INTERVIEW-Despite pain of Asia crisis, S.Korea better off
21 Jun 2007 06:27:12 GMT Source: Reuters
By Jonathan Thatcher SEOUL, June 21 (Reuters) - South Koreans should have been spared some of the misery, but the man who signed up for the biggest bail-out of the Asian financial crisis says he has never doubted it was the right thing to do. Anyway, says South Korea's finance minister at the time, Lim Chang-yuel, he didn't have a choice. "The Korean economy was almost bankrupt," he told Reuters in an interview. "Foreign reserves were almost running out. I didn't have any option." He spoke ahead of the 10th anniversary of the start of the crisis, triggered when massive capital flight toppled an overvalued Thai baht in July 1997. It ripped through Asia, bringing economies to the edge of collapse and pushing millions into abject poverty. The won <KRW=> lost half its value when Seoul in November 1997 reversed policy and allowed the currency to float. At the time, some key macroeconomic indicators were in fact sound, Lim said. But those partly linked to profligate borrowing were not. The country's balance of payments deficit had ballooned to more than $20 billion. Close to half of its foreign debt was short-term. Short-term debt has been creeping back to that level in recent months. But the big difference is that while in 1997 short-term debt was the equivalent of more than 300 percent of foreign reserves, it is now about half. In addition, South Korea now has the world's fifth-largest foreign reserves at around $250 billion, compared with just $4 billion left in late October 1997. NOSEDIVE Lim shifted to the finance ministry portfolio on Nov. 19, 1997, just a few months into his job as trade minister and as the economy was nosediving. The next day, he met top U.S. Treasury and International Monetary Fund officials visiting Seoul. The message was clear -- Washington would only help Seoul if it agreed to an IMF bail-out. A deal was agreed within weeks and South Korea ended up with a package of more than $58 billion -- the biggest ever seen. "I have never experienced that sort of stress," said Lim, recalling overnight stays at his ministry for those who had to deal with IMF officials in Washington, a 14-hour time zone away. In what is now the world's 12th largest economy, there is a widespread view that South Korea is probably better off for the crisis, which forced it to change some of the murkier practices that accompanied its economic rise. The family-run and opaque business conglomerates that had been praised for helping raise South Korea's economy from the ashes of the 1950-53 Korean War ended up taking much of the blame and attempts were made to dismantle them. One of the biggest, the Daewoo Group, eventually collapsed in the wake of the crisis with debts of some $80 billion. GETTING MORE SOPHISTICATED Now, officials and analysts say, monitoring is far more sophisticated, the system more open and conglomerates less able to have it their own way. Corporate watchdogs have sharper teeth and in recent years have shown they are willing to use them. "Without (the crisis), Korea would not have achieved reforms such as improving corporate governance, especially in the big business groups, improving the corporate financial structure and lots of financial market reform," said a high-ranking official in the finance ministry. "So I agree with Michel Camdessus who described the IMF bail-out programme as a blessing in disguise," he said, referring to the head of the IMF during the crisis. That was a less common view at the time, said Lim, with the public uncomfortable at the prospect of ceding control of the economy to outsiders. Earlier that year, Lim says, an author of a report by a government research institute was reprimanded for warning South Korea risked a currency crisis similar to one in Mexico in 1994 that almost unseated some major Latin American economies. The report was withdrawn. The crisis, when Mexico devalued its currency, was also cited by a chief economic adviser to the Korean president when he refused permission for an over-valued won to float freely earlier in 1997, Lim said. But even with the IMF deal, South Korea careened close to default several times. It was only when commercial banks finally agreed to restructure short-term into long-term debt that South Korea was able to pull out of the abyss to become again a favoured acolyte of the IMF which this month said: "The Korean economy is in good shape." Lim and others especially questioned some of the IMF prescriptions, such as punitively high interest rates, which they blame for killing off some viable companies. "I think the IMF should be flexible," Lim said, warning against a uniform approach which simply does not fit every economy when it is in trouble. But overall, he said: "The IMF did a great job." (Ten years on, impact of Asian crisis lingers [ID:nPEK213623]) (Additional reporting by Lee Suwan and Lee Shinhyung)
