World Bank Gives Approval to $3 Billion Loan for South Korea in Effort To Stave Off Potential
Dec. 24, 1997
World Bank Gives Approval to $3 Billion Loan for South Korea in Effort To Stave Off Potential Loan DefaultsBy CARL HARTMAN
WASHINGTON (AP) _ South Korea, struggling to meet demands of creditors in the next week, has a new $3 billion loan from the World Bank and a promise of more early next year.
``We regard this loan as a symbol of Korea's commitment to structural reforms that in time will help restore the health of a fundamentally sound economy,'' World Bank President James D. Wolfensohn said Tuesday in announcing the latest international financial aid to the Asian nation.
The loan was part of a $57 billion package, including $5 billion from the U.S. government, put together by the International Monetary Fund, the bank's sister organization. Rescue packages in recent months, for Indonesia and Thailand as well as South Korea, have topped $100 billion.
Last week the IMF predicted that the U.S. economy would grow only 2.4 percent next year, not the 3.8 percent predicted earlier, in part because of the Asian financial crisis.
``We are hopeful that we are beginning to see the turnaround today,'' said Danny Leipziger, who heads the bank's office dealing with the regulation of banks and with private enterprise. ``And if everyone acts responsibly, I think the situation can be turned around.''
Leipziger said it would take additional time to work on the additional $7 billion the bank has said it will make available to South Korea if necessary. The question is whether more money would be lent early or later in the first quarter of 1998, he added.
The bank provided the money with unusual speed to stave off loan defaults that could affect commerce worldwide. Normally, major World Bank loans take as long as a year to negotiate.
Aides to President-elect Kim Dae-jung, who will take office in February, had said the immediate problem was $15 billion in short-term loans that fall due before the end of the year, and another billion due in January. On Dec. 11, South Korea still had $10 billion in usable reserves and since then has had a $4 billion loan from the Asian Development Bank.
But an undisclosed portion of the reserves may already have drained away.
Lee Kyung-shik, governor of South Korea's central bank, flew to Tokyo on Tuesday to ask Japanese banks to keep rolling over the $12 billion they have lent to South Korean banks. The Japanese banks have collected $8 billion in recent weeks.
Japan's banking system is suffering strains of its own and there has been fear that further shocks to the world's second largest economy could have repercussions in the United States. Japanese hold billions of dollars worth of U.S. treasury bonds.
``We are focusing on the longer term issues,'' Mark Malloch Brown, the World Bank's vice president for external affairs, told reporters in Washington. ``The way we will judge our effectiveness is by the changes we can bring about with the Korean authorities. ... It is for others to judge themselves by the short-term stabilization effort.''
He said he had not heard Japan mentioned in Tuesday's closed-door discussion of the loan to South Korea by the World Bank's executive board. The board represents the 181 countries that own the bank.
Part of the World Bank's long-term effort is to reform the South Korean private banking system, which has been accused of making irresponsible loans based on political pull.
Malloch Brown said he hoped the bank's loan would help create confidence.
On Tuesday, South Korea's currency, the won, dropped to 1,965 to the dollar, less than half what it was worth two months ago. Private credit agencies have lowered their opinion of the country's bonds to junk-bond status. Such downgrades encourage investors to sell their Korean bonds, making the crisis worse.
``There is a general recognition that we are living in dangerous times,'' Malloch Brown said. ``The international community can't stand idly by and allow any of the situations to escalate further.''