Staff writer

South Korea has asked Japan to extend $3 billion in fresh loans from the Export-Import Bank of Japan as soon as possible to assist the economically struggling country’s trade financing, international financial sources disclosed Friday.

Japan will decide whether to accept the request — which was made recently but kept confidential — before South Korean President Kim Dae Jung’s planned first state visit to Tokyo in early October, the sources said.

South Korea, hit hard by the Asian currency and financial turmoil, is now mired in its worst economic crisis since the Korean War. Asia’s financial and currency crisis, which erupted in July 1997 with Thailand’s de facto devaluation of its currency and quickly swept through the region, has so far forced Thailand, Indonesia and South Korea to seek international rescue packages organized by the International Monetary Fund. In return for a $57 billion IMF-led bailout package, South Korea is undertaking painful economic reforms prescribed by the IMF.

The South Korean economy, which posted 5.5 percent growth last year, slower than the preceding year’s 7.1 percent, is widely expected to register negative growth this year. Unemployment has also continued to rise sharply.

In June, Tokyo disbursed $1 billion in loans by the government-affiliated Export-Import Bank to help crisis-plagued South Korean manufacturing companies purchase capital goods, components and parts needed for production. The loans were disbursed as “tied,” meaning they must be used to help South Korean companies pay bills for imports from Japan alone.

South Korea is heavily reliant on foreign capital goods, especially from Japan, for production of high-tech products. Therefore, it must increase its imports of capital goods, especially Japanese products, if it is to export its way out of the deep economic crisis by taking advantage of its cheaper local currency.

However, the sources said South Korea has asked Japan to extend the additional $3 billion in loans as “untied,” apparently because it wants to use the fresh money to help domestic companies purchase capital and other goods not only from Japan but also from other trading partners.

South Korea’s trade surplus for the first seven months of this year soared to $22.7 billion, compared with a deficit of $9.9 billion registered during the same period last year. But this was largely due to a sharp decline in imports.

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