Gov¡¯t ready to pay pack IMF funds

The government¡¯s determination to repay all of the support funds from the IMF springs from a desire to rid itself of the tag as a nation on the verge of crisis, on top of the fact that the nation has ample foreign currency reserves as of Sept. 15, which stands at US$91.7 billion, the fifth largest in the world. Moreover, it is at the request of IMF. The IMF is known to have requested the Korean government to prepay the unpaid balance of US$6 billion before maturity during the economic policy negotiation in June.

An official of the ministry of finance and economy asserted in this regard that Korea should no longer remain as an IMF beneficiary, when its sovereign rating has been upgraded to qualify for investment and when its economy is rapidly recovering. The official further asserted that Korea can hold its head up high after prepaying all of the support funds from the IMF.

The government explained that out of 182 member nations of the IMF, 36 nations are classified as contributor nations. Once a nation is classified as a contributor nation, the government asserted that various tangible and intangible benefits are expected in assessing the nation¡¯s sovereign rating and interest rates on its overseas borrowings. Mexico is known to have lowered its marginal interest rate on its public bonds from 3.87 percentage points to 3.07 percentage points by prepaying US$3.2 billion of IMF support funds last month, which are not due until from 2003 to 2005.

The problem with prepayment is its possible side effects. Most of all it is inevitable that our foreign currency reserve, which strongly supported the economy, will drop. Once US$6 billion is prepaid, the foreign currency reserve will drop from US$91.7 billion to US$85.7 billion. We could build up the reserve but if the high oil prices persist, it is highly likely that the balance of trade for next year will be in deficit and there is no way to dramatically increase the reserves.

It is for this reason that the doubts concerning whether the financial representatives who attended the IMF meeting knew what prepayment will do to our economy.

It is uncertain how prepaying all of the IMF support funds will positively effect the sovereign rating of our nation when we have other complex issues to worry about such as the high oil prices, prolonged disposition of insolvent Daewoo Motor and the insecurity in the financial market.

Considering that the fate of our nation¡¯s economy depends largely on the completion of the on-going financial reform by February next year, some are calling for a system that will not slow down the willingness of economic entities being reformed.