[Focus] KDI revises economic forecast downward

The Korea Development Institute (KDI) forecasts that Korea's economic growth rate will drop to 5.1 percent in 2001 and that the number of jobless people will temporarily increase by more than 200,000 from this year.

In particular, the KDI warned that the growth rate would decline further if restructuring of insolvent corporations is delayed and unions protest against it, leading to financial instability.

Also, it noted that the situation could deteriorate further if the government tries to postpone restructuring and just tries to take measures to boost the economy, calling for restructuring first and then boosting the economy second.

The KDI¡¯s economic outlook report said that the situation is deteriorating rapidly in both the domestic sector and for exports, considering various economic indicators. The forecast is 0.3 point lower than the 5.4 percent projected last October. It means that today¡¯s economic outlook is more pessimistic than two month ago.

The KDI pointed out that the economic downturn is attributed to worsening trade environment and unstable overseas financial markets at a time when corporate and financial sectors are still fragile. Also, political and social struggles are expanding, while financial scandals are uncovered, thus threatening restructuring and a market economy based on economic principle.

The economic recession, led by domestic businesses, is speedier than anticipated, so next year's economic growth rate will drop to 5.1 percent, according to the KDI. Private consumption growth will slow to 3.7 percent, far lower than this year's projected 7.4 percent rate. Facilities investment will increase by a meager 0.1 percent, and construction investment will increase by 2.2 percent, putting the total fixed investment increase at 1.2 percent.

The institute also predicted that the number of unemployed people would rise by more than 200,000 at some point, urging the need to create an unemployment program rather than taking short-term measures such as public development projects or introduction of an intern system.

Still, the KDI noted that the Korean economy is healthy enough to absorb the shock from the restructuring, as the current-account surplus will be maintained and inflationary pressure is relatively weak.

The KDI said that the recession could persist if there is no drastic cleaning of insolvency in corporate and financial sectors. In particular, uncertainties from the delay in liquidation of insolvent companies and financial institutions will remain as the leading factor in the nation's instability, it said.

In this connection, the government is required to refrain from intervening in voluntary mergers among healthy financial institutions while taking strong measures against illegal strikes by trade unions that might occur in the process of restructuring among domestic banks, the institute demanded.

Kwon Soon-Hwal shkwon@donga.com