South Korea has reached an initial agreement with the International Monetary Fund (IMF) on a big loan package that would require Seoul to liquidate troubled merchant banks and lower economic growth. The cabinet endorsed the tentative agreement last night. Korea Broadcasting System (KBS) said the package would total $55 billion (£37 Billion) but it gave no source for that figure.

Analysts had said South Korea would need at least $40 billion to $60 billion from an IMF-led rescue package.

KBS said that Seoul had agreed to a third-party takeover of troubled commercial banks, and had agreed to lower growth in 1998 to 2.5 per cent against an estimated 1997 rise in gross domestic product (GDP) of 6.0 per cent.

The agreement was reached in the early hours after an allnight negotiating session between Finance Minister Mr Lim Chang-yuel and the IMF team in Seoul.