I doubt if the Korean problem will be solved in the next few months, though with some luck the crisis attitude will disipate. The Korean problem isn't a currency problem as publisized. It is a solvency problem. Most Korean companies owe a lot of money,( mainly to foreigners,) and it will either have to be paid off, extended, forgiven, or solved via bankruptcy. Repaying foreign loans with a depreciated currency isn't easy. Any solution to the problem will probably involve a combination of the above possibilities and will take a considerable time to work out. I suspect the lenders will wind up on the short end of the stick, and the biggest lenders are the Japanese banks, who are already shakey. Further deflation in Japan is not good for the US either.
The result will be nearly a whole percentage point off the US GNP. This doesn't sound like much until you realise that this is nearly a third of the expected annual growth in GNP. Meanwhile the effect on stocks seems to be hitting the semiconductor group harder than most others. IMF loans will not solve the problem, anymore than more loans would solve the problem of an indidual deeply in debt whose salary just got reduced. Both Japan and Korea need structural changes, but they both have resisted meaningful reform in the past. When a not too disimilar problem faced the US (the S&L crisis) we undertook the painful steps needed , paid the price ,and fixed the problem. |
