SEOUL, Jan 30: Seoul markets got a strong bounce on Friday from the deal struck in New York to refinance South Korea's short-term debt, but the spectre of rising unemployment and corporate failures loomed large. Financial markets responded with unrestrained enthusiasm to the deal which allows South Korea's debt-burdened banks to exchange an estimated $24 billion in short-term, non-trade credits for loans maturing in one to three years.However, the good news for the markets was accompanied by an announcement by the finance ministry that 10 ailing merchant banks would be liquidated and warnings that unemployment would mushroom as Korea Inc undergoes an IMF-supervised restructuring.
These developments failed to dampen the stock market, however, with the composite index soaring more than seven per cent in the morning session to 557.25 points in the first day of trading following the three-day Lunar New Year holiday.News of the debt agreement also provided a lift to the won, which opened strong and closed forlunch at 1,575 against the dollar, compared to Monday's close of 1,688.
Benchmark three-year corporate bond yields also reacted positively, with yields falling 220 basis points to 19.00 per cent in late morning trade.
Pricing was the key to the debt deal and turned out to be much more favourable for Seoul than many had expected despite the country's recent brush with default. South Korea's international creditors agreed to accept loans, guaranteed by the Korean government, at the six-month London Inter-bank Offered Rate or LIBOR plus 2.25 per cent for one-year, 2.50 per cent for two-year and 2.75 per cent for three-year credits. Many had believed the rates would be LIBOR plus at least3.0 per cent.
But the liquidation of the merchant banks was but one more sign that the country's problems ran deeper than its mountain of short-term foreign debts.
The merchant banks were among 14 whose operations were suspended in December. The other four remain under suspension until the end of February, pending areview of their "self-rescue" plans, a ministry official said. In what has become routine, the Korea Stock Exchange on Friday suspended trading of two stocks because of rumours they would default or seek court protection.
The country's unemployment rate was expected to top four per cent this year, compared to 2.6 per cent in 1997, a senior official in the National Statistical Office said on Friday. Kang Kyong-il, chief of the survey and statistics division, also said the country's major economic indicators showed economic recovery was unlikely in the near-term.
Unemployment stood at 3.1 per cent in December, the highest level since June 1997, he said.Government officials and aides to president-elect Kim Dae-Jung, who takes office on February 25, have said the jobless rate would rise sharply as the country undergoes a period of painful restructuring. In Washington, US treasury secretary Robert Rubin said the debt agreement reached in New York was constructive but insufficient for Washington to release some$1.7 billion in bilateral aid.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
