The response to South Korea's financial wild fire has left no doubt that the international community can act in something approaching unison. The International Monetary Fund led the way with its $57 billion rescue package. Private banks in the United States and Europe are now chiming in to ease the short-term debt that threatens to engulf Korean financial institutions.
The international and private-sector efforts to keep South Korea from going up in smoke spring from twin realizations, one general, one specific.
First, today's globalized economy needs effective, globalized means of adjusting course and avoiding disaster. South Korea offers the best opportunity to date of demonstrating that such means can be mustered.
Second, South Korea represents a fire wall, of sorts, between the regional turmoil sweeping through Asia's rapidly developing but still largely third-world economies, and first-world industrial economies like Japan's. The fire brigade had to respond, in force, in Korea.
As the depth of the financial problems facing South Korea has been recognized, the resourcefulness of the rescuers has been tested. The current rush to avoid widespread defaults by South Korea's private banks is illustrative. Western banking giants, led by J.P. Morgan & Co., are proposing steps beyond simply rolling over the Korean debt for a month. Morgan recommends converting billions of existing debt into new, longer-term debt backed by Seoul.
The politics of all this are intricate. Seoul's politicians have little choice but to go along with the international rescue effort. But the high unemployment that will come as austerity measures take hold is anathema; powerful labor unions are poised to scream. But even they may admit it's better the joblessness comes as a result of conscious planning, including strengthened safety nets for laid-off workers, than haphazardly through avalanching bankruptcies.
Rescue plans hinge largely on reforms just getting under way in South Korea - stronger oversight of banks, for instance, and deregulation of interest rates. The IMF demands them, and Seoul's legislators have, however reluctantly, begun to pass them.
Reluctance isn't limited to Seoul. President Clinton can anticipate criticism from some in Congress for the activist US role in bailing out South Korea. But what was the alternative? US interests, and nearly everyone else's, converge in this crisis.