IMF Releases $2 Billion to South Korea

Signaling its approval of economic reforms in South Korea, the International Monetary Fund on Tuesday disbursed an accelerated $2-billion payment to the cash-strapped nation.

The money is the IMF’s share of a $10-billion emergency credit package that it and 13 industrialized nations assembled last week in an effort to ease South Korea’s financial crisis.

The IMF board, meeting in Washington, agreed to release the funding a day after South Korea’s parliament enacted reform legislation that the IMF had been seeking. The measures consolidate financial-services regulation under one agency, improve disclosure and open markets to foreign investment.

Meanwhile on Tuesday, international lenders continued working on a private-sector financing agreement that is meant to ease the crushing burden of excessive short-term borrowing by South Korean banks and industrial firms.

The package is expected to include up to $20 billion in new loans, bonds and debt exchanges that would lengthen the term of the country’s loans, according to a banker familiar with the negotiations.

In meetings in New York on Monday, the lenders--including Citicorp, Chase Manhattan Corp., BankAmerica Corp. and leading Japanese, Canadian and European banks--agreed to extend the due dates of up to $15 billion worth of loans coming due in December.

There had already been a consensus among U.S. banks to extend, or “roll over,” the loans, the banker said, but until this week, Japanese and European banks were resisting.

“Structurally, it’s a big task, and it’s not going to work unless everybody’s on board,” he said.

The banks responded to personal lobbying from U.S. Treasury Secretary Robert Rubin and other officials.

Europe and Japan have more at stake in South Korea. Of the estimated $157 billion in loans by foreign banks to South Korean banks and corporations, about 45% is owed to European banks, 40% to Japanese banks and 15% to U.S. banks, according to Moody’s Investors Service.

Tuesday’s IMF payment brings to $11.1 billion the amount that the fund has disbursed to South Korea this month, an IMF spokesman said.

The organization’s board is scheduled to meet again Jan. 8 to release another $2 billion, provided that it is satisfied with the progress of South Korean reforms, he said.

The money, originally due to have been paid some time next year, is part of a record-breaking $60-billion international rescue package that will include $21 billion from the IMF--the biggest single loan the IMF has ever issued.

Seoul, which needs cash to prevent banks and companies from falling into default, also has received billions of dollars from other international financial institutions, including the World Bank and the Asian Development Bank.

South Korea’s currency, the won, has had a roller-coaster ride in recent days, falling to about 1,640 to the dollar Tuesday, from 1,410 on Monday. Though it remains stronger than the 1,960 reached just before Christmas, the won has lost nearly half its value this year.

South Korea’s stock market is closed for the week.