Mohan, I think too many of us are missing a major event that preceded the current crisis in Korea, and I believe precipitated it to some extent. This is the change in "real name" regulation. Few weeks ago, I believe I saw a number around $70 BB as the total amount of money that left the banks to go into mattresses. These funds used to be in banks under flase names, until suddenly the name of the game changed and in a very short period, all these funds had to be carried under the real name. The Korean being as averse as we are to big brother looking down their pocket, took the money out of the banks creating a major liquidity problem, it was the equivalkent of cutting down the mnoney supply of Koprea by a massibve number (10% possibly? but I do not know). From there on event took on their own path, probably some of this money found its way into dollars and other foreign currencies, thus depleting the reserves needed to support the day to day operation of "corporate Korea", rumors of debt rolloevers (foreign denominated that is) at extremely high interest rate spread, the faith in the Korean currency got shaken and a spiralling devaluation occurred. The problem for Corporate Korea is that the great majority of their debt is Dollar or Yen denominated, while their assets are Won denominated, and thus suddenly books that looked shaky by western standards (but not by then accepted Korean standards) became unacceptable risk. Debt rollover came to a halt, and the only way to stave a catastrophe of much greater proportion was to provide the line of credits to Korea. Is it not starnge that the IMF rescue package almost equal the "name" funds withdrawn?
Zeev |
