American crisis, global pain / Hopes of weathering the storm

SEOUL —  The world’s 12th-largest economy is feeling the whipsaw of Wall Street’s collapse.

Trading started poorly today after news that Congress had rejected the $700-billion bailout for the U.S. markets. In the first 15 minutes of trading, the Korea Composite Stock Price Index fell 69.96 points, or 4.8%.

Stocks have stumbled since a string of U.S. bank failures. On Monday, the South Korean won plunged to a nearly five-year low against the U.S. dollar, prompting speculation about another round of government intervention to support it.

Still, government officials have cautioned against overreacting.

South Korea survived its own stock market wreck in 1997, when the Asian financial crisis prompted a $58-billion bailout package arranged by the International Monetary Fund. Minister of Strategy and Finance Kang Man-soo told reporters last week that the economy was far healthier now.

“I think the Korean government would be able to minimize the negative effect on the economy,” Kang told reporters last week.

Others aren’t so sure. Some economists here warn that the Wall Street debacle could prompt foreign investors to withdraw money from South Korean equities, bonds and real estate to compensate for losses elsewhere.

South Korea depends heavily on exports, especially to the U.S., making the country vulnerable to sharp drops in U.S. demand.

Economists say South Korea must perform a balancing act. “Korea’s exports to developing countries, such as China and oil-producing countries, are doing fine,” said Kim Hyun-wook of the Korea Development Institute.

“As long as the economic downturns of developed countries do not spill over to developing countries that are our trade partners, the effects from the U.S. economy will be limited.”

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john.glionna@latimes.com

Lee is a special correspondent and Glionna a Times staff writer.