Asian Development Bank gives $ 4 billion loan to South Korea

Dec 22, 1997 01:00 AM

The Asian Development Bank has $ 4 billion loan, its largest ever, to help South Korea reform its ailing financial sector.
The ADB loan is part of a promised $ 57 bn bailout package, the largest ever, coordinated by the IMF.
The ADB said the $ 4 bn is a rapid response to an "exceptional and urgent crisis'' in South Korea's economy.
ADB President Mitsuo Sato said the loans will help South Korea reform its finance sector by making it more reliant on market forces, and by creating independent regulatory agencies.
He said recent IMF-organised bailout packages for South Korea and two other countries hit by Asia's currency crisis, Thailand and Indonesia, will provide them with enough money to restore the confidence of international investors. However, it may take them two to three years to recover, he said.
"I am basically optimistic about the prospects for the economic future of these countries,'' he said.
The ADB will release the South Korean loans in four tranches over a 30-month period. The first $ 2 bn will be released as soon as the loan is approved by South Korea's National Assembly. Another $ 1 bn will be released in early 1998.
A further $ 700 mm is to be released at the end of 1998, followed by the final $ 300 mm to be released at the end of 1999, the Manila-based bank said.
The loan will have an annual interest rate equal to the London Interbank Offered Rate plus the bank's standard spread for public sector loans, which stands at 0.40 percent. An additional annual commitment charge of 0.75 % will also be imposed on the loan.
Each portion of the loan will be repaid in full seven years following its disbursement date, the bank said.
The ADB loan will be supplemented by a $ 15 mm technical assistance loan for economic reform activities, including: managing non-performing loans and restructuring the banking sector; capacity building of a newly created regulatory body; strengthening of credit rating agencies; and reviewing institutional and other aspects of the introduction of mortgage-backed securities.

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