Re: Samsung/Intel partnership. I'm not sure what you're suggesting. Do you mean that Samsung will partially bankroll the future fabs? If so, I was under the impression that Samsung is having some difficulty raising capital. Last Friday, I caught a report that they were having difficulties raising the money for a new DRAM fab in China. There is also the question of IMF restrictions on Korea, and its effect on the Korean conglomerates. The following is an article from 11/25 from the San Jose Mercury News, discussing the IMF and S. Korea. This is the link (it may require registration), sjmercury.com, the article follows. My apologies if this has been previously posted.
South Korean
market
plunges
IMF austerity cuts worry
investors
Published: Nov. 25, 1997
BY MICHAEL ZIELENZIGER
Mercury News Tokyo Bureau
SEOUL -- The promise of a multibillion dollar bailout for
South Korea's swooning economy gave little solace Monday
to investors, who bolted for the exits and plunged the Seoul
stock market to a 10-year low.
In a day marked by sometimes hysterical trading, the Seoul
stock exchange's composite index fell more than 7 percent
Monday. Tuesday, it was down another 6 percent at one point,
then recovered somewhat to close about 2.5 percent lower on
the day. Investors worried about the austere terms the
International Monetary Fund will impose for lending at least
$20 billion -- and perhaps more than $60 billion -- to keep the
world's 11th-largest economy from going bust. Some analysts
said the total could hit $100 billion.
''Investors went on a panic dumping spree,'' said Park
Byung-moon, head of research at LG Securities.
By the day's end, the Korean currency, the won, had fallen to
new lows, and the interest rates on benchmark three-year
bonds rose to 16.05 percent, the highest since 1992.
''You'd be crazy if you buy into this market,'' said Richard
Samuelson, executive director of SBC Warburg Dillon Read
in Seoul. ''This is just the beginning. Very few Koreans have
a clue as to how bad this is going to get.''
Almost certainly, the IMF will demand less government
spending, higher interests rates, liquidation of failing banks
and a broad deregulation of financial markets as it tries to get
a wobbly South Korea back on its feet. Those reforms are
likely to trigger massive layoffs and slowing growth, events
not normally associated with fast-growing South Korea. These
prospects were enough to send Korean stockholders fleeing
for the sidelines while foreign investors -- many of them
mutual-fund and pension managers -- continued to sell off
their Korean holdings.
The reforms, if they take hold, would also break up a tightly
controlled economy in South Korea where giant
conglomerates, known as chaebols, have found ready access
to government-backed loans to expand into a huge range of
industrial sectors including shipbuilding, electronics and car
manufacturing even though profits in these businesses have
often proved elusive. Because so much money has been
loaned to these family-run conglomerates that employ
hundreds of thousands of Koreans, banks have refused to
extend credit to small- and medium-size businesses.
Intrest rates rising
Interest rates were being pushed up, analysts said, to stop
corporate customers from taking out new loans and to protect
the won from an even steeper devaluation. But in a country
where most top firms hold far more debt than equity, such high
interest rates will continue to punish Korean conglomerates
who have been relentlessly borrowing funds for a binge of
construction of steel mills, semiconductor fabricators,
petrochemical plants and car factories.
There were immediate signs that the borrowing binge was
ending. The giant Samsung group signaled that the financial
turmoil would force it to curtail its investment in
semiconductor production next year. A company official told
the state-run Yonhap news service that Samsung would cut by
30 percent its investment in semiconductor plants, to a total of
$840 million. It's too early to say whether these cutbacks will
slow Korean moves away from low-priced memory chips and
into more advanced designs that would command higher
prices.
Like other giant Korean electronics firms, Samsung has been
hurt by the glut of memory chips, which has cut prices for 16
MB and 64 MB DRAM chips even as the firms have brought
more foundries into production. L-G, the former
Lucky-Goldstar conglomerate, also said it would revise
downward its investment plans, but even more pain is
expected, as the raft of bad loans is expected to force the
shutdown of some Korean banks.
A report issued Monday by Morgan Stanley estimated that the
total of non-performing loans at Korean banks totals $45
billion, or 12 percent of the nation's output of goods and
services.
Bank restructuring needed
Lim Chang-yuel, the minister of finance and economics,
warned that ''drastic restructuring'' of the banks would be
needed.
The initial conversations between the IMF and Korean
officials suggested long and difficult negotiations would be
needed before the details of a rescue package are announced.
It is believed that the IMF wants to impose strict economic
targets on inflation, force more transparency in the financial
sector, demand drastic restructuring of the nation's automotive
and steel industries and open the economy to more foreign
competition.
Korean officials maintain, however, that the nation's problems
are only short term and can be solved with cash, not a trip to
the economic woodshed. Seoul does not want to lose control
of its economy to outside bankers.
''Korea's current situation requires a simple infusion of
liquidity, rather than policy intervention,'' Lim said Monday.
Samuelson said the government faces a ''moral dilemma'' as it
tries to decide whether to allow weak banks to fail or to prop
them up with more loans as they have done for years. ''How
do you sweep away large institutions that have been big
(political) campaign contributors for so many years?'' he
asked.
The government and private sector were also starting to cut
spending of foreign currency and were encouraging Koreans
to vacation at home.
The Citizens' Movement Center for Anti Over-Consumption
held a rally in a downtown park Monday, calling on Koreans
not to spend foreign currency or to travel overseas. In
addition, the Ministry of Finance and Economics said it would
scrutinize the credit card bills of Koreans who charge more
than $5,000 while traveling abroad. Violators could have
their credit card suspended for a month, the ministry warned.
In the streets, Koreans were stunned and a bit shamed by the
nation's economic downfall.
''We are so unbalanced, and unstable,'' complained Park
Kyung Joo, a U.S.-trained designer and artist. ''We go from
very good to very bad so quickly. Frankly, it's little bit scary.''
''I'm ashamed for my country,'' said Chung Byu-jae, a young
banker. ''When I think about what's gone wrong, I get very
angry.''
One Korean banker said the stark realities of South Korea's
problem would forge national unity.
''Under crisis we are very good at forging consensus,'' he
said. ''We Koreans sometimes need to have a tragedy before
we put our minds to fixing the problem.'' |
