By Paul Blustein and Sandra Sugawara
Washington Post Staff Writers
Friday, November 21, 1997; Page A01

South Korea has become the latest and largest country in East Asia to surrender to the financial crisis sweeping the region and seek an international bailout. The rescue package could be the biggest in history, economists said.

After weeks of angrily denying that they would request assistance from the International Monetary Fund, South Korean officials acknowledged this morning in Seoul that their nation's deepening economic plight left them no choice. President Kim Young-Sam will go on television tomorrow to "explain the reasons" for turning to the IMF, a presidential spokesman said.

Figures cited in Korean media reports indicated that the bailout could top the $50 billion IMF-led package that was assembled for Mexico in 1995. The state-owned Yonhap Television News reported that Seoul is seeking up to $60 billion in financial assistance, and private analysts said the figure could go even higher.

Internal U.S. government estimates suggest Korea needs an amount closer to $30 billion, but the IMF has only begun to examine the dimensions of Seoul's financial problems.

The U.S. government believes that restoring the region's economic health is vital to long-term prosperity in the United States. The Asian countries -- many of them, like South Korea, close U.S. allies -- are major export markets for U.S. companies.

The Korean economy is the world's 11th largest, with nearly $500 billion in gross domestic product, and it far exceeds in size the economies of the two other Asian "tigers" -- Thailand and Indonesia -- that have been forced to request IMF help this year.

An IMF-led bailout would impose painful restructuring and belt-tightening on Korea, and would represent a deeply humiliating setback for a nation that takes enormous pride in its industrial prowess.

South Korea has risen from the devastation of the Korean War to economic modernity in a few generations, and major Korean conglomerates such as Samsung Co. and Hyundai Corp. enjoy global renown as formidable competitors.

But the nation's financial markets have been struck by a crisis similar to those that have afflicted Southeast Asian countries in recent months. Foreign investors have unloaded their Korean holdings amid fears that the nation's banks are teetering on collapse after years of lending aggressively for ambitious industrial projects.

Korean authorities have shown extreme reluctance to accept the need for assistance from the IMF, which typically requires borrowing nations to adopt austerity-minded policies and remove burdensome government regulations.

Seoul's distaste for sacrificing its economic sovereignty was underscored by a last-minute scramble to obtain direct assistance from the United States and Japan.

In an appearance before foreign reporters yesterday, the newly appointed finance minister, Lim Chang Yuel, openly pleaded for support from Japan, Korea's ancient rival, warning repeatedly that Tokyo stood to suffer significant losses from Korea's travails. "If the Korean economy goes wrong, so does the Japanese economy," Lim was quoted as saying in wire service reports.

He raised the prospect that Korean borrowers would default on large loans from Japanese banks, and he also warned: "If the Korean currency [the won] cannot be saved, the won will depreciate more than its reasonable level and there is a high possibility the Japanese currency will be unstable."

Lim also suggested that Korea might benefit from the establishment of a special Asian fund to provide support to countries in the region that encounter financial difficulty.

A proposal to create such a fund was rejected by Asian and U.S. officials at a meeting in Manila on Wednesday, but Lim said he would favor its creation anyway.

His pleas apparently fell on deaf ears. U.S. officials publicly stated that any financial support would have to be coordinated by the IMF. At the same time, the financial markets were delivering a resoundingly negative response to a package of actions Lim had unveiled on Wednesday to stabilize the economy. The won quickly dropped the full amount that is allowed in a single day, 10 percent, closing at 1,129 to the dollar.

Following the clear failure of the government's package to win market approval, Lim met late last night with Stanley Fischer, the IMF's deputy director.

News that an IMF bailout was being negotiated lifted financial markets in Seoul, with the won soaring 4 percent.

Sugawara reported from Tokyo, Blustein from Washington. Special correspondents Lee Keumhyun and Akiko Kashiwagi contributed to this report.