Seoul, Mar 13: South Korea's recovery prospects got a double boost on Friday as global creditors agreed to extend maturities on $21.37 billion in short-term debt held by Korean banks and foreign exchange reserves climbed.Friday was the deadline for international banks to accept an offer by the Seoul government to exchange about $24 billion in short-term debts of Korean banks for longer-term obligations guaranteed by the government.
"We are very pleased with the over whelmingly favourable response we have received to date to the exchange offer," said finance minister Lee Kyu-sung in a joint statement with Citibank vice chairman William Rhodes.
"Some international creditor banks are still in the process of tendering their eligible debt," Lee said.
Rhodes, senior coordinator of the bank negotiations, said, "I am gratified by the banks' response, which is a vote of confidence in Korea and the government's economic reform programme."
The response would allow the loan agreement to be signed formallybefore the end of March and the first exchange to be on April 8, as scheduled, Rhodes said.
Under the agreement, creditors would exchange short-term debts of Korean banks for new one, two and three years loans guaranteed by the government.
Separately, Korea's central bank said usable foreign exchange reserves, excluding deposits in overseas branches, stood at $18.54 billion at the end of February, up from $12.36 billion a month earlier.
Total foreign exchange holdings rose to $26.72 billion at end-February from $23.52 billion at the end of January.
The central bank said foreign exchange holdings continued to rise in line with money flows from the International Monetary Fund's record $58.35 billion bail-out package.
About $21.09 billion has already been dished out from the IMF package, including $15.15 billion from the IMF, $3.0 billion from the Asian Development Bank and $2.94 billion from the World Bank.
Analysts welcomed the day's positive news but said the country's economic crisis was far fromover.
"It's too early to say Korea has turned the corner," said Lee Hahn-koo, president of Daewoo Economic Research Institute. South Korea needs to be able to secure new funding, Lee said. "The next stage for us should be borrowing more money from Financial institutions to accommodate our restructuring and reform plans," he said. "We have a long way to go." Foreign exchange reserves rose largely because of a continuing surplus in the balance of payments and inflows of foreign funds for stock investments, he said. "The surplus resulted from a sharp reduction in imports rather than increased exports and the stock funds are hot money that could turn around at any time," he said.
"Now is the time to carry out reform."
Lee Jeong-ja, head of research at HSBC James Capel, said the amount of debts rolled over was much higher than had been expected.
"That's a very good sign," she said. "Now South Korea is in a very good position to carry out significant restructuring of the banking sector, which would help thecountry win back the confidence of foreign investors."Corporate debt wasn'T part of the debt rollover agreement with global bankers and has emerged as the next big worry for Seoul.
South Korea and the IMF estimate dollar-denominated Korean corporate debt stood at $53.2 billion at end-1997, with $20.8 billion owed to Korean institutions and the remaining $32.4 billion obligated to foreign Financial institutions.
