S Korea, Bankers Talk It Out On Debt Restructure

South Korean officials worked with international bankers on proposals to restructure some $40 billion in short-term debt coming due soon for the Asian nation.

A source who demanded anonymity, said on Friday that disagreements remained on key elements. Meanwhile, a senior Korean official said the government was prepared to guarantee up to $20 billion in short-term debt to be exchanged for longer-term loans.

We are authorised by the congress to guarantee up to $20 bn,'' You Jong-Keun, economic adviser to S Korean president-elect Kim Dae-Jung, said. But You, who is in New York as part of the Korean delegation negotiating with international lenders, said that, if we really have to, we may get more authorised.

 

The guarantee is part of a plan to convert short-term loans extended to commercial banks into loans with maturities of one, two or three years. The idea has become the cornerstone of the New York talks.

About $23.6 billion in South Korean commercial bank debt comes due by the end of March, You said. International banks have already granted a 90-day extension on Korean debt due by March 31.

You said the new government would like a debt arrangement in place by the February 25 inauguration of Kim.

The biggest point of difference in the talks has centered on whether the Korea should guarantee longer-term bonds that would be issued in exchange for short-term loans that soon are to come due.

The plan by J P Morgan and Co, which would have required South Korea to issue new bonds to pay off maturing debts, was shelved because of opposition by the Koreans and European bankers, the source said. The Koreans have been hesitant about a government guarantee for the payments on the grounds that it would raise interest rates in Korea, harm the government's ability to raise more money, and delay a recovery by Korea's businesses.

The source said the focus now is on Korea's proposal that calls for a debt extension, and the issuing of new bonds later only if needed.

In discussing that idea, the two sides are at odds over what interest rate the Koreans should be charged on the new debt and the types of obligations that would be included, the source said. He said the government wants to exclude risky debt such as derivatives.

South Korea is having difficulty paying its foreign debts because of a plunge in its currency, the won.

As of the end of last year, its total foreign debt was $153 billion, of which 60 per cent was due within a year or less.

Japan is Koreas biggest creditor, followed by European banks, led by those in Germany, and then the US. In addition to seeking debt relief, the Koreans have been given a $ 57 billion bailout sponsored by the international monetary fund.