S.Korea joins global rescue, crisis summit planned

By Tomasz Janowski and Elizabeth Piper

SINGAPORE/LONDON (Reuters) - South Korea joined efforts on Sunday to shore up banks and markets pummeled by the biggest economic crisis since the Great Depression which world leaders said called for a coordinated global response.

Authorities in Seoul pledged $130 billion in state guarantees and capital injections hours after U.S. and European leaders said they planned to hold a series of global summits to try to form an action plan.

The crisis has raised fears in the West that many countries could enter recession this year and next, but for China, one country certain it will survive the financial meltdown, the criticism was clear -- it was the West's fault.

The official Xinhua news agency blamed U.S. consumers for fuelling the crisis with reckless spending, saying in an opinion piece from New York: "Many people think that you cannot de-link the consumer concept of 'eating the corn while it is still on the stalk' and this financial crisis which has a deep impact."

The crisis has spread across the world, forcing governments to dig deep to support banks unwilling to lend for fear of losing money. Countries such as Iceland, Ukraine and Pakistan have asked for aid to prop up their economies.

In the Middle East, a newspaper said the United Arab Emirates would inject 70 billion dirhams ($19.06 billion) into long-term bank deposits, and Oman's Chamber of Commerce and Industry called for a cash injection into banks for financing.

REFORM FINANCIAL SYSTEM

U.S. President George W. Bush said on Saturday he would host the first crisis summit, due to be held soon after a November 4 presidential election.

A statement after his meeting with French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso at the presidential retreat in Camp David said it would focus on "principles of reform" needed to fix the financial system.


"Later summits would be designed to implement agreement on specific steps," the statement said, adding that other world leaders would be contacted beginning next week.

Bush leaves office in January and a White House spokesman said he did not know whether the newly elected president, either Democrat Barack Obama or Republican John McCain, would be invited to attend the first summit.

Japan, which chairs the Group of Eight, supported the summits, but its finance minister said they would be worthwhile only if they produced concrete results.

"If a summit were to be held, it should come up with a strong action plan or a decision," Finance Minister Shoichi Nakagawa said on Sunday.

RESTORATION OF TRUST

In Seoul, authorities rushed out the rescue plan to bolster local markets plagued by worries that local banks' high level of foreign borrowing makes Asia's fourth-largest economy particularly vulnerable to the 14-month-old credit crisis.

"The government has decided to join in global coordinated efforts to stabilize financial markets and we'll continue to provide pre-emptive, decisive and sufficient measures to this end," Finance Minister Kang Man-soo told reporters.

Analysts welcomed the measures, saying they should soothe local markets. They expected the central bank to trim interest rates as early as next month to prop up sagging domestic demand.

"The government has sent a strong signal to market players in a panic that they will stand as lender of last resort in a crisis," said Hong Sun-young at Samsung Economic Research Institute.

South Korean officials said they were not considering spending public funds on stakes in banks for now, but said could take such steps and offer deposit guarantees if necessary.

Dutch financial group ING is in talks with the Dutch government about a state-backed cash injection estimated to be worth up to 9 billion euros ($12.12 billion), Britain's Sunday Times newspaper said.

Governments around the world have pledged about $3.2 trillion -- about the same as the economic output of Germany -- in schemes that guarantee bank deposits, bank-to-bank lending, and taking stakes in banks to shore up their capital.

That came on top of huge cash injections into money markets and coordinated interest rate cuts to offer some respite to money markets, which seized up on fears of more bank failures after last month's bankruptcy of Lehman Brothers.

European Central Bank Governing Council member George Provopoulos said the measures would gradually ease pressure.

"Everyone's priority at this stage is the restoration of trust in international financial markets," he told Greece's To Vima newspaper.

Fears of the worst global recession since the 1930s have prompted some governments to change spending plans and others to advocate deep reform of the financial system.

In Britain, finance minister Alistair Darling said the government would have to borrow more to fund public spending to generate growth and employment.

"This is a time when you have to support the economy," he told the Sunday Telegraph. "We can allow borrowing to rise."

Spain was the latest country to say it would enter recession next year if the global economy suffered that fate.

Prime Minister Jose Luis Rodriguez Zapatero said the economy should return to growth by the second half of 2009, but was now either in negative quarterly growth or about to enter it.

Japan, the world's second biggest economy already teetering on the brink of recession, is set to slash its economic forecasts this month, Bank of Japan board member Atsushi Mizuno was quoted as saying.

(Reporting by Reuters bureaus worldwide; Editing by Andrew Dobbie)