South Korea In Amnesty, Reform Drama This Week

The first full week of Kim Dae-jungs transition to power in crisis-hit South Korea will start dramatically on Monday with the freeing of two disgraced predecessors and a host of crucial financial reforms.

While the president-elect does not officially take the reins of power until February 25, he will be increasingly influential in state affairs until then.

The governments most pressing priority in the week ahead will be to ensure ailing financial institutions are able to meet multi-billion dollar debt obligations due at the year-end, in order to stave off a lingering spectre of sovereign debt default.

Unfortunately, no one seems to clearly know whether South Korea can meet the obligations, said an analyst at ABN AMRO Hoare Govett Asia.

 

On Saturday Kim held a crisis meeting with incumbent President Kim Young-sam at which they reiterated their intention to abide by the terms of a nearly $60-billion International Monetary Fund (IMF) bailout package.

Kim Dae-jung alarmed financial markets by saying during his election campaign that he would renegotiate the strict terms of the agreement if elected, although he subsequently back-pedalled.

Five IMF officials, including Asia-Pacific director Hubert Neiss, arrived in Seoul on Sunday and U.S. Deputy Treasury Secretary David Lipton was expected to follow on Monday, according to domestic media.

They would meet officials at Seouls finance ministry to express their views about the countrys efforts to mend the financial system.

Assessments by those visitors will be critical to further supplies of IMF-led loans, said Kim Min-tae, analyst at LG Economic Research Institute.

At the same meeting, the two Kims horrified human rights groups by agreeing an amnesty for former presidents Roh Tae-woo, Chun Doo Hwan and 23 of their associates jailed in connection with a corruption scandal, a 1979 coup and an army massacre a year later.

A Justice Ministry official said the two former presidents would be released in Monday morning after a cabinet endorsement.

A presidential statement said the move, which should help ease right-wing mistrust of Kim Dae-jung but which was immediately slammed by human rights groups, was being taken in the interests of national unity at a time of economic crisis.

Nevertheless, analysts said South Koreas financial markets would sag this week.

The current economic malaise is too grave to be cured by a handful of reforms and a comic political ploy, said Kim of LG.

The markets greeted Kim Dae-jungs election win nervously on Friday and kept their eyes on the countrys stark debt realities.

Pressure on interest rates is mounting and the financial bottleneck is battering manufacturers as well as financial firms. The markets future looks grimmer than ever, Kim said.

The won briefly lost about 11 percent of its value against the dollar early on Friday but ended at 1,550, still far lower than Wednesdays close of 1,481.0. Thursday was a holiday for the presidential election.

The composite stock index plunged 5.13 percent on Friday on renewed concerns about hardships accompanying the IMF package. It recovered only 0.8 percent to close at 400.19 points on Saturday.

Turbulence in other markets pushed benchmark yields on three-year corporates to their record highs 26.14 percent on

Friday and 27.15 percent on Saturday. On Sunday the Finance Ministry said it would increase a state fund established to buy bad loans to 20 trillion won ($12.36 billion) from the current eight trillion won.

We plan to raise the size of the fund with an aim to buy all of bad loans by the end of January, said an official at the ministrys industrial finance division.

Political analysts said the move to free Chun and Roh would please conservatives and help unite disparate political groups at a critical time.

Families of victims of the 1980 army massacre in the southwestern city of Kwangju expressed their willingness to accept the governments decision to free Chun and Roh.

Kwangju is Kim Dae-jungs main support base and scene of the 1980 civilian uprising against the military that was put down by Chuns army with heavy bloodshed.

In a demonstration of a new spirit of national resolve, the three main political parties agreed on Saturday to pass 13 financial reform bills next week in a National Assembly session due to start on Monday.

The legislation would give the central Bank of Korea full authority to plan and implement monetary policy, but strip it of its supervisory power over the banking sector. It also provides for the setting up of a temporary organisation to undertake liquidation of ailing financial institutions.

Supervision of the financial sector would be taken over by a Financial Supervisory Board under the Finance Ministry.

A lot of work should be done additionally, said Lee Hahn-koo, president of Daewoo Research Institute. Those reforms came too late, although still better than nothing.

The le but the IMF has insisted the bills be passed as a condition of its bailout programme.

A spokesman for the majority Grand National Party also said the parties had agreed to allow issuance of bearer bonds long-term instruments that allow investors to remain anonymous. Their aim is to entice back into the cash-strapped economy trillions of won (billions of dollars) driven underground when Kim Young-sam outlawed false-name bank accounts in 1993.

The government has been battling a chronic liquidity crunchstemming from a massive buildup of short-term corporate debt.