South Korea drafts up W89 tril. relief package to save virus-hit economy

The Korea Times

The Korea Times

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South Korea drafts up W89 tril. relief package to save virus-hit economy

Posted : 2020-04-22 17:08

Updated : 2020-04-23 11:31

Finance Minister Hong Nam-ki, center, Financial Services Commission (FSC) Chairman Eun Sung-soo, right, and Employment Minister Lee Jae-kap give a joint briefing at the Seoul Government Complex, Wednesday. Yonhap

Support measures to create jobs, help SMEs and airline biz

By Lee Kyung-min

The government said Wednesday that it will draft an 89.4 trillion won ($72.5 billion)economic relief package to help those hit by the COVID-19 pandemic, in its latest measure to keep the faltering economy from crashing further.

Finance Minister Hong Nam-ki, Financial Services Commission (FSC) Chairman Eun Sung-soo and Employment Minister Lee Jae-kap held a joint briefing at the Seoul Government Complex to discuss the measure.

A fund of 40 trillion won will be set up to help with liquidity shortages experienced by small firms as well as key industries underpinning the economy, notably the airline, equipment, energy, shipbuilding and marine, car manufacturing telecommunications and semiconductor businesses.

Thirty-five trillion won will be used to help small- and medium-sized enterprises (SMEs) and buy corporate bonds; while 10.1 trillion won will be spent to help businesses not lay off workers and to give financial assistance to those who have already lost their jobs. Around 550,000 jobs will be created in the public sector.

According to the finance ministry, of the 10.1 trillion won, 800 billion won will be immediately pulled from government-managed funds and reserves, as spending it does not need National Assembly approval.

The remaining 9.4 trillion program will be included in a bill to be submitted to the National Assembly for approval.

"The job-related package accounts for 40 percent of 2020 budget set aside for job creation initiatives. The plan will support 2.86 million people, nearly 2.5 times the number of those who lost jobs in 2019," Hong said in a briefing.

Of the total, 3.6 trillion won will be spent to pay young people and low-income earners who hold jobs created by the government.

Some 3.7 trillion won will be used to pay jobless claim benefits and job training undertaken by those recently laid off.

About 1.9 trillion won will be earmarked to give financial assistance to low-income earners who are not subscribers to the state-run unemployment insurance.

Rules will be eased to increase government subsidies offered to employers who pay workers on leave.

The FSC said the scope and the extent of the financial assistance will be extended to small firms experiencing temporary liquidity shocks.

As for the seven key industries, the degree of support will be conditioned on each firm's efforts to improve workers' job security and profit sharing following corporate profit recovery.

The support will be given to firms that have exhausted all other options before seeking government help. The fund will be used to increase corporate capital and facilitate liquidity flow.

"Firms that had experienced considerable deterioration long before the virus pandemic will undergo restructuring programs as scheduled. We will induce normalization of corporate management based on responsible and painstaking efforts exhibited by the firms and their major shareholders," Eun said.

Under the plan, which requires Assembly approval, firms will be able to take out loans with government backing. A joint investment project with the private sector will be allowed using special purpose vehicles (SPV) to set up funds.

Corporate autonomy will be guaranteed as long as both the management and unions reach a compromise to limit layoffs.

But the government will prohibit hefty payouts of CEOs' salaries, dividends and share buybacks, a crucial step to prevent moral hazards by firms bailed out with taxpayers' money.

The plan also includes ways to return to the public corporate profit generated after the virus-triggered shock ends.

The FSC plans to expand its primary collateralized bond obligations program by 5 trillion won. The government-run SPVs will buy commercial papers, corporate bonds and short-term debentures issued by low-credit rated firms.

lkm@koreatimes.co.kr