SOUTH KOREAN ROLLER COASTER
December 26, 1997
The IMF and the G-7 countries, led by the United States, agreed to provide South Korea with an emergency $10 billion loan by early January. Experts believe that the rescue package, part of the $57 billion bailout negotiated earlier this month, is needed to prevent the South Korean economy from collapsing. Phil Ponce and guests discuss the loan's impact and its global significance.
A RealAudio version of this segment is available.
December 19, 1997:
The opposition party leader wins the presidency in South Korea .
December 12, 1997:
The Managing Director of the IMF talks about its role in South Korea.
An Online Forum on the economic situation in Asia.
December 4, 1997:
A report on South Korea's troubled economy.
November 26, 1997:
What did the APEC summit accomplish?
November 25, 1997:
Asia's leaders search for answers at the APEC meeting in Vancouver.
November 24, 1997:
The APEC conference shows a grim economic forecast for Asia.
October 28, 1997:
The instability of Asian stocks causes worldwide fluctuations.
February 11, 1997:
U.S. Ambassador James T. Laney discusses the labor strikes and rallies in South Korea.
December 28, 1995:
A report on the arrest of two former South Korean presidents and the bribery charges against the country's top business leaders.
Browse the NewsHour's coverage of Asia.
International Monetary Fund
PHIL PONCE: It's been a dismal few months for South Korea's currency and stock markets. The currency, the won, has been falling gradually all year but began to plunge in November and fell steeply in December, despite a $57 billion loan package arranged by the International Monetary Fund. It hit an all-time low Tuesday, down 60 percent, but on Wednesday, the won bounced back 7 percent when the World Bank promised Korea $3 billion dollars in emergency loans. And today, it jumped almost 20 percent--a record one-day gain--following news that the IMF, the United States, and other industrial nations would speed up the release of $10 billion. The South Korean stock market has also been falling the last few months. This Tuesday was the worst single day ever, when the Korea composite stock price index fell 7 1/2 percent. The index bottomed out Wednesday but came back by nearly 7 percent today after news of the U.S.-led loan speed up. Has Korea turned the corner? Joining us now, Stanley Fischer is the first deputy managing director of the IMF. Hyuck Choi is the Korean Minister for Economic Affairs from the embassy here in Washington. And Andrew Kim is president of Sit/Kim International Investment Associates, A Wall Street firm that invests solely in foreign markets. And, gentlemen, welcome all. Mr. Choi, is the worst over in your government's opinion?
Is the worst over?
HYUCK CHOI, Republic of Korea Embassy: Perhaps pretty safe to say that it still too early to say anything definite. As we have seen, the stock market and foreign exchange market rallied today, and it will provide a good momentum for us to be a little bit more optimistic in resolving our current financial crisis.
PHIL PONCE: Mr. Fischer, your opinion.
STANLEY FISCHER, International Monetary Fund: Well, two things have happened in the last two days. First, we have, we, the IMF, have reached agreement with the Koreans to strengthen and accelerate the economic program they're implementing, and that's very important. They're going to open their markets quicker. They're going to fix up their banking system quicker. And secondly, the so-called second line of defense, part of the original $57 billion package, is being activated to help them. And this is a clear demonstration to the markets that the world stand behinds the Korean government, provided it intends getting on with fixing its economy, which is what it has made clear it will do.
PHIL PONCE: We'll get into some of the issues regarding fixing the Korean economy after I ask Mr. Kim--from an investor's standpoint, do you believe Korea has turned the corner?
ANDREW KIM, International Investor: Investor confidence appears to have turned the corner. In light of the great awareness on the part of the IMF and G-7 countries, on the one hand, and was important--the recipient countries' willingness to implement the IMF package.
PHIL PONCE: Mr. Choi, how about that, what kinds of changes is your government willing to make in its system, in the economic system?
The South Korean government's plan.
HYUCK CHOI: Last Wednesday, my government has submitted a new strong economic program to the IMF, and it was duly announced in Korea. The program will significantly intensify and accelerate the macroeconomic policy adjustment and policy reforms to regain the confidence in the international financial market. We know that the regaining of the confidence of the international financial market will be critical in any credible long-term perspective for the recovery of Korean economy, but I think that basically all the important components are contained in our new strong economic plan, ranging from the monetary policy, a liberalization of capital markets, and it includes even new--possible new labor policies--and enhancing the transparency in publishing the relevant data regarding financial information.
PHIL PONCE: Mr. Fischer, of those things that Mr. Choi just referred to, which, in your opinion, are the most important?
STANLEY FISCHER: Most important are getting on with fixing up the banking system restructuring banks, closing down banks, which are bankrupt, and opening up the capital markets to let foreigners invest in Korea. Korea needs a lot of dollars, a lot of foreign money, and it has to let the private sector, as well as the public sector, contribute to their needs for foreign exchange.
PHIL PONCE: Mr. Fischer, do you sense a real willingness on the part of the Korean government to implement those changes?
STANLEY FISCHER: The biggest change in the last three weeks has been in the clear willingness of the Korean government to implement these policies. On the day we signed the original agreement with Korea, which was December 3rd, they were in a state of shock and resistance and resentment partly to the foreigners but more at their own leaders, and there were a lot of noises coming out of the government against the program. As the realization of what needed to be done grew, the public in Korea and the politicians in Korea and the president-elect from last Thursday, Kim Dae Jung, have made it absolutely clear that they will implement this program. For the last week they've been asking us, how can we do it more rapidly? The first two weeks it was how can we avoid doing it, and that change is marked, dramatic, and critically important.
PHIL PONCE: And, Mr. Fischer, from the perspective of the IMF, why is it that a speed up was necessary? This was not the original plan, after all.
STANLEY FISCHER: The original plan spread some of these changes over a period of six to nine months. We would have liked them to have been done sooner. The Korean government at that point is very uncomfortable with the need to do that. And in a bargaining situation you don't insist on everything you think best, but on making good progress. Once they're willing to do more, which would have--which was an improvement, we were very, very happy to go along. It was also necessary to persuade others, who'd been asked to lend money to Korea, that the Koreans were absolutely firmly committed to doing what was necessary in this situation.
PHIL PONCE: Mr. Kim, what are you telling investors about whether or not their investments are in jeopardy?
Mr. Kim: "It is not the government the IMF package is rescuing. It's the private sector economy...."
ANDREW KIM: Well, we tell investors that it is not the government the IMF package is rescuing. It's the private sector economy, which has to make an adjustment. What I am talking about here is reducing, if not eliminating, over-capacity, which was made possible through over-leveraging and over-borrowing. So the essential ingredient here, we say, is consolidating, reducing over-capacity, are there any prospects for earning some kind of a return on the part of investors, given the risk profile we face today?
PHIL PONCE: And as of today, are you still investing in Korea?
ANDREW KIM: We have made a long-term investment in Korea. We are watching to assess the currency risk, which we didn't factor into when we started investing 10 years ago.
PHIL PONCE: Mr. Choi, what do you say to people who wonder if the Korean government has been totally frank at this point about the extent of your liabilities?
HYUCK CHOI: Last Wednesday, for a press interview, our Deputy Prime Minister, he came out with a--for the first time--with a rather optimistic prediction about our capability to meet the short-term liabilities. According to him around 15 billion U.S. dollars will stand as our reserve and around same amount at the end of January and about 17 billion dollars at the end of February. It provided us with the level of reserve, which might be possible to successfully meet our short-term debt.
PHIL PONCE: Mr. Fischer, are you confident that at this point the international financial community has an accurate grasp of Korea's financial state?
STANLEY FISCHER: Yes. I am confident at this point. Teams in Korea have been working very closely with the Bank of Korea and with the finance ministry to get these data in shape. They will be issued, there on the external debt, in the next day or two. They're not very different from the data we've been working with for the past couple of weeks. And there's very little doubt now about what those--what those numbers are, and that the situation is manageable, provided the Koreans get on and do what I have no doubt they will do, which is to implement this program.
PHIL PONCE: Mr. Fischer, how do you respond to the very, very basic question of why should the international community bail out countries that, in the opinion of some, might have been less than careful with their resources?
Mr. Fischer: "It's in the interests of the international community not to let an important country like Korea's economy go into free fall."
STANLEY FISCHER: Because it's in the interests of the international community not to let an important country like Korea's economy go into free fall. The only way for Korea to get out of its difficulties would be to export. And the further we let it fall, the harder it will be for it to come back, and the more it will have to turn into an exporter and less than importer, and that is not something we all--we all want. Stability in Korea will contribute also to stability in all its neighboring countries, and there's a great fear of instability there, and that is important, and besides, there is some element of international solidarity. It is common, and we believe it's proper that countries help each other when they get into extreme difficulty. There is no reason any of us need to see why the people of Korea should suffer more than they will. And they will because they're going to go into very hard times economically for the next year or so. There's no reason they should be made to suffer more than is absolutely necessary when well thought out, safe loans can be extended to them to help them out of their difficulties.
PHIL PONCE: Mr. Kim, to what extent do you feel that there might be a change in the works as far as investor confidence in Korea?
ANDREW KIM: What we have to see is the combination of both Japanese and U.S. and European banks willing to ease this credit crunch in order to inject more liquidity. But this will have to come with the Korean government under new leadership dismantling this historic collusion between the government and business. And that is going to create a lot of pain, but maybe that's where investment opportunities lie for foreign investors.
PHIL PONCE: Mr. Choi, how willing is the government to make those kinds of changes, would you say?
HYUCK CHOI: The government--both the outgoing and incoming governments are fully committed to the reform, and our new president-elect, Dae-Jung Kim, was very quick to come out to assure international market that he will live up to the reform commitment agreed upon with the IMF. And we also have to note the strong support of our people behind the new president-elect. It means that we have both the political will, leadership, and consensus of our national--our people. And in addition to that, we have, as it was indicated by Mr. Fischer, strong support by the international community and international financial institutions. Those, in combination of those elements, I think Korea will continue to push forward with its reform, and as our president-elect has emphasized, will implement the IMF reform 100 percent, not less 1 percent of that.
PHIL PONCE: Gentlemen, thank you all for joining us. Have a good weekend.