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.