>Reply-To: [EMAIL PROTECTED] >Subject: [CrashList] Ft: Korean bail-out plan backfires >By John Burton in Seoul >Published: May 17 2000 22:05GMT | Last Updated: May 17 2000 23:52GMT > > > >A proposal by South Korea's finance ministry to provide Won30,000bn >(�18bn) to save faltering investment trust companies (ITCs) has >stirred up a political furore as fears grow that the nation is on the >verge of a new financial crisis. > >The debate is a symptom of the disappointment that Won64,000bn in >state funds already spent has failed to stabilise the debt-heavy >financial sector. > >Although the government has saved banks from collapse by >recapitalising and nationalising them, the ITCs have emerged as a new >source of trouble. Redemptions from the ITCs, the biggest buyers of >shares and bonds in Korea, have accelerated recently since they >reported big losses on bonds issued by the Daewoo group, which >collapsed last year. > >Further losses are expected if the government proceeds with plans >requiring the ITCs to value their bond holdings at market value >rather than inflated book value from July 1. > >The potential losses could further undermine investor confidence and >force the ITCs to dump shares as they struggle to raise capital to >meet redemption payments. > >The financial troubles at the ITCs have depressed the Seoul bourse, >down 26 per cent this year. > >Although few question the need for a state rescue of the ITCs, many >doubt the ministry's latest plan to raise half of the Won30,000bn by >selling non-performing loans acquired from the banks and issuing >asset-backed securities instead of drawing on government coffers. > >"The proposal is unworkable. The only solution is for the national >assembly to approve the issuance of treasury bonds to finance the >clean-up," says Brian Hunsaker, research head at Dresdner Kleinwort >Benson in Seoul. > >But that would mean an embarrassing loss of face for the government >and particularly Lee Hun-jai, finance minister, who promised that no >more state funds would be needed to save the financial system after >Won4,900bn was injected into the two biggest ITCs, Korea and Daehan, >this week. > >Mr Lee argues that providing more state funds would only increase the >risk of moral hazard. But critics say the government has done little >to improve the competitiveness and management practices of banks and >other financial institutions that have already received state money. > >Doubts about the restructuring of the financial system are reflected >in the low share prices for the nationalised banks, which has delayed >plans by the government to reprivatise them by selling stakes. > >The main opposition Grand National party, which has the most seats in >the hung parliament, has indicated it would approve more funds for >the ITCs, but only after a review of the financial restructuring is >conducted. > >Park Tae-joon, the relatively powerless prime minister, yesterday >broke ranks with the government of President Kim Dae-jung by calling >for parliamentary approval of more state funds "to keep the process >transparent". > >Analysts think the government can afford to give more funds to the >ITCs, as its budget deficit is not large at an estimated 4 per cent >of gross domestic product. > > > >from ft.com > > > > > >------------------------------------------------------------------------ >Up to 60% OFF food! >Buy Now and Shipping is Free. >http://click.egroups.com/1/4016/4/_/_/_/958633084/ >------------------------------------------------------------------------ > >To unsubscribe from this group, send an email to: >[EMAIL PROTECTED] > > > __________________________________ KOMINFORM P.O. Box 66 00841 Helsinki - Finland +358-40-7177941, fax +358-9-7591081 e-mail [EMAIL PROTECTED] http://www.kominf.pp.fi ___________________________________ [EMAIL PROTECTED] Subscribe/unsubscribe messages mailto:[EMAIL PROTECTED] ___________________________________
