Blow to Seoul survival plan as won plunges
South Korea's package of financial reforms - introduced in a last-ditch effort to avoid seeking a bailout from the International Monetary Fund - were being snubbed this morning as the won plunged to a new low against the dollar. It traded at 1,130.00 to the dollar from Wednesday's 1,035.80, dealers said.
The government measures, which include opening the bond market to foreign investors, easing exchange rate limits and promoting bank mergers, were announced by Mr Lim Chang-yuel just hours after he was appointed as Finance Minister, following the sacking of his predecessor.
Mr Lim also said Seoul would seek financial support from the US and Japanese governments as an alternative to an IMF rescue package. He expressed hope that the stabilisation package would persuade foreign banks to roll over short-term loans.
Foreign bank lending accounts for 60 per cent of Korea's foreign debt of $110 billion (£73 billion). The country's foreign currency reserves were $30.5 billion last month.
"Our stabilisation measures appear to have come a little late, but the steps will be quite helpful in restoring our financial credibility," Mr Lim said.
Most analysts, however, expect the measures will only delay a Korean request for IMF assistance until after the nation's presidential election on December 18th.
The Korean developments hit currencies across Asia, souring the mood in regional share markets. The Singapore dollar fell to a 43month low, the Taiwan dollar slumped more than 3 per cent, and the offshore Thai baht fell more than 2 per cent.
Mr Lim conceded Korea might be forced to go to the IMF, although he expressed confidence that co-operation with the US and Japan could solve the problem. "Helping out Korea will be the right thing to do even for their own national interest," he said - since the problems in the world's 11th largest economy could spread to them.
But Mr Lawrence Summers, the Deputy US Treasury secretary, said the US generally did not give support to troubled economies other than in the context of IMF support.
"There is no question South Korea faces serious financial strains," Mr Summers said. "What will be crucial . . . is to address those strains in as effective and decisive a way as possible."