South Korea's prospects cut

The outlook for Korea's economy is declining as global IT demand falls

By Alex Frew McMillan in Hong Kong

SEOUL, South Korea (CNN) -- A key think tank on Friday cut its forecast for South Korean growth this year.

The state-run Korea Development Institute (KDI) trimmed its take on 2001 economic expansion to 4 percent, from 4.3 percent.

It blamed bleak prospects worldwide and the slump in exports at home. Seoul-based KDI had already dropped its 2001 estimate in April, from 5.1 percent.

The target for this year is well below the country's growth of 8.8 percent in 2000. The KDI's president, Kang Bong Kyun, said there was room for another drop.

Prospects not good for Korea, Taiwan

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Prospects are not good for technology- and export-driven economies such as South Korea.

The leading think tank in Taiwan cut its outlook on that island's economy even more drastically last week. The Academia Sinica knocked its forecast to 2.4 percent, from 5.2 percent.

Like South Korea, Taiwan typically gets a healthy dose of growth from its computer-chip makers.

But chip sales have turned drastically down, as demand for electronics and computers slumps worldwide.

Prices for the kind of chips that South Korean companies specialize in have collapsed. The price for dynamic random access memory chips has dropped 90 percent this year, to $1 from $9.

Samsung Electronics, the world's largest memory-chip maker, and Hynix Semiconductor, the world's No. 3, both specialize in DRAM chips.

Trimming expansion plans

Both said this week they would cut spending on plant expansion and improvement this year. The two companies reported second-quarter results this week that showed sharp declines.

That kind of decision is reflected in KDI's figures -- the think tank forecast capital spending, on new or improved factories and the like, would drop 2 percent this year.

South Korea's chip exports fell 60 percent in July, according to a report. But chips aren't South Korea's only problem.

Its conglomerates are still laboring under a huge debt load left from the 1997 Asian financial crisis.

The South Korean government is trying to figure out how to offload its stakes in Korea's banks, many of which it took over after the crisis.

KDI said the government should push ahead with reforms, to keep overseas investor confidence in the country.

The government didn't do enough to help in the first half of the year, the think tank said, concluding it should inject more money into the economy for the rest of 2001.