Disagreement emerges in Seoul-IMF talks

Disagreement emerges in Seoul-IMF talks

SEOUL, South Korea (AP): Reluctant to accept some harsh conditions, South Korea backpedaled yesterday and said it was still discussing terms of a multibillion-dollar international bailout of its foundering economy.

"We still have some points to be cleared with the IMF (International Monetary Fund)," said Chung Ui-dong, spokesman for the Ministry of Finance and Economy.

Chung was commenting on local news reports that there still was disagreement between South Korea and the IMF over some key issues, including the country's economic growth rate for next year.

Emerging from overnight negotiations with IMF delegates early Monday, Finance and Economy Minister Lim Chang-yuel said the two sides had reached preliminary agreement on terms of the IMF's bailout package.

Lim said the agreement would become final if he could resolve by telephone with Michel Camdessus, the IMF's managing director, "a few points that require adjustments."

But Camdessus, in Malaysia for a meeting of Southeast Asian leaders, indicated that the deal reached in Seoul was not good enough.

"We have made a giant leap toward an agreement. But we in the IMF have yet to have a legalistic conception of an agreement. Until the last 'i' is dotted, the agreement is not there. So I can't say anything more," he said.

South Korea's national news agency Yonhap said the finance minister and the IMF chief disagreed over South Korea's gross domestic product growth for next year. South Korea wants at least 3 percent growth, while the IMF insists on growth of less than 2.5 percent, it said.

Yonhap said the two leaders also failed to agree on how soon South Korea's financially shaky merchant banks should be liquidated. The IMF wants an outright closure of those banks, while South Korea wants them to be phased out over several months, it said.

One official at the Finance and Economy Ministry indicated the two sides would not be able to resolve their differences Monday.

"The final agreement could be delayed until Tuesday," he said, speaking on customary condition of anonymity.

Lim earlier announced a preliminary deal after overnight negotiations with Hubert Neiss, head of the IMF's Asian-Pacific division. Neiss headed the IMF's negotiating team.

South Korean media, quoting various government sources, said the bailout fund would be between US$50 billion and $60 billion and that the first installment of about dlrs 10 billion is expected later this week.

South Korea turned to the IMF on Nov. 21 for rescue of its troubled economy, the world's 11th-largest. It said last week that the amount needed would be "far more than the dlrs 20 billion" it originally sought from the IMF.

IMF loans usually come with strict conditions attached, including mandates for reduced government spending, low economic growth and clearing up of insolvent banks and companies.

The IMF-imposed belt-tightening would raise unemployment from the present 2.5 percent to up to 7 percent in 1998, forcing about 1.5 million people out of their jobs, the highest number since the 1950-53 Korean War, Yonhap said.

One key issue in the negotiations was an IMF demand for an outright shutdown of 12 debt-ridden merchant banks teetering on the brink of bankruptcy, it said.

South Korea also agreed to open its bond market wider to foreign investors, Yonhap said.

South Korea is the fourth Asian country to turn to the IMF for help so far this year. The Philippines, Thailand and Indonesia now are receiving assistance from the IMF.

South Korea's financial crisis was brought on by a slew of corporate failures that put enormous strain on the banking system. Bad loans, now estimated at US$26 billion, sent the Korean currency plunging against the U.S. dollar.

With credit ratings down, Korean banks, unable to borrow abroad, swarmed into the domestic foreign exchange market, fueling a currency crisis.

Korean banks have difficulty servicing short-term debt. More than two-thirds of South Korea's $110 billion debt is due in a year.

The uncertainty drove the Korean stock market down further Monday, with its key index dropping 14.70 points, or 3.6 percent, to close at 393.16. The nation's currency also sank lower, finishing the day at 1,187 to the dollar. It closed Friday at 1,170.