BECAUSE the Central Bank of Korea faced imminent payments of $20 billion it did not have on the short-term debts of insolvent commercial banks, South Korea has agreed to legalize substantial foreign ownership of Korean firms, curtail growth, accept unemployment, hold down inflation, cut the current account deficit and regulate its financial industry, liquidating companies that deserve it.
These are reported to be the strings on the biggest International Monetary Fund (IMF) bailout yet, totaling $57 billion. It follows hard upon the cumulative $58.3 billion committed to Indonesia, Thailand and the Philippines. The IMF puts up only $21 billion, with the World Bank and Asian Development offering another $14 billion. The U.S., Britain, Japan, Germany, France, Italy, Canada and Australia stand by with $22 billion in credits. Up to $5 billion could come from the U.S. Treasury's exchange stabilization fund.
IMF strings attach to all commitments. Besides the urgency of international payments, the agreement was forced by the country's presidential election, Dec. 18. The IMF insisted that all three viable candidates sign on to the agreement, which two did without reservation and a third with distaste and qualifications. The IMF board may want greater assurances from the third candidate, Kim Dae Jung, the veteran democracy campaigner.
Never has the IMF shown its value to the United States as in its efforts at stabilizing an Asia suffering currency devaluations, bank failures and burst real estate bubbles resulting from a boom psychology and too-cozy relations between officialdom and business. The IMF is more effective at demanding reforms in return for credits than the U.S. is in preaching or negotiating them. And while the sums are large, Mexico paid its debts ahead of schedule and South Korea is an even better credit risk. Surely, the IMF deserves the $3.5 billion that the administration promised to make available and Congress held up.
The Asian turmoil is already curtailing the American economy, as the Federal Reserve Board reported Wednesday. Demand in Asia for American high tech products is down while Asian products, thanks to devalued currencies, cost less. This is felt especially on the West Coast and could become more evident here.
Containing the damage is in the interest of all trading nations. Japan, with greater reserves, should deal with its own problems. Thanks to the IMF, Asia may get through the slowdown without convulsing the wider world. This is not a recession, but a failure to sustain unreasonably high expectations. With long overdue reforms bringing freer markets, the world can live with that.
Pub Date: 12/05/97