FOCUS-S.Korea crisis worsens, govt steps dismissed
SEOUL, Dec 10 (Reuters) - South Korea's financial crisis deepened on Thursday as the government closed more merchant banks,
and the country's battered markets dismissed government stabilisation measures.
For average Koreans, especially those with money in the shut merchant banks, the bitterly cold day was filled with despair.
One older woman standing outside a closed merchant bank in central Seoul ringed by riot police said to anyone who would listen:
''Why won't they give me my money. It's all I have.''
It was unclear when she would be able to withdraw her money, although the government has guaranteed all deposits with financial
institutions.
The Finance Ministry said before markets opened it had suspended the business operations of five more merchant banks until
January 31.
''Five merchant banks were now unable to pay their loans, estimated at a combined one trillion won ($700 million) daily. They were
only disturbing operations of other merchant banks and corporates,'' Finance Minister Lim Chang-yuel told a news conference.
''But we will firmly support the remaining merchant banks by moving the state deposits to them,'' Lim said.
The merchant banks were ordered to submit plans for capital increases or mergers and acquisitions by the end of the year.
Nine other merchant banks were temporarily closed last week, and at that time the Finance Ministry said no more suspensions
were planned.
''The problem is people, especially foreign investors, do not trust the South Korean government,'' said Yi Seung-gook, head of
research at ABN Amro Hoare.
''If South Korea doesn't want to see big corporates like Samsung or Hyundai go under, the government has to regain its
credibility,'' Yi said.
Analysts said confidence in the South Korean government had evaporated despite a record $57 billion rescue package announced
last week by the International Monetary Fund.
The won currency plunged 10 percent -- its daily trading limit -- to 1,565.9, a historic low, from Tuesday's close of 1,460. Dealers
said the currency encountered no resistance on its way down.
''Korea's financial markets are becoming panicky,'' said a local bank foreign exchange dealer. ''Nobody can believe the
government.''
The central Bank of Korea, which has said it will intervene to smooth the market's operations, offered to sell dollars for settlement
today and said it would sell more dollars later for settlement tomorrow.
Stocks soared in early trading after the Finance Ministry said it would lift the aggregate and individual foreign shareholding limits to
50 percent from Thursday instead of on December 15 as earlier announced.
But investors seemed to smell the government's desperation and the early gains in the composite index had disappeared by midday.
''The measures are garbage,'' said a foreign exchange dealer at a domestic bank. ''Do you really believe foreign funds will flow in
under the current circumstances?''
''The government was desperate,'' said Park Sang-wook, a Dongsuh Securities dealer. ''But the top priority must be given to
institutional measures to restore the pipeline of capital flow between banks and corporate borrowers.''
The ministry also said it would open the benchmark three-year corporate bond market from Thursday, a move to lure more foreign
funds into the country.
But the bond market remained paralysed, with no buyers despite yields of 26 percent on three-year corporate bonds.
Meanwhile, about 30 members of the leftist civic group National Alliance for Democracy and the Reunification of Korea rallied in
downtown Seoul, witnesses said.
They demanded that the government renegotiate the IMF rescue package and called for the punishment of President Kim
Young-sam and officials who caused the economic crisis.
The radical leaders also said in a statement at the rally that they would wage a ''full-fledged fight for an IMF renegotiation'' and
slammed the United States and Japan for using the IMF to ''invade the country's economy.''
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