Denied fresh loans from a banking system nearing crisis, more big corporations are expected to fail in South Korea, raising the specter of a severe economic slump next year, analysts and economists say.
Such a slowdown in South Korea - the world's 11th largest economy whose gross domestic product is larger than Indonesia, Malaysia, and Thailand combined - would impact much of Asia, compounding regional economic woes.
"I think the possibility of more major bankruptcies is high, and as more major bankruptcies do occur, the Korean financial system is going to come under more pressure," says Steve Marvin, head of research at Sangyong Securities.
Seven of Korea's top 30 conglomerates have collapsed or sought bankruptcy protection this year. They had combined debts of 27.92 trillion won ($28.5 billion), including 10 trillion won from automaker Kia Group alone.
"It's not a matter of one large company failing," says Hank Morris, managing director of Coryo Investment and Securities in Seoul. "It may be a matter of a large company with the ability to take down a lot of small companies with it."
The government has not disclosed figures for nonperforming loans in the system, but analysts estimate them to be 20 percent of 193 trillion won in total outstanding loans.
Corporate financing has become tighter as borrowing rates climb due to credit downgrades by overseas rating agencies and lack of capital by domestic financial institutions.
"Certainly, it is difficult to see how Korea is going to make up this hole in its funding requirements unless it either prints it or brings in foreign help," says Graham Courtney, director of Asian economics for SBC Warburg in Tokyo. "Therefore, it's not surprising these rumors about the IMF are abounding," he says.
Analysts agree that South Korea is not facing a balance of payments crisis, the usual reason for seeking help from the International Monetary Fund.
The current account deficit is officially projected at $13.7 billion this year, or less than 3 percent of gross domestic product, against $23.7 billion last year. It is projected at $7.9 billion next year.
"There isn't a balance of payments crisis, but to the extent foreign investors are bailing out of Korea, they're sort of creating one," Mr. Courtney says.
Foreign investors have stampeded out of the stock market, which has put pressure on the won as they repatriate their earnings. The falling won has only added to the impetus to get out of the share market, analysts said.
Corporations are adding to the vicious circle by hoarding their dollar-export earnings, waiting for the won market to bottom, and hedging themselves by selling the won forward.