S. Koreans, Bankers Meet in New York

South Korean government officials had their first face-to-face meeting with international lenders here Monday on what was described as a three-pronged plan for protecting the Koreans against defaulting on loans at least through March.

Chung In Yong, a former ambassador advising the incoming government of President-elect Kim Dae Jung, heard a range of proposals for managing the country’s crushing short-term debt and raising $10 billion or more in new capital.

“It is very encouraging,” Chung told reporters after a four-hour meeting at the Wall Street headquarters of J.P. Morgan & Co., one of the big New York banks taking a lead role in the restructuring talks.

He said the lenders had presented him with “a menu of options” but he declined to provide details.

Under one proposal presented to Chung, about $20 billion worth of loans to South Korean banks that fall due in the next few months would be swapped for a similar amount of longer-term debt to be backed by the South Korean government, according to a banker familiar with the talks.

After the J.P. Morgan meeting, Chung headed to Washington to meet with officials of the U.S. Treasury and Federal Reserve and the International Monetary Fund. He is expected to return to New York later this week for more talks with private bankers.

The South Korean economy, the world’s 11th largest, has been wracked by a string of corporate and bank failures. While the economy was one of the world’s fastest growing over the last decade, much of the growth was fueled by heavy borrowing by businesses and banks.

Now with the economy slowing and the country’s currency, the won, plunging, it has grown harder for companies and the government to pay back the loans, usually made in dollars.

Representatives of the world’s largest banks and brokerage houses have been meeting in New York for the last two weeks to try to ease the crisis and protect their own interests in the estimated $157 billion that South Korean banks and industrial firms have borrowed from Japanese, European and U.S. banks.

What is emerging from the discussions seems to be a three-step approach, one banker said.

Step one, largely accomplished in a flurry of meetings before New Year’s Day, involved “rolling over” or pushing back the due dates of about $15 billion in loans that came due at the end of December.

Step two--really a part of the rollover process--involves extending $20 billion or more of loans due this month and in February and March. The swap for government-backed loans is one of several ways of accomplishing this goal.

The third step would be to raise a large amount of new investment, possibly through a sale of South Korean government-backed bonds. The size of the bond issue, its maturity date and even whether the government would agree to guarantee it, all are in doubt.

These steps would be in addition to the record, $60-billion financial rescue plan led by the International Monetary Fund and the leading industrialized nations.

Deryck Maughan, co-chairman of Salomon Smith Barney Inc., told Bloomberg News on Monday that he expects a bond sale to be a major part of the final restructuring package.

Maughan, whose investment bank--along with Goldman, Sachs & Co.--is advising the South Korean government on raising capital, also said he believes the worst of South Korea’s crisis is over.

William Rhodes, a vice chairman of Citicorp involved in the talks, led bankers who negotiated debt restructuring pacts for Argentina, Brazil, Mexico, Peru and Uruguay in the 1980s.

J.P. Morgan’s team at the talks included Ernest Stern, who worked for 23 years at the World Bank, bankers said.

In Seoul on Monday, on the first full day of trading in 1998, stocks soared and interest rates fell sharply, although the won slumped. The stock market surged on remarks by U.S. financier George Soros that he was considering a “quite substantial” investment in South Korea.

But the won slumped while currencies of Thailand, Indonesia and the Philippines plunged to all-time lows against the dollar.

The Korean won was trading at 1,791 to the dollar at midday today. The main Korean stock index was off marginally, to 396.01.