Survival in Seoul

There is an air of dangerous unreality in South Korea. As the won falls through the floor and the country stares bankruptcy in the face, the leading contenders in next week's presidential poll seem more concerned about spreading the dirt on their rivals than in getting to grips with the consequences of the economic crisis.

The opposition National Congress for New Politics, whose candidate, Kim Dae-jung, has edged into the lead over the past few days, preferred to devote a press conference yesterday to new evidence about the draft-dodging antics of the sons of the ruling party contender, Lee Hoi-chang. No one can even be sure if the winning candidate will honor the terms of the International Monetary Fund's US$57 billion rescue fund.

Those who advocate shutting off funds tend to be the ones who would not have to live with the direct consequences of a crash in Seoul. This crisis has demonstrated the limits to IMF intervention. In Thailand and Indonesia, it seems narrowly to have succeeded in turning the tide, although both economies remain in a fragile condition as shown by the further falls in their currencies this week. But, in South Korea, the region's largest bailout package has done nothing to stop the situation from continuing to worsen. There are also very real questions about the utility of some of the IMF demands.

The only other option is to stand back and let the country default.

That is what some armchair critics would wish to see happen. But the risks involved in such an approach are too huge to make this a realistic course to pursue. Since most of the loans involved are held by Japanese banks, a default in Seoul could deal a shattering blow to Tokyo's already shaky financial sector. The resulting loss of confidence would have global consequences, possibly even dragging the world toward recession.

Unsatisfactory though it is, there is no practical alternative to the present policy of continuing to extend credit to an ungrateful South Korea, while hoping that the promised reforms will eventually bring the economy back on track. The IMF will maintain its carrot-and-stick approach. But no one should be under any illusions that it can ever carry out the ultimate sanction of withdrawing funds: South Korea is simply too important to allow to go under.

-- South China Morning Post