The South Korean stock market shuddered down to a 10-year low as blue chips plunged by 7 per cent and the local currency, the won, lost yet another 10 per cent of its value in early trading.
The country opened its bond market to greater foreign investment, the day before rules for foreign ownership of listed companies were relaxed. These measures have long been urged on the Korean government but when they were implemented, foreign buyers resolutely shied away and their introduction was lost during another punishing day on Seoul's financial markets.
Poking its finger in the gaping hole caused by an almost total lack of confidence in the government's fiscal policy, the central bank went back on its pledge not to try to stabilise the won by intervening in foreign exchange markets and made a costly foray yesterday, costing an estimated $200m, in an attempt to stop the won going into total free fall. On Thursday the government admitted that it only had $10bn left in foreign exchange reserves, so it could ill afford the extravagance of intervening in the market.
The situation in Korea is now so bad that practically every action taken by the government is almost immediately undermined by fresh news of disaster. Yesterday it announced that the Monetary Board would extend loans of $6.45bn to banks, merchant banks, investment trust companies and securities firms.
Hours before the announcement it was clear that it had come too late to rescue Korea's fourth largest securities house Dongsuh Securities, part of the Kukdong Group, the country's 31st largest conglomerate. The failure of Dongsuh followed last weekend's announcement that Coryo Securities was also going out of business.
Doubts about the ailing government's ability to handle the crisis have been exacerbated by the slow arrival of funds from the $57bn International Monetary Fund (IMF) rescue package. In addition, there is growing feeling that, although this is the largest rescue package in history, it will not be sufficient to bail out the Korean economy.
While Koreans contemplate these problems, demonstrators were out on the streets of Seoul protesting against the tough terms extracted by the IMF. These demonstrations reflect a growing mood in the region where the IMF conditions for rescuing East Asian economies are coming under increasingly critical scrutiny.
Newspapers across the region are running a slew of articles by academics, businessmen and others questioning whether the IMF's insistence on tight monetary policy is really the best way of curing the Asian patients. They argue that the underlying economic strength of the region will be undermined by the lack of availability of funds for investment.
Thailand, Indonesia and South Korea have had to resort to IMF rescues in past months, and the Philippines is yet to emerge from an earlier IMF rescue. The region's most vocal critic of the IMF is the Malaysian Prime Minister, Mahathir Mohamad, who believes that it is using its financial muscle to allow Western institutions into previously protected developing markets to buy cut price assets.
Meanwhile in Indonesia, where the IMF rescue has yet to restore confidence, the markets reacted with alarm yesterday when it was announced that ill health would prevent President Suharto from attending a regional heads of state meeting this weekend.
Mirroring the falls in Seoul, the local currency lost 10 per cent of its value and share prices sank by over 7 per cent. This brings the stockmarket down to 1993 levels and gave the currency its biggest one day fall against dollar. The rupiah has lost around a quarter of its value since the IMF was called in at the beginning of October and has halved in value over the past year.
Most other Asian markets were down yesterday but Hong Kong again showed its ability to surprise with the stockmarket managing a near 2 per cent rise, after the previous day's fall of 5.5 per cent. Trying to make sense of this kind of volatility will inevitability lead to frustration.
Meanwhile, analysts said Asia's financial crisis was expected to cut European Union growth by as much as half a percentage point and lead central banks to pursue a more benign rate policy. Concerns in Europe were focused primarily on South Korea and the knock-on effects the financial panic there will have on other countries in the region, particularly Japan.
Amid a less robust growth outlook, analysts expected European monetary authorities to shy away from tightening policy aggressively. Most now reckon that a rise in short-term German interest rates will come about some time in the first or second quarter of 1998.
Most economists said the slower pace of EU growth represented a "best case" scenario, one that assumed a timely resolution to Asia's difficulties and avoided a more dire and global systemic problem.
Should the situation worsen beyond expectations, however, it is anyone's guess how events might unfold. The most frightening scenario is a situation in which an Asian country failed to honour its debt - a fear that is heating up in South Korea as it struggles to secure additional outside funding.Reuse content