S. Korea may need $100b from IMF: Japan analysts
S. Korea may need $100b from IMF: Japan analysts
TOKYO (Reuters): An IMF-led bailout package for South Korea may need to be as large as $100 billion to be effective -- about double the total amount committed to Thailand and Indonesia, analysts in Tokyo say.
The tumbling won could push the cost even higher unless the South Korean government decides quickly to seek help from the International Monetary Fund, they say.
"South Korea is said to hold about $70 billion worth of external debt maturing within one year, while its foreign reserves are moving closer to zero," said Takashi Nobehara, general manager of Center for Asian Studies at the Japan Research Institute, Ltd.
"Hence, an aid package totaling between $50 billion to $100 billion would be needed," he said.
South Korea held $110 billion in external debt as of the end of March, the bulk of which is borrowed by its private sector. About $20 billion to $30 billion may need to be repaid before the end of this year, analysts say.
South Korea's external reserves stood at $30.5 billion at the end of October, according the Bank of Korea (BOK). But analysts suspect the actual amount could be less than half the official figure.
"The BOK does not disclose the amount, but more than half of the reserves may have been already used in supporting the won in the forward market," Nobehara said.
Nobehara said the Seoul government has to either ask for bilateral aid or seek multilateral aid through the IMF, as South Korean commercial banks can no longer procure foreign currency to roll over their foreign debts on their own.
Analysts say the government may first try for bilateral aid, but such an attempt to avoid seeking IMF help, if prolonged, would only make matters worse by inviting more won sales.
South Korea's daily Dong Ah Ilbo reported in its Wednesday's edition that the BOK is seeking a $20-30 billion emergency loan from the Bank of Japan. But both central banks denied the report.
Japan is unlikely to be willing to commit itself to a bilateral aid agreement as Tokyo has similar problems of its own in its financial industry, analysts say.
The United States is also likely to insist on IMF involvement, as an agreement reached by deputy finance ministers from Asia and the United States in Manila on Thursday spelled out that future bailout packages should be based on conditions agreed with the IMF, analysts say.
The won fell by its daily limit to a record low of 1139.0 to the dollar on Thursday, the first day of trading after the government expanded the won/dollar daily trading band to 10 percent from 2.25 percent.
IMF first deputy managing director Stanley Fischer told reporters on Wednesday that the Fund would be willing to help South Korea solve its financial crisis, but the country has not yet sought help from the IMF.
South Korea's new Finance Minister Lim Chang-yuel said on Wednesday that there was no need for financial help from the IMF, but cooperation from the United States and Japan was essential.
Regional help
Lim reiterated yesterday Korea would seek regional cooperation to resolve its financial crisis rather than go to the International Monetary Fund (IMF) for emergency help.
"If we can get regional cooperation, that will be better than getting loans from the IMF," added Lim.
But Lim said he would seek IMF money if necessary.
"We should think whether it is really necessary to ask for an IMF loan at the moment," Lim said. "We have just unveiled a reform program and our economic fundamentals improved very much from last year."
Lim, who took over as the finance minister on Wednesday after his predecessor abruptly quit, said regional problems, such as South Korea's liquidity crunch, should be solved regionally.
"If South Korea fails to pay the short-term loans, Japanese creditors may have to face defaults on long-term loans too," Lim said. "We hope Japan will support our financial reform efforts," he said.
Japan's exports to South Korea stood at 1.59 trillion yen ($12.5 billion) in the first half of this fiscal year, equivalent to about 15 percent of its total exports to Asia.
But analysts say the direct impact will not be as severe as that expected from Southeast Asia, since Japan's direct investment in Korea is not so large.
Japan's direct investment in South Korea totaled 46.8 billion yen ($368 million) in fiscal 1996/97, compared with 282.8 billion yen ($2.22 billion) in China, 272.0 billion in Indonesia and 158.1 billion yen ($1.24 billion) in Thailand.