South Korea's prospects trimmed

A bill making its way through Korea's government could chill reforms and interest from overseas banks

By CNN's Alex Frew McMillan and wire reports

SEOUL, South Korea -- South Korea's growth is lagging sharply and could get even worse, according to the latest forecasts.

But the country's finance minister said Friday that the nation can still hit 5 percent growth for the second half of the year.

The Organization for Economic Cooperation and Development dropped its forecast for South Korea to 4 percent, from 4.2 percent, on Thursday.

The forecast, prepared with input from the government, matched official forecasts. The state-run Korea Development Institute dropped its take in July.

A slump in exports and in key Korean products such as computer chips have hit home. Korea grew at an 8.8 percent clip last year.

Finance Minister Jin Nyum said it was hard to see when South Korea would rebound. Fresh data this week showed exports fell a record 20 percent for July, the fifth straight monthly drop.

But Jin said South Korea could hit 5 percent growth in the second half of 2001, particularly if the U.S. economy picks back up.

Chaebols still target for change

The International Monetary Fund also dropped its forecast on the country's growth for the year to 3.5 percent on Thursday. It warned there is "significant downside risk" that Korea's prospects could get worse.

Groups like the IMF and the World Bank have pressed it to deal with a large amount of government-controlled debt.

South Korea is still fighting its way out of the aftermath of the Asian financial crisis. The IMF helped bail Korea out with $58 billion in loans.

Korea is also trying to reform its chaebols, the huge conglomerates that dominate its business scene.

A new bill making its way through Korea's National Assembly could set back those reforms. The Corporate Restructuring Promotion Law might make it easier for banks to trickle loans to unsuccessful businesses.

South Korea took over many of its banks post-1997. It has aggressively courted overseas banks to buy stakes in those banks, with decent success.

But the new law would let companies get new loans if 75 percent of its creditor banks agree to extend them.

Even banks that disagree with such bailouts would be bound by the decision, which might put off harder-line overseas banks.

Reuters contributed to this report.