By Steven Pearlstein
Washington Post Staff Writer
Thursday, January 29, 1998; Page E03

South Korea and its international creditors agreed late yesterday on a refinancing plan that will give the cash-strapped Asian nation a three-year reprieve to pay off $24 billion in debts to foreign banks.

Under the agreement, announced in New York after three weeks of negotiations, the Korean government will assume responsibility for loans originally made to the country's private banks, in effect guaranteeing their repayment. The bank loans represent about a quarter of the country's outstanding short-term foreign debt.

In exchange, the foreign banks that originally made those loans agreed to extend them from one to three years. The banks also agreed to allow Korea to repay the debts before they mature.

Negotiators said the extension should give Korea the time it needs to stabilize its battered currency, reorganize its economy and banking system, and generate foreign currency with which to repay the loans.

"This achievement marks a critical step in the efforts of Korea to surmount its current crisis and to restore stability to the Korean banking sector," said Duck Koo Chung, Korea's deputy finance minister.

William Rhodes, vice chairman of Citicorp and one of the prime movers in the negotiations, predicted that the agreement would soon allow Korea to begin borrowing again on international capital markets.

Among the other banks joining in the agreement were BankAmerica, Chase Manhattan, Deutsche Bank, J.P. Morgan, Bank Tokyo-Mitsubishi, SBC Warburg Dillon Read and the Hong Kong Shanghai Bank.

Under the plan, the bank loans will be exchanged for Korean government-backed loans due in one, two and three years. As before, the loans will have to be repaid in foreign currency. And the interest rates will be about 2.5 percent above the rate paid by the world's strongest creditors -- higher than the original loans but less than the 4 percent interest premium the foreign banks at first demanded.

The agreement comes on top of a $60 billion international rescue package put together late last year by the International Monetary Fund and the U.S. Treasury to keep Korea from officially defaulting on its foreign debt. Since then, Treasury officials have put heavy pressure on the banks to extend their loans to Korea rather than pulling their money out of the country.

The banks, for their part, successfully resisted efforts to have them write off or forgive a portion of their Korean loans -- a fact likely to fuel the ongoing controversy in Washington over whether IMF aid is being used to "bail out" big banks from loans that never should have been made in the first place.

That controversy will likely come to a head in the coming weeks as Congress considers President Clinton's request for an additional $18 billion to help replenish the IMF's reserves.

Earlier this week, the top Democrat and Republican on the House Banking and Financial Services Committee lent their support to the Clinton administration's request -- but only if the money does not go to bail out big banks, damage the environment or trample worker rights.

Reps. Jim Leach (R-Iowa) and John J. LaFalce (D-N.Y.) submitted the legislation just minutes before the president renewed his request for additional IMF funding in his State of the Union message Tuesday night. In that speech, Clinton said stopping the spread of the Asian financial crisis was vital for saving U.S. export jobs and ensuring that the crisis does not spread to other regions.

But the request faces strong opposition from an unusual coalition of liberals and conservatives who are critical of recent IMF rescues in Asia, where the agency has committed up to $100 billion in loans, nearly depleting its reserves.

Among those raising questions about IMF funding are the House's second-ranking Republican and Democrat, Majority Leader Richard K. Armey (R-Tex.) and Minority Whip David E. Bonior (D-Mich.).

Armey, like many other conservatives, said yesterday that IMF funding has been used to underwrite "crony capitalism" and inefficient, state-controlled enterprises in developing countries. For that reason, Armey said he was reluctant to approve additional funds without "rigorous . . . structural" reforms at the agency.

Speaking for many liberals, Bonior has complained that IMF funds go to countries that oppress their workers, degrade their environment and steal jobs from American workers.

But it is the specter of bailing out imprudent investors that really unites liberal and conservative critics -- and even some of the agency's most loyal supporters.

"It simply does not appear fair or legitimate to use IMF resources to hold banks and investors harmless, or to shield them from the consequences of poor judgment," LaFalce said this week in calling for both IMF reform and additional funding.

At the Capitol yesterday, LaFalce, Leach and administration officials scrambled to drum up support for the IMF among skeptical House members. In the Senate, a sympathetic Budget Committee announced it would hold informal talks next week with IMF Managing Director Michel Camdessus.

But opponents also were busy.

Rep. Bernard Sanders (I-Vt.) filed legislation to bar Treasury Secretary Robert E. Rubin from using funds under his control to offer emergency loans to foreign countries as was done in the case of Mexico and Korea. Many members have argued that only Congress should have the power to commit taxpayer funds to international rescue efforts.

And Rep. Ron Paul (R-Tex.) put in a bill to force the United States to withdraw completely from the IMF, arguing that it "serves only to keep afloat reckless political institutions which have policies that destroy their own economies."

Last year, the Senate agreed to provide an additional $3.5 billion line of credit for the IMF to handle crises such as that in Asia. The House, however, rejected the provision because of an unrelated dispute about abortion funding.

Senate Majority Leader Trent Lott (R-Miss.) indicated yesterday that the Senate might move quickly to approve the same amount again while holding off on the additional sums sought by the administration until Congress can complete a thorough review of IMF policies.

In the House, Armey would not say whether Republican leaders would be willing to have an up-or-down vote on IMF funding without the complicating factor of the antiabortion rider.

Staff writers Helen Dewar and Guy Gugliotta contributed to this report.