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Korea fingers the nettle

Asian banks: Now comes the real crisis

When the currency and stock-market contagion spread in November from south-east Asia to South Korea, bankers in Jakarta noted with irony that the chickens had come home to roost. For it was the cash-strapped South Korean banks which triggered off September's currency crash in Indonesia which eventually spread to global markets.

Hit hard by corporate bankruptcies at home, the Korean banks refused to roll over short-term loans to borrowers in Indonesia, sparking off a scramble for dollars. The rush pushed the Indonesian rupiah down from a manageable level of Rp2,800 against the dollar in the wake of the Thai baht depreciation, to almost Rp4,000 to the dollar. Two weeks later the Jakarta Government threw in the towel and called in the IMF.

Now the twin problems of a collapsing stock market and a fast falling currency have put Korea itself firmly on the sick list. With bad debt in the banking sector estimated at W20 trillion ($20 billion), foreign debt at $110 billion and reserves of $30 billion, a bail-out will be expensive, even for a country with an economy is the size of those of Indonesia, Malaysia, Thailand and the Philippines combined.