South Korea's financial crisis attacks world markets again
South Korea's financial crisis attacks world markets again
By Nick Cumming-Bruce and Larry Elliott
BANGKOK/LONDON: Shock waves from a new financial crisis in South Korea rippled round the globe Thursday with Asia gripped by a currency contagion and share prices plunging in Europe and North America.
Trading in the Korean won was suspended after just four minutes of frenetic trading amid fears that the record US$60 billion International Monetary Fund bail-out for the former "tiger" economy would be inadequate to stem a catastrophic loss of confidence in the country's banks and conglomerates.
London's FTSE 100 Index closed down by almost 100 points and the Dow Jones Index dropped 150 points in early trading as dealers dumped equities for the relative haven of the bond market.
Every leading stock index in Europe fell at least 1 percent and some more than 3 percent. Declines were led by companies with substantial sales in Asia, since the devaluations in the region will effectively price European goods out of the market.
The won plummeted to its permissible 10 percent daily limit, hitting a record low of 1,720 to the dollar, down by 29 percent from yesterday's close. It has now overtaken Indonesia's rupiah as the worst performing currency in the region.
Leading credit rating agencies fueled the sense of impending crisis with Standard & Poor's downgrading Korea's foreign currency debt from A minus to BBB minus, the lowest possible investment grading, and Moody's marking down 31 of the nation's banks and commercial borrowers.
Sentiment was not improved when the front-runner for next week's presidential election, Kim Dae-jung, appeared to repudiate the tough reform package worked out with the IMF. "We question how it will benefit our country. We doubt we can honor some of the terms of the deal," said his spokesman Kim Won-gil.
"It's incredible -- no one wants to get in front of the train right now as the won goes into free-fall", said David Cohen, a senior economist at MMS International, a financial services unit of Standard & Poor's Corp. "As financial markets panic, it becomes a self-fulfilling prophecy as investors want to get their money out. There are no bids for the won," he said.
The domino effect of the crashing won had a knock-on effect in Hong Kong, where there was renewed concern about the ability of the government to maintain the currency peg with the U.S. dollar. The Malaysian ringgit, the Thai baht, the Indonesian rupiah and the Singapore dollar were also under severe strain Thursday.
As South Korea's President, Kim Young Sam, once again apologized for the crisis, shell-shocked analysts around the region groped for some way to measure the possible fall-out on Asian currencies and stocks.
To make matters worse, any view of Southeast Asian prospects is increasingly overshadowed by worrying uncertainty over the likely impact of the region's turmoil on Japan, the U.S. and other leading industrialized economies, where a growing list of companies are attributing weaker profits to Asia's upheavals.
The slide deepened market fears about the ability of South Korean companies to meet the $100 billion in short-term debt which the government revealed this week will fall due in the coming year and is up from the $70 billion it previously reported.
Eight South Korean conglomerates and some 15,000 companies have already filed for bankruptcy. The suspension of five merchant banks on Wednesday brought to 14 out of 30 the number forced to find new capital by the end of the year or go under.
The market's welcome for such reforms was offset by a Finance Ministry disclosure Thursday that it would appeal to the IMF to accelerate disbursement of funds under the $60 billion bail-out, increasing the amount released by the end of the year to $15.5 billion, instead of the original $9 billion.
-- Guardian News Service