G-7 roped in as Asian crisis worsens
G-7 roped in as Asian crisis worsens
By Philippe Ries
HONG KONG (AFP): The Group of Seven leading industrialized
countries are becoming increasingly involved in the southeast
Asian financial crisis, worsening as the South Korean currency
plunges.
Germany, France, Britain and Italy will join the United
States, Japan and Canada for discussions Wednesday on providing
financial assistance to the region's troubled economies,
Philippine financial officials said.
They will join colleagues from southeast Asia, South Korea and
China, as well as the International Monetary Fund, the World Bank
and the Asian Development Bank.
The official reason given for the Manilla meeting is to
discuss a possible Asian fund to help troubled economies in the
region.
It follows an informal G-7 session in Frankfurt over the
weekend during U.S. deputy treasury secretary Lawrence Summers'
Europe transit en route to Tokyo, an international banking source
told AFP.
Summers arrived in Tokyo last Saturday for meetings with
Finance Minister Hiroshi Mitsuzuka and vice minister of finance
Eisuke Sakakibara, the source said.
The U.S. official was also meeting South Korean officials
while in Tokyo, the same source said last Friday.
Support from the European members of the G-7, particularly
from Germany and the Bundesbank, would be crucial if a rescue
package for South Korea was to be launched, the source said. Such
a package would be in a different league from the US$17.2 billion
the IMF has arranged for Thailand and the $23 billion for
Indonesia.
An IMF package for South Korea could amount to between $40
billion and $60 billion, rivaling the 50-billion-dollar package
extended to Mexico in during the peso crisis in early 1995.
Seoul's central Bank of Korea (BoK) has recommended applying
for IMF loans rather than trying to raise funds on its own,
Yonhap Television News (YTN) said Tuesday.
"It would take time and involve complicated procedures for the
BoK to raise funds from abroad, while getting IMF loans will be
simpler and quicker, " YTN quoted a bank official as saying.
Kim In-Ho, top presidential advisor for economic affairs, told
journalists South Korea would not need any help from the IMF if
it manages to retrieve international credibility through its own
current efforts to shape up.
Asked about the government position toward a possible IMF
bailout, he said: "The government's position has not yet been
decided upon."
An economic and finance ministry spokesman said: "The
government has never considered seeking IMF bailout loans, nor
has it any plan to do so."
Instead, the government plans to have the BoK take out short-
term loans from abroad, including foreign central banks, finance
and economy ministry officials were quoted as saying by Yonhap
News Agency.
On Monday, the BoK gave up defending the won on the ministry's
orders, when it crossed the 1,000 mark against the dollar. For
the second day running Tuesday, the won hit its daily permissible
2.25 percent fall, hitting 1,012. 80 to the dollar within minutes
of the opening, casting gloom over the stock market.
The fall of the won, which has lost more than 15 percent of
its value this year, shoots up the South Korean private sector's
external debt servicing, estimated at 19.4 percent of gross
national product, much of it short term.
South Korean banks as well as industrial groups are facing
mounting problems on the world market.
Christopher Wood, regional economist with Hong Kong-based
investment bank, Peregrine, said G-7 countries cannot afford to
take at face value reassuring noises from organizations such as
the Organization for Economic Cooperation and Development.
"Such people are living on a different planet, as they were
when Japan first imploded back in 1990," he said.
"The spreading problems in Asia have potentially dire
implications for the world economy," he said.