S Korea closes IMF debt, signs AIG deal

President Kim has been pushing to reform South Korea's crippled economy

By CNN's Alex Frew McMillan and wire reports

SEOUL, South Korea -- South Korea has signed a final check for the International Monetary Fund to end the country's financial crisis nightmare.

Seoul got another dose of good news on Thursday, when a group led by insurance giant American International Group finally nailed down a stake in three financial businesses from the Hyundai group.

Though one is a corporate restructuring and the other a government move, both show how South Korea has progressed in its recovery from a crisis that brought the economy to its knees.

The IMF bailed out South Korea, heading a rescue package worth $58 billion, when its economy nosedived during the 1997-98 Asian financial crisis.

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It was one of the biggest loans in the IMF's history. At the time the IMF demanded the government reform the country's financial sector, and revamp its family-owned conglomerates, known as chaebols.

The IMF originally faulted South Korea's revamp efforts, saying the pace was not fast enough.

But South Korea paid back $140 million on Thursday, its final installment in the $19.5 billion it owed the Fund.

The IMF welcomed the news that the country was paying off its obligation early.

"Korea's early repayment of the full amount of loans from the IMF is a major milestone," IMF Managing Director Horst Koehler said in a letter to President Kim Dae-jung.

AIG deal

South Korea's economy is faring better than those of its Asian neigbors

In the latest sign efforts to spur corporate reforms are paying off, South Korea announced the AIG group had made a record foreign investment in the country.

AIG consortium has signed a memorandum of understanding to take management control of the three Hyundai businesses.

They include Korea's second-largest brokerage, Hyundai Securities.

South Korea has been forcing its chaebols to divest businesses, in a bid to break their stranglehold on the economy.

Hyundai Group is the second-biggest chaebol, surpassed earlier this year by Samsung Group after it spun off Hyundai Motor.

The total AIG deal is worth $1.6 billion (2 trillion won). The AIG team will pay 1.1 trillion won, with the South Korean government chipping in 900 billion won.

Negotiations have dragged on for more than a year. South Korea's finance minister, Jin Nyum, said he is pushing to conclude the talks before the end of August, to remove uncertainty from the stock market.

AIG and its partners will sign a final contract in October. The other businesses are Hyundai Investment Trust and Securities and Hyundai Investment Trust Management.

Korea tackling chaebols

Thursday's moves indicate that South Korea's economy is faring better than others in Asia.

Experts say it is because the country pushed further ahead with corporate and government reforms after the Asia crisis than its neighbors.

The Korean economy grew 2.7 percent in the second quarter. While it was its worst quarter in more than three years, it is still much better than most Asian economies.

Kim's government is also spearheading the debt restructuring of its banks and companies. Many South Korean companies labor under a huge debt burden.

Daewoo and Hynix talks continue

With one deal done, attention is shifting to troubled companies such as Daewoo Motor and Hynix Semiconductor.

Jin has demanded an end to negotiations to sell Daewoo Motor to General Motors by the end of August. Bankrupt Daewoo Motor collapsed under its debt, now at $17 billion, late last year.

Companies that owed dollars saw that debt spiral out of control during the financial crisis.

GM has been negotiating with creditors led by the Korea Development Bank for 10 months. GM is thought not to want Daewoo's largest plant at Bupyong, which was built in 1972.

Daewoo said Thursday that the Bupyong plant would post an operating profit this year. Still, if GM does not come through, South Korea says it will appoint outside management.

Not all attempts at corporate restructuring in Korean have met a warm reaction. Competitors such as Micron Technology view a potential debt-equity swap to help troubled chipmaker Hynix Semiconductor as a government bailout.

Creditors led by the Korea Exchange Bank are favoring a debt-equity swap of 2 trillion to 3 trillion won to keep Hynix afloat.

The government still owns major stakes in Hynix's creditors. So critics like Micron say the government is keeping the company afloat with favorable financing that amounts to a subsidy.

Investors sold off Hyundai Securities on news of the deal, sending its stock down 6.6 percent to 9,390 won. But it had risen 15 percent in a month.

Reuters contributed to this report.