South Korean, Japanese Stock Markets Plunge

SEOUL — Markets in South Korea and Japan plunged today as the region’s economic crisis deepened and negotiators from the International Monetary Fund began talks here on a massive bailout of the nation’s economy.

In the second consecutive nose dive since South Korea’s painful decision Friday to seek a rescue, the main South Korean stock index plummeted an additional 5.9%, to 424.20 at today’s opening, its lowest level in at least a decade. The drop came on the heels of Monday’s record sell-off of 7.2%. By late afternoon today, the market was off 2.8%.

Though the financial community welcomed the prospective bailout, analysts said Korean stocks suffered from the expectation that the rescue will damage many companies.

Meanwhile, the shutdown of Japan’s fourth-largest brokerage, Yamaichi Securities Co., registered on the Nikkei-225 index after Monday’s holiday with a 4.9% plunge by midday today, to 15,910.39.

South Korea’s economic woes began to generate political fallout as the nation’s second-biggest labor union, railing against foreign interference in the economy, threatened a January strike against the expected tough IMF demands.

“We won’t compromise on any conditions of IMF which will either freeze or cut our wages . . . [or] make it easier for companies to cut jobs,” declared Chung Song Hee, spokesman for the 530,000-member Korea Confederation of Trade Unions.

In a speech to the nation Saturday, President Kim Young Sam had warned that the reforms needed to put the economy back in shape were “bound to trigger bone-aching pain for all the main economic players.”

That message seemed to have sunk in with investors on Monday, with the plunge in stock values reflecting worries that the economy may continue to slow and that the conditions to be attached to the expected IMF bailout package will add to the difficulties of many firms.

The IMF rescue package should help check the fall in value of South Korea’s currency, and help with repayment of debt owed to foreign lenders. But it is also likely to boost the number of bankruptcies and slow down economic growth, analysts say.

IMF loans usually come with strict conditions that include cleaning up debt-ridden companies and cutting government spending. In South Korea’s case, the IMF is likely to require far tougher measures than already planned to merge or shut down overextended banks and finance companies.

Also expected, according to Korean media reports, are IMF calls for privatization of state-invested firms, restructuring in some major industries such as autos, an opening up of consumer-goods markets to wider competition, and more flexibility in the labor market, which would make layoffs easier in a country unaccustomed to them.

All of these things, combined with a slowing economy, could cut profits at many firms, even if they are beneficial for South Korea in the long run.

Finance Minister Lim Chang Ryul said Friday that the size of the bailout would be determined in negotiations with the IMF, but that South Korea needed at least an initial $20 billion. Analysts generally expect the total package to be more than twice that amount.

An initial IMF delegation met with Vice Finance Minister Kang Man Soo on Monday to start evaluating Seoul’s request for aid. This team’s task is to examine South Korea’s financial sector, while a second IMF delegation due to arrive today will examine the country’s overall economic situation.

Formal negotiations with the IMF are due to start Wednesday.

South Korea, the world’s 11th-largest economy, is burdened with about $110 billion in foreign debt, about two-thirds of that due within the next 12 months. An IMF package is generally seen as the only way to head off large-scale defaults on those debts.

Domestic banks are estimated to hold about $60 billion in bad loans. The government has already announced a plan to force weak financial institutions to go bankrupt or merge. Economic growth, estimated at about 6% this year, is likely to slow to less than half that pace next year, many analysts predict.

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

* APEC APPROVAL: Asia-Pacific leaders are expected to back monetary-stabilization plan. D3