Government-Guaranteed 40 Trillion Won Fund Raised by KDB... Priority Support for Aviation, Shipping, and Automobile Sectors

After Capital Expansion of National Policy Banks, Purchase Corporate Bonds and Commercial Papers to Supply Liquidity
Emergency Employment Stability Support of 1.5 Million Won for 930,000 People...Strengthening Protection for Vulnerable Groups
President Moon: "Innovative Growth Post-Corona through Projects with High Employment Effects"

[Image source=Yonhap News]

[Asia Economy reporters Kangwook Cho, Bokyung Kim, Sehee Jang] The decision to establish a 40 trillion won scale Industrial Stabilization Fund at the emergency economic meeting chaired by President Moon Jae-in on the 22nd is aimed at normalizing key industries such as aviation, which are facing crises due to the impact of the novel coronavirus disease (COVID-19). Separately, the government announced a 10 trillion won scale employment stabilization package policy to mitigate employment shocks.

This is an employment and key industry measure that came out two months after COVID-19 began to spread in earnest at the end of February. Until now, the government had been releasing piecemeal measures while monitoring the employment situation caused by COVID-19, but only after sensing the risk of a massive unemployment crisis did it finally announce bold and comprehensive measures.

Operation of 40 trillion won Industrial Stabilization Fund... "Employment Must Be Maintained"

The government plans to operate a 40 trillion won scale Industrial Stabilization Fund primarily through the Korea Development Bank (KDB). The fund will be operated in a form where KDB issues bonds and the government guarantees them. KDB will support companies through three methods: loans, guarantees, and equity investments, on the condition that companies maintain total employment. In other words, liquidity will be supplied to key industries in exchange for maintaining employment. KDB plans to support seven major key industries currently facing difficulties: aviation, shipping, automobile, shipbuilding, machinery, power, and telecommunications.

Detailed matters such as funding arrangements will be announced through future consultations. A likely approach is to expand the capital of policy banks such as KDB or the Export-Import Bank of Korea, and then have them purchase corporate bonds or commercial papers (CP) of key industry companies to supply liquidity. The establishment of a separate institution to purchase corporate bonds or CP is also under discussion. This model benchmarks the U.S. Federal Reserve's corporate bond purchase facilities (PMCCF, SMCCF) and CP purchase facility (CPFF).

Equity investments in key industries will be conducted through convertible bonds (CB). The idea is that when companies normalize, KDB will hold shares so that the public can share in the profits.

Regarding this, President Moon said on the day, "Instead of using taxpayers' money to protect key industries, we will impose corresponding obligations on the companies receiving support," adding, "We will establish measures such as maintaining total employment, self-help efforts, and profit sharing. Employment stability is a prerequisite for corporate support, and measures to prevent moral hazard such as restrictions on executive compensation, shareholder dividends, and treasury stock acquisitions will be implemented." He also stated that plans to share normalization profits with the public will be pursued.

The government's choice of guarantees over in-kind contributions to KDB appears to be due to budgetary and legal issues. To inject budget funds, a supplementary budget (extra budget) must be prepared, which requires parliamentary approval and takes a long time. In-kind contributions have limitations such as small amounts and long evaluation periods. According to the Ministry of Economy and Finance, the marketable stocks among public enterprises owned by the government amount to only 300 billion won. This is far from sufficient to raise the 40 trillion won scale funds currently needed. A government official said, "Only stocks of listed companies such as Industrial Bank of Korea and Korea Gas Corporation (KOGAS) are currently available for sale."

[Image source=Yonhap News]

10 Trillion Won Invested in Employment Package... Support for Special Types of Workers and Expansion of Public Jobs

The government emphasized that it will actively respond to the employment shock materializing due to COVID-19 by separately investing 10 trillion won in an emergency employment stabilization plan.

Measures have also been expanded for vulnerable groups in the employment safety net, such as special types of workers (STWs), freelancers, and unpaid leave workers who do not receive unemployment benefits. Emergency employment stabilization subsidies of 500,000 won per month will be provided for three months to 930,000 people. The reason for these measures is the late realization that the 200 billion won scale regional employment response support project prepared through the first supplementary budget was far from sufficient.

Aviation ground handling, duty-free shops, exhibition and international conference industries, and airport bus services have been designated as special employment support industries, and employment retention subsidies of up to 90% of leave (furlough) pay will be provided even to large companies. Payment deadlines for employment insurance premiums, industrial accident insurance premiums, and mandatory employment charges for the disabled have been extended by six months, and enforcement of delinquent collection has been deferred. For workers and job seekers in aviation ground handling and duty-free shops, the loan limit for living stabilization funds has been expanded and eligibility requirements relaxed.

Additionally, the government has injected emergency support into the labor market by expanding 100,000 non-face-to-face (untact) public jobs and 300,000 public jobs for vulnerable groups. Support funds will also be provided to private businesses hiring youth. According to the 'March Employment Trends,' the number of employed people in their 20s decreased by 176,000 compared to the same month last year, the largest decline among all age groups. This is because companies have postponed new hires due to COVID-19, and private jobs, such as part-time jobs mainly filled by youth, have significantly decreased.

President Moon emphasized, "In a situation where the private sector's capacity to create jobs is insufficient, the government will step in to create 500,000 jobs and provide them to the public," adding, "We will actively create public sector jobs and youth jobs to offer some consolation to those struggling to find employment." The government also plans to promptly normalize postponed public sector recruitment procedures.

Meanwhile, as early as next week, an Economic Central Countermeasures Headquarters system involving all economic ministries will be launched. It is expected that the crisis management meeting chaired by Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki, which had been held after the emergency economic meeting chaired by President Moon, will take on the role of the Economic Central Countermeasures Headquarters. A Ministry of Economy and Finance official said, "We plan to monitor whether COVID-19 response measures are functioning well in the market," adding, "If additional policy supplements are needed, we will continuously release appropriate measures."

President Moon stated, "The government needs to boldly promote large-scale projects for new job creation at a national level," emphasizing, "By promoting large-scale national projects with significant employment creation effects, we will not only create jobs but also uphold innovative growth in the post-COVID-19 era." He added, "Relevant ministries should promptly prepare a planning team to promote the so-called Korean version of the 'New Deal' as a large-scale national project."

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