Root Industry Pushed to Subordinated Position in Draft Fund... "Securing the Golden Time Is Key"

[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] The amendment to the Enforcement Decree of the Industrial Infrastructure Stabilization Fund (IISF), a 40 trillion won fund created in response to the COVID-19 pandemic, has passed the Cabinet meeting, completing the legal preparations for its full-scale operation. The business community emphasized that rapid decision-making and execution are more important than anything else to avoid missing the golden time, in connection with expanding the scope of support.

According to the Financial Services Commission on the 13th, the government passed the amendment to the Korea Development Bank Act Enforcement Decree containing these details at the Cabinet meeting on the 12th. The government decided to maintain the original plan to focus support on seven industries: aviation, shipping, machinery, automobile, shipbuilding, power, and telecommunications, while prioritizing support for the aviation and shipping industries. Support for the other industries will be considered based on market conditions and funding demand.

The business community welcomed the decision but stressed that expanding the support targets is urgently needed. In particular, the automobile and shipbuilding industries, which have been severely affected by the COVID-19 crisis, are placing their hopes on the results of the upcoming Fund Management Deliberation Committee.

Shin Dalseok, Chairman of the Automobile Industry Cooperative, said, "Although only aviation and shipping have been designated as priorities for now, I believe the automobile industry will be included through future consultations," adding, "The government is well aware of the urgent situation on the ground, so I expect the process to proceed quickly."

For example, Ssangyong Motor, which is expecting about 200 billion won from the IISF, recently had its labor union chairman emphasize the self-help efforts and communication efforts made so far, urging the government for active support. Ssangyong Motor has been facing a liquidity crisis as it recorded losses for 12 consecutive quarters, and its parent company, India Mahindra, reduced its initially promised investment of 230 billion won to 40 billion won. The company’s borrowings exceed 400 billion won, including a 190 billion won loan from the Korea Development Bank. Additionally, a 70 billion won loan from the Korea Development Bank is due in July.

The shipbuilding industry is in a similar situation. Korea’s shipbuilding orders in the first quarter of this year dropped 81.1% year-on-year to 360,000 CGT, with only 13 vessels ordered. The order amount also fell 77.2% to 1.02 billion dollars during the same period. Doosan Heavy Industries is receiving trillion-won scale funds from creditors due to liquidity issues and has already conducted two rounds of voluntary retirement this year.

Jung Ilkwon, Chairman of the Ssangyong Motor Labor Union, emphasized, "Our country’s automobile industry is dominated by monopolistic structures, making survival difficult for small-scale automobile companies," and added, "We will strive to secure resources through continuous and active communication with the government for the normalization of Ssangyong Motor’s management and employment stabilization."

The Fund Management Deliberation Committee will consist of seven members with a two-year term (renewable) and is expected to start operating around the end of this month. Considering the schedule, the business community expects the first round of support for aviation and shipping industries to take place around June or July, pointing out that swift decision-making will determine the success of this fund.

A business official said, "If the fund management committee members are selected, then they review and finally decide on support, it will take too long," emphasizing, "Companies cannot even guarantee their situation in May, so the success of the fund depends on the speed of execution."

Another business official said, "Due to the spread of shocks from COVID-19 and low oil prices, the damage to key industries such as automobile and shipbuilding is considerable," and added, "Since the government announced the 'support policy for seven industries,' we hope the government will promptly decide on the support schedule for other key industries as well."

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