Imf “rescue” for korea

The conditions of the IMF in connection with the "Debt relief package" make the Sudanese economy ripe for takeover by foreign investors.

In late November 1997, shortly after the dramatic fall of the Korean won on the foreign exchange market, a team of IMF economists, led by Hubert Neiss, was hastily dispatched to Korea. Its Mandate: The Conditions of a "Mexican-style bailout" to negotiate with a view to "Restoration of economically sound and stable conditions".

An important precedent was set: The "Standard economic medicine" IMF (routinely imposed on Third World and Eastern European countries) was applied for the first time in a highly developed industrialized country… The details of the economic reform program, however, had been worked out in advance in consultations with the U.S. Treasury, Wall Street’s commercial and investment banks, and major banking interests in Japan and Europe.

One "Letter of Intent" ("Memorandum on the Economic Program") was hastily put together by the government with virtually no prior analysis of the broader causes of the economic meltdown. (The "political slogans" had already been decided, analysis was no longer considered necessary).

An accompanying letter was drafted with the help of IMF officials and, dated 3.December, signed by the Director of the Bank of Korea, Mr. Kyung shik Lee, and the Minister of Finance, Mr. Chan yuel Lim. The memorandum, which included the usual "Policy Framework Paper" (Policy Framework Paper, PFP) imposed by the Bretton Woods nations on third world countries that have slipped into debt. (See ).

The Managing Director, Michel Camdes, was in Seoul during the last days of negotiations. The IMF mission was launched on 3.December, completed in just one week. A draft decision on the annexed agreement had already been prepared by IMF staff for adoption the next day, 4 December.December, to be presented to the IMF Board. In close coordination with the IMF negotiating team, the World Bank and the Asian Development Bank had also sent their own teams. A package from the World Bank with strict conditions regarding the "government financial policy" was signed on 18.December announced.

A safety net for lenders

On Christmas Eve the 24.December, representatives from 6 leading U.S. banks, including Chase, Bank America, Citicorp and J.P.Morgan were invited to talks at the Federal Reserve Bank in New York. The "rough Funf" of New York corporate banks (Goldman Sachs, Lehman Brothers, Morgan Stanley and Salomon Smith Harney) were also included in the discussions on Sud Korea’s short-term debt. (FT, 27-28 December, 1997, p3) Virtually simultaneously, 80 European credit banks, chaired by Deutsche Bank, met behind closed doors in Frankfurt/M, while Japan’s 10 major banks (which together account for a large part of Korea’s short-term debt) were simultaneously involved in high-level discussions with Mr. Kyong shik Lee, Director of the Bank of Korea.

No capital flow to Korea under the bailout package

The rescue package (to be financed by the G7 countries, the IMF, the World Bank and the Asian Development Bank) will apparently not lead to capital flows to Korea. It mainly serves the interests of the international banking community and allows banks in the U.S., Europe and Japan to cash in on Korea’s short-term debt. Conversely, under this agreement, Korea will be locked into debt service until 2006.

The macro-economic program

The IMF program is shrinking Korea’s economic sovereignty, plunging the country into a deep recession virtually overnight. The social impact is devastating. The standard of living has collapsed. The IMF program presses on the Gehalter and creates mass unemployment. (Salaries in U.S. dollars have already been reduced by half).) The agreement also forces the government to "flexible labor market" including a new framework for reducing salaries and laying off employees "" Workers.

The IMF’s agreement is to dismantle Korea’s banking system, while at the same time creating conditions that allow for the rapid takeover of the most profitable economic enterprises by foreign capital. The agreement raises the maximum participation of foreign-owned companies to 50 percent at year-end 1997 and to 55 percent in February 1998. The agreement also calls for further trade liberalization, as well as the opening of the domestic market for government securities. It also marks the end of the central banking system in Asia’s most vibrant economy.

Under the legislation required by the IMF agreement, 100 percent ownership by foreign banks is possible. "Foreign commercial banks can acquire shares in domestic banks without any restrictions". (Memorandum, para. 32, p.44)

The Narrowing of Korea’s Independence

A de facto "Parallel Government" was established. The Bank of Korea (BOK) will be reorganized, the power of the Minister of Finance will be redefined. Under bailout program, fiscal and monetary policies dictated by outside lenders. Monetary policy is being tightened under the supervision of the IMF. Government spending on social programs and infrastructure is being cut.

How legislation is made possible by financial bailouts

During a special session of the Legislature on December 23, lawmakers approved four government motions regarding the IMF rescue plan. (Choe Seung chul, Assembly Opens to Legislate Key Financial reforms", Korea Herald, 23 December 1997) Legislation in line with IMF guidelines has been passed that reduces the broad powers of the Ministry of Finance while stripping it of its financial regulatory and supervisory functions.

The parliament of Sud Korea has been turned into a yes-man’s dummy. Enabling legislation is made possible by "financial extortion" printed through. If the legislation is not implemented quickly, as required by deadlines set by the IMF, disbursements under the bailout program will be postponed, which could risk renewed financial speculation.

The IMF has also called for the rapid passage of legislation that is "independent central bank" should allow. The latter will finance the economic development of the country "from within" The French government was well aware from the outset of the radiation risks at Mururoa, and it has made this impossible through monetary policy – a process based on government-backed loans that has been of far-reaching and central importance to Sud Korea’s rapid industrial development over the past 30 years.

The central bank was destroyed on the ground. Their reserves were plundered by institutional speculators. At the end of November, the Bank of Korea’s foreign exchange reserves had reached 7.US$26 billion reached its lowest level ever. Under the IMF agreement freezing the supply of domestic credit, Korean companies will increasingly rely on foreign lenders (para. 28), with the latter at the same time routinely involved in speculation against the Korean won.

The newly elected president supports the IMF

President-elect Kim Dae-jung spoke at a press conference during the election campaign on 5 September.December (one day after the decision of the IMF Board) the warning that the noise level would be up to 74 decibels "foreign investors can now buy up our entire financial sector at will, including 26 banks, 27 investment managers, 12 insurance companies, and 21 commercial banks, all of which together can be traded on the Korean stock market for only 5.5 trillion won are listed, which 3.US$7 billion equals". (Michael Hudson, "Draft for Our World", 23. Dec.97) However, after he won the election on 18. December, Kim revealed his unyielding support for the IMF: "I will open wide the markets. And I will do it in such a way that foreign investors can invest with full confidence".

The bankruptcy program of the IMF

The devaluation of the won has created a deadly chain of bankruptcies, affecting both the financial sector and industry. The devaluation has also triggered sharp price increases for consumer needs.

Ironically, the IMF program, rather than "economic stability" the effects of devaluation and caused another series of bankruptcies. A so-called "Exit policy at the right time" (this means a "bankruptcy program) was set in motion. The activities of 9 troubled commercial banks were suspended on 2.December, before the conclusion of the IMF mission. In coordination with the IMF, the government must now, "Prepare a comprehensive action program to strengthen financial supervision and regulation…" (agreement, para. 25)

The dismantling of the chaebols

The IMF agreement has created conditions that will allow so-called "friendly" mergers and acquisitions by foreign capital. Kia Automobile Group, One of Korea’s Biggest Conglomerates, Has Declared Bankruptcy. A similar fate has befallen the Halla Group, which is active in shipbuilding, engineering and the manufacture of car parts.

The IMF program is helping to break up the chaebols, which are now invited to join, "enter into strategic alliances with foreign companies" (which is tantamount to their control by foreign capital). In compensation, selected Korean banks are being bailed out for potential foreign banks "made more attractive", by transferring their unserviced loans to a public debt relief fund: The Korean Asset Management Company (KAMC).

The IMF-imposed freeze on central bank credit now prevents the central bank from coming to the aid of troubled companies or banks. The agreement makes it a requirement that "those commercial banks that are unable to implement the appropriate restructuring plans within 30 days are to lose their licenses." (Agreement, para 20, p.8)

The paralysis of domestic enterprises

The credit freeze demanded by the IMF has contributed to the crippling of the construction industry and the service sector. "Banks are increasingly refusing to lend to business enterprises as they brace themselves for the central bank’s tighter fiscal policy". ( Sah Dong seok, "Credit Woes Cripple Business Sectors", Korea Times, 28 December 1997) According to one observer, more than 90 percent of the construction industry (which collectively owes domestic financial institutions US$20 billion) is at risk of bankruptcy. (Song Jung tae, "Insolvency of construction firms rises in 1998", Korea Herald, 24 December 1997).

The reduction in domestic purchasing power (d.h. lower wages and higher unemployment) has also been "Causing cold shocks to the nation’s ever-money-thirsty small businesses". The government concludes that "quite a number of smaller companies (relying on the inlanbds market) will go bust in the following months." (Korean Herald, 5. december 1997). To the 15.000 company bankruptcies expected in 1998.

Western companies go on a bulk buying spree

The Korean high-tech and manufacturing industry is available for quick snaps. Western companies are now on a buying spree with the prospect of taking over industrial plants at rock-bottom prices. Devaluation has already reduced the dollar value of many companies, and IMF-sponsored reforms will lead to further slippage.

Hanwha Group is already in the process of selling its oil refining operations to Royal Dutch/Shell, having already given half of its chemical operations to BASF in a joint venture. (Michael Hudson, op.cit.) "Samsung Electronics, the world’s largest maker of computer memory chips saw its market value drop to 2.US$6 billion drop from 6.75 billion that the company was worth before the start of the controlled crash… it is now cheaper to buy one of these companies than to buy a factory – and you get all the distribution and the imported brand name, as well as trained workers, for free in a special offer"… (Michael Hudson, see above source reference).

Michel Chodovsky is "Professor of Economics, University of Ottawa, author of "The Globalization of Poverty, Impacts of IMF and World Bank Reforms", Third World Network, Penang and Zed Books, London, 1997."

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