SEOUL, February 6: South Korea is no longer facing a liquidity crisis after reaching an agreement with global bankers on rolling over $24 billion in short-term debt, IMF Asia-Pacific Department director Hubert Neiss said on Friday.Asked in an interview if Seoul still faced a short-term debt crisis, Neiss said: "I don't think so because the real volatile part of the debt, the debt of the financial institutions, is covered. Korea can now go to the market."
South Korea's global creditors last month agreed to convert short-term debt held by Korean financial institutions to one-to-three year maturities carrying an average interest rate of 8.1 per cent -- a far better rate than analysts had expected.
"The debt agreement, I think, was a great success for Korea," Neiss said.Korea's ticking time bomb of short-term debt reached a climax at the end of last year. "The country was literally on the brink of bankruptcy," Neiss said.
The New York debt agreement was a success because "it's fair to everybody, andtherefore it will be durable," Neiss said.
The deal paves the way for disbursement of some $8 billion in aid from donor countries once the agreement in finalised at the end of March.It also allows Seoul "to go to the market and borrow new money at acceptable rates".
Neiss was in Seoul this week to work out revised macro-economic targets with the government under the first quarterly review of the International Monetary Fund's nearly $60-billion bailout programme for South Korea agreed in December.
The finance ministry has asked the IMF for lower targeted interest rates. Under the initial accord agreed in December, overnight call rates were pegged at 30 per cent in an effort to stabilise the foreign exchange market.
Neiss said interest rates have come down to the mid-twenties and would be tied to stability in the foreign exchange rate.
"Basically, movements in interest rates will be linked to movements in the foreign exchange market," he said.
Neiss said he expected the won to strengthen by year'send. He declined to confirm the IMF had targeted a rate of 1500 won to the dollar in the first half and 1300 by the year's end. The won was trading around the 1575 level at midday on Friday.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
