Seoul, IMF to Sign Likely $55-Billion Bailout Today

South Korea and the International Monetary Fund appeared set to finally sign an agreement today establishing a massive financial bailout pact for South Korea’s teetering economy, but a signing ceremony was repeatedly postponed as last-minute talks continued.

But even as agreement neared on the expected package of about $55 billion, the nation’s perilous economic condition was underscored by an accelerating stock market slide that has eliminated nearly one-third of its value in just 10 trading days.

Confusion over the status of the IMF talks and Tuesday’s announcement that nine merchant banks had been ordered to cease most operations were blamed for the latest market deterioration early today, when the key Kospi index dropped 5.3% on fears of massive bankruptcies.

IMF Managing Director Michel Camdessus arrived here this morning and met with Finance Minister Lim Chang Yuel. The signing had been expected immediately afterward, but instead Camdessus went on first to a scheduled meeting with President Kim Young Sam.

Despite the chaotic market situation and off-again, on-again public signals about the bailout talks, completion of the agreement has been expected all along and is one reason that outside observers have remained optimistic about the long-term outlook for the region.

Federal Reserve Board Chairman Alan Greenspan said Tuesday the current economic slump in Asia is likely to be “temporary,” and predicted Asian economies will recover soon if they move promptly to reform.

He urged Asian leaders to move quickly, warning that postponing the difficult steps now might only force them to adopt more stringent measures later to bring their economies into line.

Greenspan criticized policies in several Asian countries, including South Korea, in which the governments have ordered private banks to finance “conspicuous construction projects that had little economic rationale.”

He also blamed governments for maintaining weak, sometimes fragile financial systems, and for trying to hold their currency exchange rates intact in the face of market pressures to let them fall.

Greenspan’s comments came one year after he warned of possible “financial exuberance” in U.S. financial markets--a warning that, in retrospect, apparently would have been more appropriate for Asian economies a year ago.

South Korea’s Lim had announced several times on Monday and Tuesday that basic agreement had been reached between the two sides, only for it to emerge that further negotiations were still required.

Those premature announcements appeared to be part of South Korea’s negotiating tactics. Some Korean media, however, carried reports that the drawn-out negotiations resulted from escalating IMF demands.

South Korea’s KBS Television reported this morning that the exact amount of money the IMF would provide South Korea would be finalized between Camdessus and Lim.

The bailout package is expected to total about $55 billion, including contributions from other international organizations and bilateral assistance from Japan and the United States. Up to $20 billion of the total is expected to come directly from the IMF.

During Tuesday’s confusion, the Kospi index fell 4.1%, or 16.29 points, to close at 376.87, its lowest level since June 27, 1987. Including today’s early nose dive, the index has fallen about 28% in the last 10 trading days.

The tough action against merchant banks apparently came as a surprise to some investors, who are now worried about the entire financial sector and a ripple effect that could push more manufacturers into bankruptcy too.

The currency, the won, fell by nearly its 10% daily limit to close Tuesday at a record low of 1,235 won to the dollar.

South Korea’s negotiating tactics have been criticized by analysts as failing to reassure foreign investors, but they appear to have been generally well-received by South Korean public opinion as an effort to obtain the least harsh possible terms.

IMF rescue packages come with politically unpalatable conditions that generally bring slower economic growth, increased unemployment and more bankruptcies, but help countries put their financial affairs in order.

While not explicitly linked to the IMF bailout, the Finance Ministry’s action against nine of the country’s weakest merchant banks appeared to have been intended to at least partially fulfill one of the IMF’s demands.

South Korean financial institutions of this type often depend on short-term borrowing for their funding needs, and many became badly overextended after a wave of corporate bankruptcies. They were told their business licenses would be canceled next year if they fail to increase their capital bases through mergers or other means of normalizing their operations, the Finance Ministry announced.

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Chi Jung Nam of The Times’ Seoul bureau and Times staff writer Art Pine contributed to this report.