Markets Offer Rare Cheer As Korea Starts Poll Week

South Korea began its election week on Monday with financial markets offering a rare bit of pre-Christmas cheer amid the gloom and humiliation of the countrys economic bailout.

The stock market surged nearly seven percent in morning trading due to expectations of early inflows of further loans under the economic assistance plan spearheaded by the International Monetary Fund (IMF).

The optimism was prompted by pledges on Saturday from the three main candidates in Thursdays presidential election to honour the terms of the bailout agreement, which promises $57 billion in loans in return for painful reform of South Koreas debt-riddled economy.

 

The central bank took advantage of the buoyancy which was also evidenced in a decline in bond yields by bringing forward the announcement of Novembers current account data, which showed the first monthly surplus since December 1993.

The data, which is normally announced towards the end of the month, showed a surplus of $600 million. The bank said the current account deficit totalled $12.60 billion for the first eleven months of the year, down from $21.86 billion in the same period last year.

The won, which was bludgeoned to a record low last week after falling by its 10 percent limit on four successive trading days, perked up a bit on Monday morning, mainly thanks to the central banks $200 million dollar-selling intervention on Friday and fresh dollar sales on Monday.

It was trading at around 1,670 to the dollar by midday after closing at 1,701 on Friday.

Corporate bond yields eased at the prospect of fresh liquidity. Three-year yields fell to 19.95 percent from 22.43. The IMF has already given $5.6 billion to Seoul and said it will decide whether to hand over an additional $3.6 billion on Thursday, provided Seoul meets the terms of the reform pro gramme it agreed in return for the bailout.

Confidence in Koreas ability to meet the tough IMF terms began slipping away when the opposition candidate Kim Dae-jung who was shown in final published opinion polls on November 25 to be running neck-and-neck with the ruling Grand National Partys Lee Hoi-chang said he would renegotiate the agreement if elected.

Confusion as to whether the candidates would push forward with the tough reform programme alarmed the global financial community and contributed to what Finance Minister Lim Chang-yuel called a confidence crisis.

This saw the won lose some 30 percent of its value against the dollar last week alone.

Despite the joint pledge from Kim, Lee and the third main candidate, Rhee In-je, analysts said it appeared from the campaigning that none of the hopefuls has a clear grasp of the seriousness of the countrys economic predicament.

They returned to familiar campaign bickering in their final televised debate on Sunday.

Lee repeated attacks on Kim for damaging the economy by suggesting an IMF renegotiation in the first place, while the other two countered by again discussing the height and weight of Kims sons and the allegation that they lied about their vital statistics to escape military service a key theme throughout the presidential race.

Sticking to such issues has allowed the candidates to steer from properly addressing the more painful and politically dangerous aspects of the IMF programme, including the need to curb growth and the massive unemployment it is bound to bring.