Seoul Takes Steps To Reassure Imf

South Korea took steps towards pleasing its IMF minders and foreign investors on Tuesday by floating the won and announcing a slew of other financial reform plans required under its bailout plan.

The wons flotation sharply boosted the beleaguered currency against the dollar for a second day and prompted a further robust rise of almost five percent in stocks.

Government ministries also announced they would raise a 25 percent cap on interest rates to 40 percent, cut the state budget, ease rules on mergers and acquisitions to make foreign takeovers easier, and relax rules on share issuance.

The steps are part of the terms of the International Monetary Fund (IMF)s $57 billion rescue package for South Korea and analysts say they should help persuade the IMF to release a second tranche of these loans.

The IMF handed over $5.5 billion when it approved a record-breaking loan package to South Korean 10 days ago and will make an additional $3.5 billion available from Thursday if Seoul has met the terms of its reform programme.

The review is to take place on Thursday, the day South Korea elects a new president.

The Korean government will do whatever it takes for the rapid stabilisation of the economy under the IMF auspices, Kim Jun-il, senior councillor to finance minister Lim Chang-yuel told Reuters Financial Television.

On Monday the government announced it would sell off either Korea First Bank or Seoulbank. It provoked a storm of foreign criticism by taking over those two troubled banks last week.

The government also said on Monday it would push forward with a $10 billion sovereign bond issue.

The government said it would offers shares in the banks to foreigners in line with recommendations from the IMF and foreign analysts.

Deputy Prime Minister and Finance Minister Lim Chang-yuel said this showed Seouls willingness to abide by the terms of the IMF package and convince credit rating agencies to raise their assessment of Korean financial institutions, the Korea Herald reported on Tuesday.

He said the government would start selling bonds to investors at home and abroad once the National Assembly approved the plan at a special session scheduled next week.

He also said that his ministry would sharply increase rates on foreign currency deposits from the current 6.5 percent to 9 percent.

The won, freed from a 10 percent trading band, jumped 13.8 percent against the dollar at one point to 1,350. It closed at 1,424.0, sharply up from its Monday close of 1,563.9. It had hit a record low of 1,891.4 on Friday, a drop of more than 50 percent since the start of the year.

You dont decide to float the currency unless you have some good news for the market to go on, an analyst in Hong Kong said.

Finance ministry officials said the government was emboldened after announcing on Monday that the countrys current account showed a surplus of $600 million in November, its first monthly surplus in more than four years.

Dealers said Korean exporters, who have been sitting for weeks on their dollar earnings, waiting for the market to hit bottom, had now begun unloading their dollar positions.

The foreign exchange market had been paralysed as companies, many of them facing foreign obligations, hoarded dollars and many analysts said the trading band prevented the currency from finding its own level.

The won is not fully convertible. Only trade-related foreign exchange dealings are permitted.

Analysts say Thursdays election is too close to call, with perhaps a fifth of the electorate undecided the last time polls were published three weeks ago.

Final polls showed Kim Dae-jung, 73, and making his fourth run at the presidency, the slightly ahead or running neck and neck with majority party candidate Lee Hoi-chang, 62, a former supreme court judge and former prime minister.

In third place was Rhee In-je, a former provincial governor and labour minister who quit the ruling party in September for an independent run at the presidency.