S. Korea Seeks $60-Billion IMF Bailout

Crisis-ridden South Korea decided today to seek an International Monetary Fund bailout package of about $60 billion, the largest such rescue in history.

“We have decided to request IMF assistance,” Yoon Jeung Hyun, an assistant deputy finance minister, told reporters. “We are discussing the size and conditions of such loans.”

President Kim Young Sam is expected to explain the decision in a national address Saturday.

The financial crisis here is rooted in a vicious cycle of corporate bankruptcies and rising bad loans at shaky financial institutions, a loss of foreign investors’ confidence, capital flight, a plunging currency and falling stock prices.

News of a government decision to accept an IMF bailout halted a weeklong collapse in the won’s value, with it rebounding 4.3% this morning to 1,090 won to the dollar. On Thursday, the won had fallen by the legal daily limit of 10%, and many observers had expected it to weaken to 1,300 won.

State-owned KBS Television reported that “the government has decided to request emergency assistance funds from the IMF and is consulting with the visiting deputy head of the IMF on the details.”

IMF Deputy Managing Director Stanley Fischer flew to Seoul on Thursday to discuss the financial crisis, as did Timothy F. Geithner, the U.S. assistant treasury secretary for international affairs, and Ted Truman, staff director of the U.S. Federal Reserve’s international finance division. No details were immediately available about their meetings.

Yoon said Seoul is “talking with the IMF about details attached to the IMF emergency loans.”

“We have heard that going to the IMF is the best solution,” he said.

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KBS Television said the total bailout package would be $60 billion, including funds from the IMF, the World Bank and key members of the IMF, especially Japan and the United States. Other reports have said the total could run as high as $80 billion.

Finance Minister Lim Chang Ryul, asked by state-owned KBS Radio what the size of the IMF package would be, replied: “When the time comes, I will reveal the size of the financing and everything to the people.”

As the world’s 11th-largest economy, South Korea is the most developed country ever to need an IMF bailout.

The bailout seems almost certain to exceed the $50-billion international rescue for Mexico in 1995 and to dwarf this year’s IMF-led bailouts of $17.2 billion for Thailand and $33 billion for Indonesia.

The devaluation of Thailand’s currency in July set off a spreading currency crisis that first engulfed Southeast Asia and then helped trigger South Korea’s crisis.

Fears had grown in recent days that if Seoul’s economic problems were left unattended, they could further depress economic activity in neighboring Japan, possibly triggering additional stock market volatility and financial problems that could, in turn, reverberate to other global markets, including Wall Street.

IMF rescues come with tough financial reform conditions attached, and Seoul had resisted a bailout for as long as possible, both out of a sense of national pride and a desire to avoid IMF-mandated changes in its economic policies.

In his national address Saturday, Kim will “seek cooperation from the people to overcome the current economic crisis, and the people’s understanding of the government’s decision to request IMF assistance,” KBS Television reported.

Finance Minister Lim had sought desperately Thursday to avoid the humiliation of an IMF bailout, proposing instead a cooperative deal among foreign central banks--especially Japan’s--to moderate South Korea’s fiscal crisis.

Seoul had been hoping to avoid such a rescue by taking reform measures on its own and by winning direct bilateral assistance from Japan and other countries. Both Tokyo and Washington, however, have repeatedly stressed that any bailout would come only in the context of an IMF package.

Speaking at a Thursday news conference before the IMF announcement, Lim had insisted that the stance taken by Tokyo and Washington did not rule out the possibility of direct bilateral aid. He had implied this might involve intervention in currency markets by the region’s central banks, plus Bank of Japan backing for short-term loans to South Korea.

Lim had noted that Japan had used this approach to address its own economic problems and added: “I believe the Korean government could also pursue a similar system.”

Lim had said Thursday, in the first such public admission from a South Korean finance official, that “Japanese financial institutions are calling back loans instead of rolling them over.”

South Korea is asking Japanese banks to renew those loans, he said, and the central banks of Korea and Japan could also set up a “back-up system” in case Japanese banks refuse to roll them over.

“Japanese help is vital,” Lim had said.

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South Korea has about $67 billion of foreign debt due in the next 12 months, including about $20 billion that matures in December. Much of that is owed to Japanese banks.

Some of the ideas outlined by Lim on Thursday could still be included in an IMF-led bailout.

Before the current crisis erupted, with foreign investors losing faith in the South Korean currency and the country’s economic stability, nearly all of that debt would have been routinely rolled over into new loans.

The need to avoid defaults on this foreign debt lies at the core of the immediate crisis facing Seoul.

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Chi Jung Nam of The Times’ Seoul Bureau contributed to this report.