Many economists agree S. Korea needs help but it needs to hurt, too

The Outlook

December 07, 1997|By Bill Atkinson

The International Monetary Fund's vault is wide open, and a number of financially strapped Asian countries are tapping into it. The latest borrower is South Korea, whose banks lent too much money to shaky companies, which are now bankrupt. South Korea is about to receive a $55 billion plus bailout. Why should the IMF and big nations like the United States bail out countries like Mexico, South Korea and Thailand? What is at stake if we don't?

Allan Meltzer

Professor of political economy, Carnegie-Mellon University, Pittsburgh

I don't think we should bail out South Korea.

We had a company like Scott Paper and "Chainsaw" Al Dunlap took it over and it didn't require any bailout. He straightened it out and now the company is doing quite well.

In Korea, they have a cartel of banks and industrial companies that have invested very badly. They need Chainsaw Al to come in and straighten them out. The more money we give them, the less likely they are to make those changes.

They have been using the banks to fund a lot of these companies and cover up their losses by giving them this bailout.

One of the conditions of the bailout is no foreign company can own more than 50 percent of a Korean company. Why do that? Why not let somebody take them over and straighten them out? They need what we call restructuring.

We are pressured by bankers and investment bankers who are afraid that the loans they made to some of these companies won't be worth much, so they encouraged the U.S. government to bail it out. They [the IMF] cloak it in terms of humanitarian purposes, but what really is being saved is the skins of those who invested their money or [lent] money to these companies.

Brian McCarthy

Currency market analyst, Ruesch International, Washington

Korea is the world's 11th largest economy. If Korea goes down, it may pull Japan down with it.

I think the IMF really has to draw a line in the sand with Korea or the whole crisis will get out of hand, the whole crisis can spread.

The biggest danger to highlight for the average American reader is the potential spillover on the U.S. stock market.

It could cause the U.S. economy to slow down. I think about 30 percent of our exports go to Asia and about 10 percent go to Japan.

Korea is already learning a lesson. There is a problem with shooting ourselves in the foot by trying to teach them a lesson. These are loans. It is not as if we are just handing them money and we won't get it back.

George G. Kaufman

Professor of banking and finance, Loyola University, Chicago

At this point, some intervention is necessary. Some of it is justified, but somebody has to get hurt so they don't do it again.

If we do not do it [bail them out] now, it is going to get bigger and we will have to bail them out later on. We do not want to see these economies elect governments that are not favorable to the United States.

If these countries devalue their currency sharply, that means their exports are going to be cheaper. That means we are going to be importing more from them. It puts pressure on our labor force.

What we are trying to do with these countries in Asia is open up the markets to improve their efficiencies.

If their goods become cheaper, we are going to retaliate by imposing trade barriers, which in turn doesn't do the U.S. any good.

There are, however, great dangers involved. If you bail somebody out, they are likely to do it again and again and again. Sometimes you want them to be hurt to get the lesson. You

really want them to be hurt early enough so the losses are small.

We have to make sure that these countries reform the banking system similar to what we did in the U.S., so that the depositors bear some of the loss.

Steve Hanke

International monetary adviser, professor of applied economics, the Johns Hopkins University, Baltimore

This is disastrous foreign policy. It is the height of arrogance and stupidity in American adventurism.

They [South Korea] made their own mess -- let them lie in it. This is a self-made problem -- made in Korea is stamped all over the thing. Let them go to the wall, reorganize, liquidate their companies and take care of their own problems. That is the only way it is going to be fixed.

The economic fallout is going to be rather large. You are essentially getting rewarded for failing. The IMF encourages more failure in the future. In the short run, it is a little bit like giving someone an aspirin who has a serious internal bleeding problem. This will relieve a little short-term pain. But we shouldn't do it because they are suffering from massive internal bleeding and aspirins aren't the right medicine.

They have tremendous insolvencies and the economy is essentially bankrupt. The IMF has no competency whatsoever in bankruptcy.

Pub Date: 12/07/97

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