[Q&A] Hong Nam-ki: "Korean New Deal Fund, Virtually Principal Guaranteed"

'Briefing on the Establishment of a 국민참여형 New Deal Fund and New Deal Financial Support Measures'

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance (right), is reading the statement at a joint briefing on "Establishment of the Public Participation New Deal Fund and New Deal Financial Support Measures" with Eun Sung-soo, Chairman of the Financial Services Commission, at the Government Seoul Office in Gwanghwamun, Seoul, on the afternoon of the 3rd.

[Asia Economy Reporter Joo Sang-don] Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance, stated on the 3rd, "In the case of policy-type New Deal funds, policy finance typically covers about 35% of the subordinated bonds first, so it effectively has a nature and effect similar to a guarantee."

On this day, Deputy Prime Minister Hong made these remarks during a briefing on the 'Creation of 국민참여형 New Deal Fund and New Deal Financial Support Measures' at the Government Seoul Office.

The following are the main points from the Q&A session with Deputy Prime Minister Hong, Eun Sung-soo, Chairman of the Financial Services Commission, and the press corps.

▲ Is the principal guaranteed for the policy-type New Deal fund? And is the government's 7 trillion won investment a catalyst?

= The total 7 trillion won, consisting of 3 trillion won government investment and 4 trillion won policy funds, is indeed catalytic. As the Deputy Prime Minister mentioned, 3 trillion won goes into subordinated investment, and depending on the situation, the government finances an average of 35% as subordinated investment in the sub-funds. What this means is that the 35% absorbs all losses up to 35% loss from the fund's investments.

While risks are very high in cases like crude oil development, the projects here are New Deal or digital projects, mostly involving public institutions as counterparts, so such losses are unimaginable. Projects like Smart Schools or hydrogen charging stations already have tangible entities and predetermined business partners. Generally, these are stable, but to reassure, the government makes subordinated investments averaging 35%, so although the product does not explicitly state that the principal is guaranteed in advance, I can say that it has sufficient characteristics to guarantee the principal retrospectively.

▲ Is the government's tax benefit and support for the New Deal fund excessive?

= As previously announced, the government partially invests in policy-type funds. Generally, about 35% is covered by government funds and policy finance, and about 65% is matched by the private sector. Given the nature of policy-type funds, support through 35% of government funds and policy finance is deemed inevitable.

Additionally, a 9% low-rate separate taxation is applied to infrastructure funds. This is also judged necessary to provide minimal incentives for infrastructure funds to function as New Deal funds, so the government provides this level of tax support appropriately.

Some have raised concerns about excessiveness, but since New Deal projects typically have long investment periods and a strong public nature, such public support is considered necessary. We believe this will not distort the capital market.

▲ Among the previously announced 160 trillion won scale New Deal projects, how much is targeted by the New Deal fund?

= The New Deal fund does not have set goals on which New Deal projects or how much to invest. However, the government will actively identify New Deal projects suitable for participation by such funds.

To mention a few, the Green Smart School project exceeding 4 trillion won is a representative area where private capital and New Deal funds can participate. The expansion of hydrogen charging stations, about 500 billion won in scale, is also an area of interest for New Deal funds.

Besides these, participation in offshore wind power complexes, smart joint logistics centers, and investments in non-face-to-face work support facilities are also broad areas where the private sector can participate alongside New Deal funds.

▲ Are large corporations included in the New Deal fund investment targets?

= It depends on the investment target, but basically, it is not exclusively for large corporations. Nor is it that large corporations are excluded. In cases where large and small-medium enterprises collaborate on joint projects with significant support needs, large corporations can also be investment targets.

▲ Among various government policy funds, there is the existing Smart Korea Fund investing in non-face-to-face, bio, and Green New Deal sectors. What is the difference with this New Deal fund?

= As you know, the government announced that the Smart Korea Fund will raise 6 trillion won at 1 trillion won annually. This fund also invests in areas like non-face-to-face and bio, so it shares some aspects with the New Deal fund.

However, the difference is that while the Smart Korea Fund mainly focuses on bio and non-face-to-face sectors within a relatively narrow scope, the New Deal fund has a much broader scope. It covers all New Deal projects. If the Smart Korea Fund is considered a policy-type fund, the New Deal fund includes not only policy-type funds but also infrastructure New Deal funds and general private New Deal funds, making its scope much broader.

Therefore, the categories of investment targets also differ. The Smart Korea Fund, in my view, covers three areas: non-face-to-face, bio, and Green New Deal funds, which cover the previously mentioned 6 trillion won. The New Deal fund, however, covers all New Deal projects in addition to these. Also, the Smart Korea Fund mainly targets smart startups and venture companies, whereas the New Deal fund can invest not only in such startups or ventures but also in New Deal projects and companies related to these projects, which is the difference from the Smart Korea Fund.

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