S. Korea to Repay IMF $2.8 Billion This Month in a Show of Strength

South Korea said it will repay $2.8 billion of International Monetary Fund loans that come due this month to send a signal abroad that it is overcoming a foreign exchange crisis a year after being forced to seek a bailout from international lenders.

South Korea said it will pay $1.8 billion on Dec. 18 and an additional $1 billion on Dec. 30, though the IMF said earlier this month the country could roll over the loans for six more months. The loans are part of a record $58.4-billion bailout package arranged last December.

“The repayment reflects replenishment of our foreign exchange reserves and confidence stemming from forecasts that the domestic economy will turn around next year,” a government statement said. “This is significant in the sense that [South Korea] is starting the process of graduating from the IMF.”

Foreign currency reserves at South Korea’s immediate disposal rose to a record $46.5 billion by the end of last year, exceeding the $41 billion recommended by the IMF and bolstering confidence the country can service its $153-billion foreign-currency debt.

“I believe that the international financial community will judge this repayment favorably,” IMF Managing Director Michel Camdessus said.

Of the IMF-arranged package, about $27 billion has been disbursed. There’s more on the way. The IMF board is slated to consider a loan of about $500 million next week, said an IMF spokesman.

But economists at Korea Development Institute, a government think tank, said that only $35 billion of the bailout package--the portion pledged by the IMF, World Bank and the ADB--would probably be offered to South Korea.

The remainder, called the second line of defense, was promised by the Group of 7 and other nations in case South Korea still needed more money to service its debt.

The government said it expects its disposable foreign exchange reserves to be $47 billion by year-end and more than $50 billion next year.