[Deputy Manager Column] What Use Is Cash Support When Companies and Jobs Disappear?

[Asia Economy Reporter Kwangho Lee] The tsunami brought by the novel coronavirus infection (COVID-19) is plunging the domestic economy into a quagmire while bringing the global economy to a halt. As the wheels of the economy, which had been running actively, stop, damage is occurring across all sectors.

The 'February Industrial Activity Trend' announced by Statistics Korea on the 31st of last month clearly showed how severe the real economy shockwave, which will intensify going forward, will be. Although it only reflected about ten days after the occurrence of the 31st confirmed case (February 19), the starting point of the COVID-19 spread, the impact on the real economy appeared shockingly severe.

All three major industrial activity indicators?production, consumption, and investment?declined simultaneously. In particular, production and consumption decreased at the largest rate since February 2011, when the foot-and-mouth disease outbreak occurred, and the coincident index of economic conditions, which reflects the current economic situation, recorded a drop comparable to the global financial crisis.

The problem is that if the development of COVID-19 treatments and vaccines is delayed and the spread is not contained, companies may go bankrupt. It is also difficult to rule out the possibility that the chain bankruptcy of companies facing liquidity shortages could escalate into a financial crisis. In such a case, a massive unemployment crisis is inevitable.

The dismantling of Daewoo Group after the foreign exchange crisis is a representative example. In the late 1990s, when Daewoo’s cash flow was blocked, it issued corporate bonds to roll over funds, but eventually, the financial difficulties worsened, leading to a massive default. As a result, about 3,100 primary suppliers and approximately 10,000 partner companies collapsed together, causing 160,000 people to suffer from unemployment.

To prevent this, the government decided to significantly expand the 50 trillion won financial measures decided at the first emergency economic meeting and inject 100 trillion won worth of emergency corporate rescue funds. President Moon Jae-in said at the second emergency economic meeting on the 24th of last month that the global economy is in such a crisis that it is difficult to estimate when it will end, and that the government will definitely prevent companies from going bankrupt. This shows the government’s strong determination to serve as a solid breakwater against the huge wave of crisis facing companies.

However, some say this buffer is far from sufficient. There are also opinions that, rather than distributing money (cash support targeted at the bottom 70% income group) whose timing is uncertain, the government should focus intensively on corporate and employment issues and prioritize them. The finances of major countries such as the United States and Germany are also directed toward companies. Let us not forget that if companies and jobs disappear, cash support will be of no use.

This content was produced with the assistance of AI translation services.