South Korea Reshuffles Cabinet in Finance Crisis
SEOUL — A plunging currency and a failure by Parliament to enact a financial reform package triggered shake-ups in South Korea's leadership today as the lame-duck government scrambled to put together a fresh set of economic bailout steps.
But speculation mounted that South Korea, the world's 11th-largest economy, would need to turn to the International Monetary Fund for help in stabilizing its currency and put its financial house in order. Any such bailout could rival Mexico's $50-billion rescue of 1995 as the biggest ever.
The South Korean currency, the won, tumbled by its 2.25% daily limit for a third straight day in early trading. "The government probably won't be able to sustain more than a week before if turns to the IMF," said an official at the government-owned Korea Institute of Finance, who asked not to be named. "It's their only option to get out of this mess."
Some Korean media reported that Seoul was seeking a direct loan from Japan in the range of $20 billion to $30 billion and that without such a loan it would need to seek an even bigger package from the IMF. Statements in recent weeks by Japanese officials indicate it would be highly unlikely for Japan to make such a loan outside the context of a broader IMF rescue.
The government's new economic package was expected to focus on the bad loan problems plaguing the nation's troubled banking system, and at least indirectly help shore up the country's staggering currency and stock values. It was expected to be announced today, but a new political shuffle delayed action until at least Thursday.
South Korea dismissed Finance Minister Kang Kyong Shik, replacing him with Trade Minister Lim Chang Ryul, a government official said. Lim is a former deputy finance minister. The move was seen as clearing the way for new steps to address the deepening financial crisis.
The government apparently plans to boost government assistance aimed at encouraging mergers that would eliminate some of the weaker financial institutions. It announced a $3.5-billion fund for this purpose in August, and this week's expected package may boost that figure dramatically.
Problem loans at South Korea's private financial institutions, including regular banks and finance companies, are estimated at up to $60 billion.
