[Exclusive] Promised Support for COVID-19 Affected Small Businesses... 80 Billion Won Supplementary Budget Becomes an Empty Promise

800 Billion Won Support from Regional Credit Guarantee Fund Secured in 3rd Supplementary Budget, Tied Up in 5:1 Budget Matching with Local Governments
16 Local Governments Must Contribute a Total of 4 Trillion Won to Execute 800 Billion Won
Additional Contributions Difficult Due to Local Governments' Financial Conditions Worsened by Prolonged COVID-19 Expenditures

It has been confirmed that the KRW 80 billion in credit guarantee supply secured by the Ministry of SMEs and Startups through the third supplementary budget in July is tied up and not being properly utilized. Photo by Yonhap News

[Asia Economy Reporter Kim Heeyoon] It has been confirmed that the KRW 80 billion allocated for regional credit guarantee foundations through the third supplementary budget (supplementary budget) secured by the Ministry of SMEs and Startups in July has been tied up and not properly utilized. Although the supplementary budget was prepared under the name of supporting small business owners severely affected by the COVID-19 pandemic, actual support on the ground has not been provided in a timely manner.

According to the Regional Credit Guarantee Foundation on the 7th, the KRW 80 billion allocated for financial support to small business owners due to COVID-19 was provided on the condition of 'budget matching' with local governments but has effectively become useless. Previously, the Ministry of SMEs and Startups planned to execute the KRW 80 billion secured in the third supplementary budget by matching 20% with local government contributions. The structure was based on 16 metropolitan local governments contributing a total of KRW 400 billion, with KRW 80 billion executed accordingly. However, due to the severe shortage of local government contributions, the actual usable budget was only KRW 14.58 billion out of the KRW 80 billion. If this continues, KRW 65.4 billion, which is 80% of the budget, will be unused and returned to the national treasury.

Due to the prolonged COVID-19 pandemic, the required funds for the Regional Credit Guarantee Foundation, which has seen a surge in guarantee demands, were initially known to be around KRW 580 billion. However, this budget was reduced to KRW 80 billion, and the difference was to be contributed by local governments, according to a Regional Credit Guarantee Foundation official.

The Korea Credit Guarantee Foundation is an organization under the Ministry of SMEs and Startups, but the 16 regional credit guarantee foundations are composed of organizations under their respective local governments. The guarantee funds of regional credit guarantee foundations are prepared through local government contributions, government subsidies, and financial institution contributions. Since local government contributions are not mandatory, there have been significant differences in fund sizes among regional credit guarantee foundations.

Contribution amounts by local governments in 2020 and expected government matching contributions. Graphic by Jin-kyung Lee, Designer

As of July this year, local government contributions were KRW 65.3 billion in Seoul and KRW 72.7 billion in Gyeonggi Province, while contributions from Ulsan and Chungbuk were zero. Regional credit guarantee foundations under relatively financially sound local governments can provide at least some 'matching' support, but those under local governments with no contributions cannot use any of that money.

Additionally, the timing of local government contributions designated by the Ministry of Economy and Finance, which is after the supplementary budget approval date of July 3 this year, is also hindering budget utilization. Local governments usually plan contributions in the previous year and contribute to regional credit guarantee foundations early the following year, but due to many expenditures such as disaster relief payments amid COVID-19 in the first half of the year, local government financial conditions made additional contributions difficult.

After confirming these issues, the Ministry of SMEs and Startups listened to the opinions of the Korea Credit Guarantee Foundation and regional credit guarantee foundations and began consultations with the Ministry of Economy and Finance. Following the approval of the fourth supplementary budget on the 22nd of last month, they are reviewing ways to increase the execution rate of the relevant budget with the Ministry of Economy and Finance during the review process. Hwang Youngho, head of the Corporate Finance Division at the Ministry of SMEs and Startups, explained, "The KRW 80 billion budget was strongly intended as an incentive matching to encourage local government contributions to regional credit guarantee foundations, but due to the deterioration of local government finances caused by COVID-19, execution was difficult. We are discussing lowering the matching ratio or calculating the matching target contributions for the entire year or including next year's contributions to ensure smooth support for small business owners without budget waste."

Meanwhile, the guarantee scale of regional credit guarantee foundations continues to expand steadily. This is because loans have increased as the impact of COVID-19 persists and flood damage to local small business owners has spread due to concentrated heavy rains this summer. If this trend continues, there is concern about a liquidity crisis occurring as the appropriate operating multiple of 10 times is exceeded.

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