Korea Times Staff Reporters
Former Federal Reserve Board Chairman Alan Greenspan said Monday in a book that he was not aware of the seriousness of Korea's currency crisis until he received an information from a Bank of Japan official in late 1997.
His statement lent credence to the allegation that Seoul decided to seek bailout funds from the IMF only after Japan refused to renewing billions of dollars for Korea in late 1997.
In November, 1997 Kim Gwang-il, then special political advisor to then President Kim Young-sam, told The Korea Times that the President had reluctantly agreed to seek the IMF help after his special envoy was unable to get Japanese help in renewing maturing debts amounting to $8 billion.
Then political advisor quoted Japanese leaders as saying ``how can Tokyo help Korea whose President had said he would ``teach'' Japan. Kim Young-sam's emotional approach to Japan was cited as one of factors that Korea was unable to get Japanese help, he recalled.
In a book titled The Age of Turbulence: Adventure in a New World, Greenspan said that it wasn't until November that year that Greenspan became more deeply involved, following a phone call by a senior official at the Bank of Japan warning that South Korea ``would be the next to go'' and that the
Japanese banks were about to stop renewing tens of billions of dollars in loans.
``This was a shock,'' Greenspan wrote. ``Korea was so successful that it was no longer even considered a developing nation _ the World Bank officially listed it as part of the first world.''
``Korea's central bank was also sitting on $25 billion in reserves _ ample protection against the Asian contagion, or so we thought,'' he said.
Greenspan said Korea's financial crisis in 1997 was all the more shocking because the United States had mistakenly believed that the emerging Asian economic power had ample American dollar reserves.
He added what ensued was the largest financial rescue package ever by the IMF.
People were worried that the package would set a bad precedent of the IMF bailing out reckless investors who poured money into shaky economies, he said.
``Yet the consequences of allowing South Korea to default would have been worse, possibly far worse,'' said Greenspan.
The Asian financial crisis began with the collapse of Thai bath and Malaysian ringgit in the summer of 1997, followed by disarray in Hong Kong, the Philippines, Singapore and Indonesia, he recalled.
The Treasury led the U.S. response.
What the Fed soon discovered was that South Korea ``had played games with those reserves,'' quietly having sold or lent most of it to its commercial banks, which used them to shore up bad loans, Greenspan said.
The IMF bailout required the cooperation of South Korea's then-newly elected president, Kim Dae-jung, whose first major decision was to commit to stringent economic reforms, he said, while the Treasury and the Fed reached out to the world's largest banks to not call in their Korea loans.
``A default by a nation of Korea's size would almost certainly have destabilized global markets,'' Greenspan wrote. ``Shell-shocked investors would have withdrawn not just from East Asia but from Latin America and other emerging regions, causing development to stall.''
He credited then-Treasury Secretary Robert Rubin and his successor, Lawrence Summers, for the handling of the South Korean situation, saying they ``belong in the finance ministers' hall of fame.''
The article is based on a report from Yonhap in Washington