Kim said the government would also try to lower interestrates and stimulate an economy that has been sliding deeper into recession by expanding the government's fiscal deficit.

Last week, the cabinet approved a 22.1-trillion won ($15.89billion) deficit in the national budget for calendar 1999 -- about five per cent of gross domestic product.

Kim, who took office in February this year for a single five-year term, said the purchase of troubled loans from local financial companies would begin in earnest this week.

The government has promised to purchase non-performing loans, which at the end of June officially totalled 29.76 trillion won, as part of the recapitalisation plan. Unofficial estimates put the amount of troubled loans at more than three times that figure.

"Of course,the current situation does not look optimistic, but everything will change with the ongoing restructuring in the financial sector," Kim told a rare news conference.

"Banks will embark on `clean banking'. Loans will be easier to attain from the flexibility in cash flow, thus boosting the smaller businesses," Kim said. "The five top conglomerates are expected to finalise their restructuring plans by the end of this year, emerging stronger than before."

Overhauling the debt-ridden corporate sector and recapitalising a crippled banking system are at the heart of economic reforms instigated by the International Monetary Fund in exchange for a $58.35-billion rescue package.

Kim also said the country's current account was expected to turn to a $37 billion surplus this year from an $8.2 billion deficit last year, when the country plunged into a financial crisis that has triggered a severe recession.

The surplus has so far been achieved largely by a drastic fall in imports amid a collapse in domestic demand.Economists predict imports will start to rise again as companies restock dwindled inventories of raw materials and intermediate goods.

The economy contracted 5.3 per cent between the first halves of 1997 and 1998.

Kim said the country had largely recovered from an external debt problem that engulfed the country amid last year's "Asian contagion" currency crisis.

"There is no `second foreign exchange crisis'," he declared.

His finance minister, Lee Kyu-sung, replying to a question at the news conference, said South Korea's foreign debt maturing by the end of this year would be about $9 billion but the country was expected to bring in about $16 billion of foreign exchange.

He estimated external liabilities due for repayment in calendar 1999 at $36 billion, but with $44 billion coming in through current account surpluses and other means.

Kim said he expected interest rate reductions by the United States would help boost South Korean exports by making the yen stronger and stimulating demand in theUnited States.

South Korean exporters compete fiercely with the Japanese in major markets in automobiles, ships and electronic goods. A stronger yen makes Korean products comparatively cheaper.

Kim also had some advice for Korean workers who have staged a series of wildcat strikes and demonstrations against growing unemployment and mass layoffs at banks and corporations.

"The increase in unemployment is unavoidable," Kim said.

"But consider this: if 20 per cent lose their job, it means the remaining 80 per cent hold on to their jobs. It's a lot better than 100 per cent keeping their jobs and the firm going belly up."