Financial Services Commission Refutes 'Twisting Financial Sector's Arm to Mobilize New Deal'... "Independent Strategy Following New Opportunities"

"Liquidity Increases and Low Interest Rates Persist, Financial Firms Also Lack Suitable Investment Destinations"
"New Deal Fund Differentiated in Many Aspects from Past Green and Unification Funds"

[Asia Economy Reporter Kim Hyo-jin] The government has rebutted criticisms that it created a 'government-controlled fund' by mobilizing the financial sector and forced financial institutions to invest in New Deal sectors.

On the 5th, the Financial Services Commission (FSC) expressed this position through a Q&A style press reference material.

Hong Nam-ki, Deputy Prime Minister and Minister of Economy and Finance (right), and Eun Sung-soo, Chairman of the Financial Services Commission, are announcing the 'Korean New Deal Financial Support Plan' at the briefing room of the Government Seoul Office in Gwanghwamun, Seoul, on the 3rd. / Photo by Moon Ho-nam munonam@

The FSC stated, "With increasing liquidity and a continued low-interest rate environment, financial companies have limited suitable investment options," adding, "Many financial firms recognize New Deal sectors such as digital and green not as 'passive support targets' but as 'new opportunities.'"

Accordingly, financial companies may gain investment opportunities by utilizing fiscal risk-sharing and accumulate experience in project analysis and investment. The FSC emphasized, "The New Deal sector investment plans announced by financial firms are based on their own management strategies."

The five major financial groups?KB Financial, Shinhan Financial, Hana Financial, Woori Financial, and NH Nonghyup Financial?have successively announced New Deal-related investment and loan plans worth tens of trillions of won since July. Their plans have become more concrete and expanded following the first Korean New Deal Strategy Meeting chaired by President Moon Jae-in on the 3rd.

Regarding the 20 trillion won scale policy-type New Deal fund supporting the Korean New Deal, the FSC explained, "The fund is created by utilizing excess liquidity in the market."

In response to the criticism that "losses are covered by taxpayers' money," the FSC said, "Since safeguards are necessary to smoothly attract private capital, a certain level of fiscal input is required," and predicted, "In this case, the effect (private capital of 17 trillion won) will exceed the fiscal input (3 trillion won)."

The FSC added that fiscal funds playing a subordinated risk-bearing role is a common policy measure to attract private capital and that there are already many precedents. Examples include the Smart Korea Fund investing in startups and venture companies and the Corporate Structural Innovation Fund investing in restructuring companies.

"Digital and green are globally spotlighted new industries... business concreteness is at a considerable level"
"New Deal funds differ in nature from private equity funds due to risk-sharing mechanisms"

Regarding the criticism that government-led funds have mostly failed in the past and thus this one is likely to fail as well, the FSC diagnosed, "Past funds such as the Green Fund and Unification Fund lacked substantial business content comparatively."

The FSC evaluated that digital and green are globally spotlighted new industry sectors, related budget projects have been selected, and the business concreteness is at a considerable level. In this regard, the Korean New Deal is differentiated from past government-controlled funds. The FSC also stated, "Considerable experience in policy fund management has been accumulated over recent years."

Additionally, the FSC rebutted the criticism that "the scope of the New Deal is unclear and lacks concreteness due to the absence of projects" by explaining that the next year's budget proposal announced on the 1st includes a specific budget of 21.3 trillion won related to the New Deal.

The government plans to invest this budget in building a data dam, strengthening the DNA ecosystem such as 5G and artificial intelligence (AI)-based intelligent government, constructing intelligent smart grids, supporting renewable energy, and expanding low-carbon and distributed energy.

Regarding concerns that New Deal fund investors might suffer significant losses like the recent private equity fund accidents, the FSC acknowledged the possibility of losses during the investment process in principle but explained, "In the case of policy-type funds, the fiscal sector bears subordinated risk, and infrastructure funds involve construction companies and IBs as equity investors in related projects, so their nature differs from private equity funds that have no risk-sharing mechanisms."

The FSC added, "Private New Deal funds investing in stocks or ETFs of New Deal-related companies are typical public offering funds, exposing investors to stock price decline risks," and stated, "We will sufficiently explain the fund structure and investment precautions to investors and encourage their investment decisions."

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