Stich- the following paragraph is from the "International Trader" column in this week's issue of Barron's. Context: quarterly review of international markets. Probably not new to you:
Not surprisingly, 14 of the 20 biggest losers for the quarter were Malaysian companies, among them publisher New Straits Times Press, down 73%; engineering and construction equipment supplier Time Engineering, minus 69.8%; international air carrier Malaysian Airline System, off 68.1%, and investment holding company Mycom, down 67.1%. Norwegian computer components maker Tandberg was the second-biggest loser, with a 69.9% share-price drop during the three-month period.
End of quote
The same article has some very pessimistic comments about Korea- they follow:
Unfortunately, the same can't be said for South Korea, where foreign analysts in Seoul report things are deteriorating rapidly.
The economy, they note, is saddled with a mountain of domestic debt estimated at around $450 billion, and is shrinking. Output declined at a 3.8% annual rate in the first quarter, the first such quarterly contraction since 1980, and will probably shrink by 5%-6% this year. Bankruptcies are rising rapidly, averaging more than 20,000 a month, and will continue to escalate, especially if companies get serious about restructuring. And while the $58.5 billion bailout led by the International Monetary Fund has helped some, it's not nearly enough to fix the problems.
"Corporate Korea is essentially bankrupt," declares Stephen E. Marvin, head of research at Jardine Fleming's Seoul office. "And we are headed toward a full-blown banking crisis here because we have $550 billion in corporate debt that costs $6 billion a month to service at a time when corporate Korea can't possibly generate anywhere close to that amount of cash flow," he adds.
"At the same time," Marvin continues, "we have the Ministry of Finance and Economy continuing to rape the banks in a futile attempt to keep sick and dying conglomerates temporarily alive." Those actions include four emergency fundings amounting to $600 million to the Dong Ah group and so-called "voluntary decisions" (i.e., government-mandated directives) by merchant banks not to call loans from the defunct Keo Pyung group.
Harsh Words
"The looting of the financial system by the government is just escalating daily," he says. Marvin has harsh words for the IMF as well. "The IMF people continue to amaze me with the breadth and depth of their total ignorance regarding Korea," he says. "They haven't a clue about what's going on here, which is reflected in their policy formulations and the ridiculous statements they've been making during the past three months that Korea is on the road to rapid recovery, which is nonsense."
Unlike in previous emerging-market crises, the government is fiscally quite healthy, Marvin points out. "This is strictly a private-sector problem," he says, noting that over the past few years "the government has been very responsible and very conservative in the management of the national accounts. If you look at the ratio of public-sector debt to nominal economy, Korea has the second-lowest ratio in all of the industrialized countries," he adds.
"So this is not a public-sector problem, or a problem of potential sovereign default. The fiscal position of the government itself is very good. But the private sector is the problem. It's flat-out bust."
Privatization and aggressive restructuring are the only possible outs for corporate Korea. But Marvin warns that government expectations of what it can get through selloffs of state-own companies are "unrealistic" and that Korea is still dragging its feet about slimming down and shaping up.
If things don't improve significantly, he sees the Korean stock market ultimately tanking by the end of this year, plunging well below 300 (versus 309 last Friday).
"Right now the entire financial system is being held together with bubble gum and string," Marvin says, "and I don't know how long they can continue to do that."
End of quote from article. The URL for the complete article is interactive.wsj.com |
