SEOUL — With the South Korean currency and stock markets in free fall Friday and investors near panic, a leading presidential candidate in next week's election was forced to backtrack and pledge support for a $60-billion international bailout of the nation's economy.
The reversal of position by Kim Dae Jung, who has criticized severe measures demanded of South Korea by the International Monetary Fund as the price for the bailout, underscored the desperate situation confronting the nation's economy at week's end.
The government began pumping out its dwindling dollars to prop up the won and announced a package of emergency loans and financial reforms aimed at stemming a full-blown panic.
However, the Bank of Korea's pledge of $6.45 billion in emergency loans for teetering banks and securities firms did not stem another massive sell-off in the stock market, which nose dived more than 7% (6.69 points)to close at 350.68, the lowest level since April 1987.
After the won plunged by its 10% daily trading limit for the fourth straight day Friday, the central bank intervened in the currency market for the first time in weeks, selling dollars for won. Market players estimated the bank spent $200 million to drive the won back up to close at 1,710.0 to the dollar, up from Thursday's close at 1,719.8.
But analysts and business people doubted whether the central bank could muster the foreign currency reserves for a sustained defense of the won, which has lost more than half its value this year.
"It's a panic," declared Lee Hahn Koo, president of the Daewoo Economic Research Institute, blaming government mismanagement and the political power vacuum created by the presidential election that will be held on Thursday for exacerbating an already serious financial crisis.
An aide to lame-duck President Kim Young Sam said Wednesday he doubted that the turmoil could be quelled before Thursday's election.
Political paralysis with the election nearing has been blamed for South Korea's inability to persuade investors that it is taking strong steps to reform the economy. The politics were illustrated by candidate Kim's attacks on some terms of the IMF bailout. His campaign ran newspaper ads demanding renegotiation of the deal, which spooked investors.
On Friday, bowing to requests by IMF managing director Michel Camdessus and philanthropist George Soros, Kim released a letter to Camdessus reiterating his support for the bailout.
"I am not seeking renegotiation but continuous discussion," he told a reporter. "We are not seeking any destructive renegotiation."
The other leading presidential candidate, former Supreme Court Judge Lee Hoi Chang, has agreed to implement the IMF agreement.
South Korea last week accepted a $60-billion global bailout package, including $21 billion from the International Monetary Fund (IMF), $10 billion from the World Bank, $4 billion from the Asian Development Bank and the remainder in bilateral credits from the United States, Japan and other nations.
But an IMF report leaked Wednesday that estimated South Korea's short-term foreign debt is actually $100 billion--not the roughly $65 billion the finance ministry previous reported--has further unnerved investors.
"The problem is that foreign lenders are not willing to give Korea a due credit line," said Lim Yong Kyu, a director of the Commercial Bank of Korea, who said that despite the bailout package, overseas lenders are refusing to roll over debts that mature. "I believe it's part of the U.S. intention to 'tame' Korea via the IMF," Lim said.
Daewoo Research's Lee said the problem is short-term liquidity, not the total size of the bailout. But he predicted that the markets will not be appeased unless the government secures pledges of at least $20 billion in loans in December. However, Lee estimated available funds for the month at only $14 billion to $15 billion--though unconfirmed South Korean press reports say the IMF is releasing only $9 billion this month.
A day after U.S. Treasury Secretary Robert E. Rubin rebuffed an indirect request for faster dispersal of the $60-billion bailout, the South Korean government was reportedly preparing a charm offensive to try to restore rock-bottom foreign confidence.
President Kim is considering dispatching envoys to the United States, Japan and other countries to stress South Korea's commitment to implementing the structural reforms demanded by international lenders, Korean media reported. And the government is begging its citizens to muzzle the xenophobic rhetoric that it blames for antagonizing the foreign lenders and investors whose support South Korea desperately needs.
Ministry of Finance and Economy officials denied Friday that Korea is in any danger of defaulting on its loans, and said foreign currency reserves stood at $20.6 billion, of which $10 billion could be tapped immediately.
However, the government announced several other drastic reforms aimed at boosting Korea's supply of dollars. These include allowing private companies to borrow directly from overseas lenders and issue foreign-currency bonds from Dec. 15 until the end of 1998, and scrapping a tax requirement that individuals report sales of more than $20,000 in foreign currency.
In addition, 14 merchant banks whose operations have been suspended have been ordered to begin repaying their depositors starting Jan. 3, the state-run KBS television reported. Furious and tearful depositors have been lining up in freezing weather outside the failed banks, as well as two brokerages that have gone bust in the past week--but have been unable to withdraw their savings.
Chi Jung Nam in The Times' Seoul bureau contributed to this report.