South Korea Government

The wrong Korea seems to be collapsing. This week, it is not North Korea's isolated Communist regime, beset by famine, which seems on the edge. Rather, it is South Korea's capitalist system, drowning in a sea of bad debt. In Seoul, this sudden reversal of roles inspires gallows humor. All the cliched phrases and ideas that have been so often applied to North Korea's failures are suddenly being directed at the South. Can the world work out a "soft landing" for South Korea?

Emboldened by signs that its currency may have hit bottom, South Korea scrapped controls on it starting today, allowing the much-weakened won to trade freely. The unexpected action and other market-liberalization moves, including an invitation to foreign investors to buy control of one of the nation's major banks, cheered investors and sent both the won and the stock market soaring in early trading today. At midday today, the benchmark Korean stock index was up 15.47 points, or 4%, to 401.

Angry South Koreans will be glued to their television sets tonight as they try to decide which of three presidential candidates is most likely to save their disintegrating economy from meltdown. With the election Thursday considered too close to call, more than half of all South Koreans are expected to tune in to the third and final candidate debate, which comes during South Korea's worst postwar financial crisis.

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.

Investors fled South Korean markets in growing numbers early today amid fear that the $57-billion bailout by the International Monetary Fund won't be enough to prevent widespread defaults on loans by banks and industrial firms.

Struggling to shore up its ailing economy, South Korea suspended five more shaky finance companies and announced measures to induce foreign investment. "The government expects that the measures will help ease spreading concern in the financial market," Finance Minister Lim Chang Yuel said. But analysts said the measures, expected for days, may fall short of expectations.

As markets here continued to tumble, negotiators for South Korea and the International Monetary Fund worked overnight Monday to hammer out details of the terms for a massive financial bailout package for the country's troubled economy. The rescue plan will require Seoul to liquidate overextended financial companies, known here as merchant banks, and sharply lower its economic growth target for next year, state-owned television reported today.

For advertising executive Lee Cho Keun, financially troubled South Korea's decision last week to seek an International Monetary Fund bailout of tens of billions of dollars was a humiliating blow. "Korea's pride is hurt," said Lee, 44. "We've been saying that Korea is the world's 11th-largest economy, and now this! We are angry that the politicians couldn't deal with this better. We feel that what could have been stopped with a shovel now must be stopped with a bulldozer."

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.

In what could be the most far-reaching devaluation of an Asian currency to date, the South Korean won tumbled past the psychological milestone of 1,000 to the dollar Monday after the government retreated from its defense of the currency.