Korea's crippled tiger limps to fight another day

After another week of unprecedented tumult in East Asia, there was a small respite in the South Korean financial crisis yesterday as the country's political leaders presented a united front, five days before the presidential election.

Korean shares rose slightly yesterday after plunging to a 10-year lowon Friday. The economic crisis, which has halved the value of the currency, the won, in little more than a month, was exacerbated last week by statements by Kim Dae Jung, the favourite in next Thursday's presidential poll, that he would not accept a tough rescue plan agreed between the government and the International Monetary Fund if he was elected.

By the end of the week, Mr Kim was backtracking, and yesterday the three presidential candidates met the outgoing president, Kim Young Sam, and issued a joint statement declaring their support for the bailout plan under which Seoul will be provided with $57bn (pounds 35bn) of international assistance in return for a programme of drastic restructuring and reform.

The announcement that the Bank of Korea would provide loans of 11.3 trillion won (nearly pounds 4bn) also helped restore confidence: the stock market index climbed some 2.5 per cent in the half-day Saturday trading session.

South Korea's financial crisis has become so grave, so fast, that analysts in Seoul are beginning to wonder whether the worst may now be over. In the summer, it looked like a troubled, but still powerful economy, with a right to regard itself as the leader among the so-called Asian Tigers. Now, it is economically crippled, with banks that cannot borrow, a currency slipping through the floor, and a credit rating lower than the other poorer, victims of the Asian contagion, Thailand and Indonesia. Only Mexico, bailed out by the IMF early in 1995, has suffered a comparable crisis.

There are plenty of reasons for believing the turmoil will continue. The biggest problem is trust: so many lies and half-truths have been told that the banks, corporations and government have very little credibility left with international investors and governments.

Mr Kim's change of heart is only the latest in a series of U-turns. For weeks the government swore it would never go to the IMF - as it turns out, the bailout sought by Korea is the biggest in the Fund's history. After the deal was agreed, it emerged that it had under-reported the amount of debt held by the country's banks, and overstated its remaining foreign currency reserves.

Pressing for help from Japan and the US, Finance Minister Lim Chang Yuel failed to impress with a veiled threat that if Korea went down, it would bring the rest of the world with it. "Foreigners wonder if they can trust South Korea, if they can trust its ability to deal with its problems, if the country will play by the rules," says Yoo Tae Hou, managing director of the Daewoo Research Institute.

The problem is accentuated by the political vacuum. The reputation of the outgoing Kim Young Sam is in shreds after a series of corruption scandals among his family and associates. But the new president will not be inaugurated until February. Given the painful measures on which the IMF is insisting, it is not in the interests of any candidate to endorse them wholeheartedly, however necessary they may be.

Resistance to the IMF rescue plan extends to every corner of South Korean society. The country's powerful unions rightly fear that the austerity measures demanded of the big corporations will lead to closures and redundancies. And many ordinary people feel affronted by the blow to the pride of a deeply nationalistic country: demonstrators have marched in Seoul,accusing Japan and the US of economic imperialism. The sentiment can only alienate investors further and make the whole problem worse.