3 Years Early, Korea Pays IMF

As the International Monetary Fund announced an $8 billion emergency aid package for Argentina on Wednesday, an aid package was being closed out on the other side of the globe.

South Korea's Ministry of Finance and Economy said Wednesday that it would repay to the fund the last installment of a $6 billion stand-by loan way ahead of schedule. The loan is not required to be paid off until May 2004.

It was less than four years ago, in November 1997, that the country asked the IMF for a $19.5 billion bailout package to rescue its crumbling economy from the battering of the Asian financial crisis.

With the loan fully paid off, Korea will no longer have to seek the IMF's approval for its economic policies. Seoul has held a policy meeting with the Washington-based international organization every three months in return for the bailout.

Seoul repaid $13.5 billion of short-term loans in September 1999, also ahead of schedule, and it has been paying back the $6 billion stand-by loan since January.

At 10:30 a.m. Thursday, Chon Chol-hwan, governor of the Bank of Korea, will sign a document for the repayment of the final $140 million.

Then, an international cooperation division of the central bank will send a telex to the IMF, confirming the transfer of the money into the fund's accounts in five countries and the completion of full repayment of the bailout package.

"The early repayment of IMF loans will help enhance Korea's international credibility and lower the nation's borrowing costs in international financial markets," a ministry official said.

Still, there is little euphoria in Seoul, as the economy is slowing down and the economic restructuring program is stalled.

Experts say that Korea's plunge into financial crisis was caused not simply by a shortage of foreign exchange reserves but also by the structural weakness in its economy. Therefore, they point out, protracted economic overhaul may cause another crisis.

"Although the government has refilled its foreign exchange coffers, other crisis factors are still there in the financial, business, labor and bureaucracy sectors," said Kim Pyung-joo, professor economics at Sogang University. "I am concerned that restructuring will slow down" as a result of the repayment, he added.

Some say that the repayment is far less than a true "graduation" from the IMF's straitjacket, as the sales of such ailing companies as Daewoo Motor Co., Seoul Bank and Korea Life Insurance Co., have not been completed.

The government used the IMF loans to help local financial institutions repay their short-term debts. It has spent 137 trillion won ($106.8 billion) of public funds to recapitalize the shakiest institutions.

Experts say that the government will not have paid off its debts completely until it recovers that money by selling its shares in nationalized financial institutions.

by Song Sang-hoon