection of the terms of the International Monetary Fund's $20bn bail-out package. If this occurs, it will profoundly deepen this already serious crisis. The Koreans would be saying no to the necessary package of austerity measures and structural reforms that go with the IMF's aid.

The consequences of rejection, for Korea, the region and the world, would be so disastrous that it is hard to think of the present manoeuvrings as anything other than political posturing, for which there is an obvious need with an election coming up. Denis Healey tried the same thing during our own humiliating negotiations with the IMF in the mid 1970s; in the end the British government caved in.

Whether God's chosen people are prepared to do the same is anyone's guess. It may be that, looking over the precipice, they are indeed prepared to jump. The Korean economic miracle is almost certainly over in any case, but refusal of all aid would sink the South Korean economy into a potentially disastrous recession.

Despite the obvious parallels, the South Korean economy is very different from that of Japan. Japan is in a dangerous, downward deflationary spiral, true enough, but it is not bust. It is a big mature economy, with a burgeoning trade deficit, untold riches in terms of reserves and overseas investments, and a very large number of powerful, world-class, international companies. The problem lies in its overprotected and regulated service, property and financial sectors.

Korea's economic miracle, by contrast, has been largely built on debt and is highly dependent on a tight relationship between government and the big conglomerates that dominate its industries. Furthermore, it has an even deeper distrust of anything that smacks of foreign capital and competition than Japan. In other words, South Korea is desperately in need of IMF reform but because of the protected, corrupt and cronyish nature of its economic establishment, it will fight like an alley cat to resist change.

Unfortunately for Korea, the alternative is too ghastly to contemplate - a series of spectacular bankruptcies, not just in the financial sector, but because of the highly geared nature of her companies, spreading into the industrial heartland. The knock-on effects in the Asia Pacific region and the world economy would be equally disturbing. At this stage, the balance of probability must still be that Korea will eventually accept the IMF's terms, for it needs a lot more than the $20bn so far offered. But don't bet on it.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Guru Careers: Application Support Analyst / 1st Line Support

£25 - 30k: Guru Careers: We are seeking an Application Support Analyst / 1st L...

Guru Careers: .NET Developer / Web Developer

£45K - £55K (DOE) + Benefits: Guru Careers: We are seeking a full stack .NET D...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence