By Steven Mufson
Washington Post Foreign Service
Tuesday, December 23, 1997; Page C01

SEOUL, Dec. 22—Another wave of dire economic developments buffeted struggling South Korea today.

The country's currency tumbled 10.6 percent. Domestic interest rates on three-year corporate bonds hit 30.1 percent. The two major U.S. ratings companies, Moody's Investors Service Inc. and Standard & Poor's Corp., downgraded the credit rating on the country's debt to "junk bond" status. And negotiators met to figure out how to scrape together the cash that the country needs to make billions of dollars in debt payments due by week's end.

[The sell-off continued Tuesday. The South Korean won tumbled another 13.7 percent against the dollar, to 1,950 won per dollar, before recovering slightly in afternoon trading. It was the won's lowest price against the dollar ever. The currency is down 57 percent against the dollar this year. And Korea's key stock index was down 7.5 percent in afternoon trading, following a 1 percent drop the previous day.

[Wire service reports said President-elect Kim Dae Jung told a meeting of legislators Tuesday that he was "flabbergasted" by a government report given to him outlining the crisis facing the South Korean economy. "We don't know whether we'll default tomorrow or the day after tomorrow," Kim is quoted as saying. "Our warehouse is empty. It's a matter of surviving a day, not a month. I can't believe how the government has been so negligent."]

The continuing financial crisis has eliminated Kim's political honeymoon. On Monday Kim, who won last week's election with the support of militant labor unions, met with U.S. Treasury Undersecretary David Lipton and U.S. Ambassador Stephen Bosworth and told them that he understands that large numbers of layoffs are inevitable.

Sources said U.S. and International Monetary Fund officials were encouraged by Kim's realistic attitude toward the layoffs, wage cuts and restructuring needed to reform South Korea's economy, restore international confidence and get money flowing to the country again. And the Finance Ministry moved to comply with IMF requirements by opening up the domestic bond market to foreign investors.

Separately, the president of the trade union movement said in an interview that "I basically support" the IMF program, even though its terms make an economic slowdown -- along with layoffs and a squeeze on wages -- likely.

"We will accept a reduction of working hours and partly accept a reduction of wages to minimize layoffs," said Park In Sang, president of the Federation of Korean Trade Unions, which had endorsed Kim's candidacy. Park said he favored a gradual shortening of the work week. Conceding that additional unemployment "is to be expected," he estimated that it would rise by about one percentage point, substantially less than most economists expect.

With so much in flux, the atmosphere in the financial community remained anxious and uncertain. The U.S. rating agencies, in addition to downgrading the sovereign debt, also lowered the creditworthiness rating today for several of the largest South Korean companies, including Samsung Electronics Co., Hyundai Motors Co. and Pohang Iron and Steel Co.

Many South Korean companies are also having trouble arranging short-term trade credits from banks, damaging export prospects. In addition to the billions of dollars of debt payments that are due to foreign institutions by week's end, the government faces another cash crisis in January if foreign banks don't start rolling over loans as they come due.

"I thought making it to the end of the year was going to be a struggle," said Y. Eugene Yun, an investment banker. "But next year is going to be quite a struggle as well. There is no sign that the tide is turning."

Confidence is the key, negotiators on both sides say, but confidence is what is hardest to restore. Recent events in South Korea -- especially unexpected announcements that foreign currency reserves were lower and foreign debts were higher than previously reported -- have made foreign creditors wonder whether more surprises lie in store.

Sources familiar with repayment negotiations estimated that only 20 percent to 30 percent of South Korea's foreign loans are being rolled over when they come due -- and those extensions are only for one to three months.

Official figures obtained from the central bank show that the Bank of Korea's usable foreign reserves plunged to $7.26 billion at the end of November, down from $22.3 billion a month earlier. Nearly $9 billion of the decline represents money moved to foreign branches of South Korean banks to cover withdrawals by depositors who feared the collapse of the country's troubled banks. Much of the rest was used futilely to prop up the currency, analysts said.

Some analysts are worried that the IMF program will throw the country into a deep recession or depression, though the IMF still predicts 2.5 percent growth for the South Korean economy in 1998. Stephen E. Marvin, head of research at SsangYong Investment & Securities Co. Ltd., said that the devaluation, cuts in government spending and high domestic interest rates would strangle domestic spending and set off bankruptcies and bank failures.

The newspapers here carry daily tales of difficulties and liquidity crises. Samsung Motors Inc. paid its suppliers $5.8 million in advance for auto parts because the suppliers had run out of cash. Dacom Corp., the country's second-largest long-distance telephone company, said it would relocate 20 percent of its employees, while executives returned 10 percent to 25 percent of their pay and their entire bonuses.