Aid to Korea should be raised to $100b: Analysts
Aid to Korea should be raised to $100b: Analysts
SINGAPORE (Reuters): The International Monetary Fund's (IMF)
US$57 billion aid package for South Korea is not nearly big
enough to plug Seoul's vast short-term debt gap and needs to be
substantially increased, analysts said yesterday.
The short-term foreign currency debt has turned out to be much
larger than originally anticipated, twice as large in fact, and
by the end of this year alone around US$20 billion is due.
It is the level of short-term debt which is the crucial factor
here. Creditors need to have the confidence that there is a
suitable package in place before they will consider rolling any
loans over.
"What is critical in the next few days, probably by this
weekend, is for Korea and the IMF to say something positive,"
said Daniel Lian, Head of Asian Markets Research at ANZ in
Singapore.
"With what they have now Korea will not be able to roll over
its short-term debt in the next 12 months.
"I personally think they ought to show people a figure of $100
billion all in. I think that would make the market comfortable
because it is exactly the sum of the short-term foreign currency
debt."
Other analysts share these opinions. A package around twice
the size of the existing one is being widely talked about.
Steve Marvin, head of research at Ssangyong Securities in
Seoul, says South Korea needs $50 billion to $60 billion beyond
the IMF bailout.
"We are basically in uncharted waters. We know Korea had $171
billion in offshore debt, including unconsolidated and off-
balance sheet borrowings. About half of that is short-term so
that's $85 billion due in a year or less.
"In addition you have a chain reaction of bankruptcies among
Korean financial institutions. I don't really have a figure but
it will be at least $50 billion to $60 billion beyond what
they're getting from the IMF."
Easing bottleneck
South Korea's central bank said yesterday it would pump 11.3
trillion won ($6.57 billion) into the financial system to ease a
bottleneck caused by the temporary closure of 14 merchant banks.
"The whole financial system is breaking down after the
merchant banks suspended business," said Park Chul, director of
Bank of Korea's monetary policy department.
The central bank would inject 7.3 trillion won from next week
to compensate for call loans to the ill-fated merchant banks. The
loans have been frozen since the closures.
Two trillion won would be provided to securities houses, one
trillion won to merchant banks and one trillion won to investment
trust companies.
The central bank would lend a major chunk of the funds at the
average call rate or at one point under the average and buy state
bonds held by financial firms.
"The money injection is aimed at restoring confidence in the
financial system, and not at bailing out individual financial
institutions," Park said.
He said the central bank would soon siphon off the money
supply through Monetary Stabilization Bonds, repurchase
agreements and other open market operations.
"I don't think the money supply violates conditions that come
with the International Monetary Fund-led aid," Park said.
In what was seen as a signal of the new belt-tightening regime
under an IMF-led $57 billion bail-out package, the finance
ministry ordered nine ailing merchant banks to halt operations
last week and five more on Wednesday.