The Korean stock market index, the Kospi, hit an 18-month low after Ford's decision. But it seems that the collapse of the deal was not the only factor at work. A banking analyst at ABN Amro, Scott Seo, pointed out that Daewoo's return to the auction block had come at a bad time for the economy. Patchy corporate governance and slowing reform are scaring off foreign investors. Bankruptcies are anticipated among second-tier chaebols in a few months as their bonds mature.
Investors are worried about a doomsday scenario.
The collapse of the Ford-Daewoo deal was described by Jim Simpson of Platinum Asset Management as a symptom of Korea's mounting economic problems. There's been no real hard restructuring as a result of the Asian crisis. It's been papered over. The currencies have been falling against the US dollar and oil is denominated in US dollars and Korea is at the cutting edge of that because its heavily indebted. In Indonesia, continued political turmoil is fuelling financial instability, with the stock market index at a 17-month low.