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Korea nervous about joining OECD

Diane Coyle
Monday 13 February 1995 00:02 GMT
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South Korea has postponed its formal application to join the Organisation for Economic Co-operation and Development. Sources in London said the Mexican crisis had made the Koreans anxious to avoid having to open their financial markets to foreign investors.

Mexico had to open its financial markets when it joined the OECD, the developed countries' club, last May. Liberalising capital markets fully is a requirement of membership. Mexico was the first country to join the organisation and sign up to these rules since New Zealand became a member in 1973.

Korea has been relatively cautious about foreign investment. Private capital inflows between 1989 and 1993 came to about $20bn, according to World Bank figures, compared with $50bn flowing into Mexico in that period. Almost all of Korea's imports of capital were long-term, while 65 per cent of Mexico's were short-term.

Ripples from Mexico's crisis reached as far as Korea. Its stock market has fallen 8.6 per cent in dollar terms since the new year.

Other countries queuing to join the OECD are the four ``partners in transition'' - Hungary, Poland and the Czech and Slovak republics. They are unlikely to want to delay their membership, seen as a means of access to Western markets, until they succeed in being admitted to the EU.

A growing number of economists fear that some of these countries could be heading for Mexico-style problems anyway. Hungary is most-often cited. It has a big current account deficit and a level of short-term debt that is high relative to the size of its economy although dwarfed by Mexican or Chinese debt.

Korea is expected to pursue OECD membership if world financial markets settle down.

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