News Alert from Nightly Business Report via Quote.com
Quote.com News Item #4615567
Headline: The IMF Promises To Bail Out South Korea
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PAUL KAGAS: The International Monetary Fund today promised quick action on a multi-billion dollar aid plan for South Korea. The IMF says an adjustment program could help shore up financial systems throughout southeast Asia but as Darren Gersh reports, South Korea may need far more help than first thought.
DARREN GERSH, NIGHTLY BUSINESS REPORT, CORRESPONDENT: This is a good place to see where the Korean economy went wrong. Betting on ever rising demand for computers, Korean conglomerates ramped up their production of memory chips. Unfortunately, companies throughout southeast Asia did the same thing. Capacity soared and prices of memory chips collapsed, down more than 80 percent in 1996 alone.
ANDREW SZAMOSSZEGI, ECONOMIC STRATEGY INSTITUTE: It's a vicious cycle. Korean companies have invested very heavily in certain product areas. They've exported, they've planned to make a lot of exports. They haven't been able to make those exports and now they can't pay back their loans.
GERSH: Much the same thing happened in automobiles where hopes for big profits in the United States fell flat. Over capacity in steel has driven two manufacturers into bankruptcy. Making matters worse, Korean companies are also highly leveraged, carrying an average debt ratio three times higher than U.S. companies. With the banking system under stress, Korean President Kim Yong-sam had little choice but to seek a quick infusion of cash from the IMF. But longer term, analysts say Korea may be forced to let one of its massive conglomerates go bust.
SZAMOSSZEGI: It's not a pretty sight because in Korea unemployment's about 2.7 percent. Nobody's used to getting laid off because there are actual legal restrictions against laying people off and so this is going to be very, a very wrenching experience. |
