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.