South Korean cabinet endorses IMF agreement

The South Korean cabinet early today informally endorsed a memorandum of understanding reached between the International Monetary Fund (IMF) and Seoul for a big loan package, a statement from the presidential Blue House said.

At the same time, the South Korean Finance Ministry suspended the business activities of eight merchant banks, according to the Korea Stock Exchange. The exchange said it had immediately suspended trading of the eight banks.

The IMF loan package had required Seoul to close or merge troubled banks and lower economic growth, Korean state media reported. State Korea Broadcasting System (KBS) said the Finance Minister Lim Chang-yuel agreed to liquidate the troubled merchant banks and allow third-party takeovers of commercial banks at a pre-dawn negotiating session with the IMF team in Seoul.

It also said Seoul had agreed to open its financial markets further.

But Mr Lim, who announced an initial agreement at midnight on Sunday only to see it come undone after reviewing it with IMF Managing Director Michel Camdessus later, stressed this was still a tentative agreement. The central Bank of Korea Governor Lee Kyung-shick was involved in the morning discussions to settle how the merchant banks would be liquidated and commercial banks merged or taken over by a third party.

- Reuters