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Critics claim that the government's lack of crisis management and inability to take responsibility and set definite policies might be setting the stage for another financial crisis.
Another crisis coming? Will there be another crisis? Many economists agree that it is unlikely to come any time soon, but they do not rule out the possibility if the government fails to adopt measures to remedy the deteriorating situation.
Private economic research institutes forecast that the slump of the domestic market will be prolonged while external economic circumstances are deteriorating owing to financial volatility and soaring oil prices. Oh Moon-Suk, researcher at the LG Economic Research Institute, said: "I believe that the Korean economy must have already hit its peak or may reach it before the year-end." With this background, most economists have lowered their economic forecasts for Korea in 2001.
The Korea Development Institute (KDI), the government think-tank on macroeconomic policy, said that Korea's economy will grow by around 5.4% in 2001, far lower than this year's projected 8.9% growth rate. KDI analysts even warned that Korea could face an abrupt economic downturn if the ongoing restructuring efforts fail to achieve any substantial progress, triggering steady or even amplified financial unrest.
Goldman Sachs, a U.S. investment bank, agreed with this assessment. It said that the Korean economy will grow by 5.5% next year, which is lower than its previous forecast of 6.5%. It pointed out that corporate facilities investment has been slowing since mid-1999 and this is expected to weaken Korea's growth potential in 2001.
With rising oil prices and increases in public utility charges, consumer prices are expected to increase by as much as 3.7% in 2001, according to the KDI. It also forecasts that Korea's balance of payments surplus may shrink to around US$6.8 billion, hit by the slowdown in the U.S. economy.
Also, the KDI stressed that the second-phase of restructuring needs decisive steps to liquidate large corporations that have lost the confidence of the market.
In early November, creditor banks, led by Hanvit Bank, announced a socalled hit...