S. Korea's normally high growth rate now in an ominous slump

Signs of economic slowdown in South Korea are abundant these days: On Yoido, an island in the Hangang River being developed as Seoul's financial district, newly constructed glass-and-concrete towers stand roughly half-occupied.

The nation's shipbuilders admit privately that they are now bidding for contracts at prices below production costs -- an effort to survive until demand revives in globally depressed tanker markets.

And with budgets curtailed in most oil-producing nations, some 60,000 South Korean construction workers have returned from the Middle East since last year. Few have found jobs at home.

Such are the indications that South Korea, the giant among East Asia's four newly industrialized countries (NICs) faces what many view as an imminent medium-term recession. As elsewhere in Asia, South Korea's downturn has aggravated its deeper economic problems.

Although growth rates in the region will remain above the global average, South Korea's -- as well as the growth rates of its chief competitors, Taiwan, Hong Kong, and Singapore -- will fall far short of official forecasts this year. For the first six months of 1985 output expanded by just over 3 percent -- the nation's worst performance in five years and less than half the rate anticipated by Seoul's economic planners.

Exports -- more crucial to South Korea than to any of the other NICs -- went down in value by 3.5 percent between January and July. Last year they grew by 13.5 percent, fueling an economic growth rate of 7.6 percent.

Preoccupied with production, South Korea and the other NICs have not yet developed adequate financial systems; many of the region's fledgling companies have gone deeply into debt while trying to cope with the demands of rapid growth.

Nor have the NICs diversified their markets away from the United States and, to a lesser extent, Europe. For example, more than a third of South Korea's exports go to the US.

As wage levels and standards of living rise, all of the NICs have recognized the need to invest in higher-technology industries. None has done so quickly enough to avoid what South Koreans call ``the economic sandwich.'' They are stuck in the middle: On one hand, they are losing their competitive edge to lower-wage countries in basic industries like textiles and simple electronics assembly; on the other hand, they lack the high technology to compete with developed countries in computers and advanced ele ctronics.

All over the region, the questions are being asked: Are the days of high growth over forever? When will East Asia develop the economic resilience needed to withstand cyclical downturns more smoothly?

In South Korea, this year's poor performance is adding to President Chun Doo Hwan's political problems. Labor unrest -- highly unusual in South Korea until recently -- is mounting. So are protests from the administration's critics in the National Assembly.

Perhaps most ominous is that Mr. Chun's technocrats may be losing their grip on economic policy. That would set back the administration's long-term efforts to improve economic stability. Last year the government began a liberalization program intended to reduce import tariffs and other regulations that shield South Korea's industries. The goals are to strengthen local companies by permitting more competition and to deflect protectionist sentiments in the US and elsewhere.

Government planners have also been trying to decentralize the economy and improve the distribution of wealth. In particular, they have sought to reduce the influence of the huge industrial conglomerates -- known as chaebol, or business clans -- that dominate the economy. Both policies are now under attack from conservatives in the private sector and from the government bureaucracy.

Apart from domestic pressures, South Korea faces some broader economic imperatives. At nearly $50 billion, its foreign debt is the fourth largest in the developing world, behind those of Brazil, Mexico, and Argentina. Although it is still considered a reliable borrower, South Korea must maintain a careful balance between its external obligations and its foreign-exchange earnings.

``The Koreans have to export in their sleep to service a debt of that size,'' says one foreign analyst in Seoul.

In addition, some 500,000 new workers enter the South Korean job market annually. Providing jobs for them requires economic growth of at least 5 to 6 percent, according to local economists.

Many observers suggest that the government's pump-priming measures will prove to be too little and too late to meet these challenges. Although the government has revised its targets downward, it still hopes exports will grow by 28 percent in the second half 1985. Few economists think that possible.