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