As the Seoul stock exchange continued to sink yesterday, Korean officials were in negotiations with IMF officials but still seemingly in denial about the gravity of the country's situation and the depth of the economic problems.
"Korea's situation is different from those of Thailand and Indonesia, with major economic fundamentals still sound and the ongoing foreign exchange crisis stemming from temporary liquidity shortage," said Kim Woo Suk, director of the international finance department of the Ministry of Finance and Economy.
Korea's plight, though, is much worse than that of the South-east Asian countries, both for its own people and in its implications for the world economy. Its economy, the 11th biggest in the world, is bigger than those of Thailand and Indonesia combined.
The sums required to restore order are huge; and the deep pride of Korean people, together with the militancy of its labour force, and the vacuum in its politics, make the job of ramming the IMF's reforms home many times more difficult.
Korea had requested $20bn (pounds 12bn) from the IMF, a sum which is unanimously reckoned by independent analysts to be insufficient. Seoul spent billions of dollars in an unsuccessful attempt to support its currency, the won. And although the government refuses to disclose the amount left in its reserves, the $20bn could be needed to top them up alone. Then there is the problem of Korea's banks, which are on their knees after decades of reckless spending, much of it guided by a government obsessed with output at the expense of profitability. According to Richard Samuelson, head of research at SBC Warburg in Seoul, bad loans in the banking system could amount to $29bn, suggesting that the IMF, supported chiefly by the US and Japan, will have to come up with at least $50bn to clear up the country's mess.
In return it will certainly demand stringent austerity measures, as well as more transparency in the publication of government statistics, flexibility in the labour markets, an opening of consumer markets to foreign competition, the privatisation and restructuring of state-owned firms and drastic restructuring of prime industries such as cars. In the short term the results will be reduced growth, corporate bankruptcies and increased unemployment.
Meanwhile, leaders of the Pacific Rim economies, meeting in Vancouver, defied the financial gloom sweeping Asia yesterday to hammer home a determinedly upbeat message about the region's prospects. But their bold attempt to restore confidence waited on the verdict of the Asian markets which were just opening as their statement was released.
The formal declaration by leaders of the Asia-Pacific (Apec) economies published at the end of their annual conference, was almost perverse in its optimism and forthright in its commitment to free trade. "There is no doubt that the fundamentals for long-term growth and prospects for the region are exceptionally strong," it said, stating for the record that the 18 leaders were "certain" of the "dynamism and resilience of the region".
Resisting the temptation to retreat into protectionism, the 18 leaders said they shared a belief "in the contribution of free markets" to achieving their growth and employment objectives. Their declaration does, however, suggest that the discussion may not be closed. The events of recent weeks, it said, "reflect new challenges in the international financial system that require new responses".Reuse content