Busy Ministry of SMEs and Startups Intensifies Loss Compensation Discussions... Fiscal Burden Remains a 'Challenge'

Minister of SMEs and Startups nominee Kwon Chil-seung is answering questions from the press as he arrives for his first day at the hearing preparation office set up at the Small and Medium Business Technology Information Promotion Agency in Yeouido, Seoul, on the 22nd. Photo by Kim Hyun-min kimhyun81@

Discussions on institutionalizing compensation for losses suffered by small business owners and self-employed individuals due to the novel coronavirus infection (COVID-19) are gaining momentum. The Ministry of SMEs and Startups, along with related ministries such as the Ministry of Economy and Finance and the Ministry of Health and Welfare, is expected to begin consultations soon. However, since this is the first time such a system is being implemented, deciding on the beneficiaries, compensation levels, and execution framework is expected to be challenging. While the Ministry of Economy and Finance expresses reluctance citing fiscal deterioration, the Ministry of SMEs and Startups finds it burdensome to proactively lead the new system amid the absence of a minister.

◆ Direct order from Moon... The issue is 'budget' = On the 25th, President Moon Jae-in directly instructed the government to review the institutionalization of loss compensation, prompting related ministries to begin full-scale consultations. During a briefing at the Blue House with the Ministry of Health and Welfare, the Ministry of Food and Drug Safety, and the Korea Disease Control and Prevention Agency, President Moon requested the ruling party and government to review the promotion of the loss compensation system. He said, "I hope the Ministry of SMEs and Startups and related ministries, along with the ruling party and government, will jointly review ways to institutionalize loss compensation within a financially sustainable range for small business owners and self-employed individuals whose operations are restricted or prohibited due to government quarantine measures."

The biggest issue is the 'budget.' President Moon's mention of "a range that the budget can bear" reflects this concern. Due to four supplementary budgets executed last year for COVID-19 response, the national debt has increased, approaching the 1,000 trillion won mark. The Ministry of Economy and Finance is reluctant due to fiscal burdens. Earlier, on the 24th, Deputy Prime Minister and Minister of Economy and Finance Hong Nam-ki's absence from the ruling party-government-civil society meeting to discuss the loss compensation system, citing a cold and body ache, was interpreted as an indirect expression of dissatisfaction.

◆ Ministry of SMEs and Startups without a head: "Consulting with the Ministry of Economy and Finance" = The Ministry of SMEs and Startups, currently without a minister, is equally burdened. Above all, cooperation from the fiscal authority, the Ministry of Economy and Finance, is a prerequisite. The Ministry of SMEs and Startups has taken a fundamental stance to prepare through consultations with related ministries. Kang Sung-chun, Acting Minister (Vice Minister) of the Ministry of SMEs and Startups, stated, "We are also in the preparation stage," adding, "Consultations are proceeding centered on the Ministry of Economy and Finance." Jo Joo-hyun, Director of the Small Business Policy Office at the Ministry of SMEs and Startups, said, "We are reviewing various aspects," and "We are at the stage of gathering opinions through consultations with related ministries such as the Ministry of Economy and Finance."

Another official from the Ministry of SMEs and Startups said, "While considering contentious issues such as the minimum income reporting by small business owners, the scope and details of support are expected to be discussed through communication with the Ministry of Economy and Finance." He added, "During the process of providing the emergency relief fund to small business owners, other ministries and local governments also participated in consultations," and "There will be many matters to review and discuss." Loss compensation requires enormous fiscal resources and, as it aims for a permanent system, careful decisions on details are necessary.

◆ Political circles are moving quickly... "Compensation through expanded budget" = Meanwhile, political circles are accelerating efforts to institutionalize loss compensation by highlighting COVID-19 damages. On the 25th, Lee Dong-joo, a member of the Democratic Party of Korea, stated in a report, "Sales of small business owners and self-employed individuals subject to gathering bans and business restrictions decreased by up to 42% compared to 2019." According to Lee’s analysis of data from Korea Credit Data, the industries that suffered the greatest sales losses last year were entertainment bars and karaoke rooms, classified as priority management industries under government quarantine guidelines. Sales at entertainment bars and karaoke rooms dropped by 42.1% and 41.1%, respectively, compared to the previous year. Following these, arcades and multi-rooms saw sales decline sharply by 40.9% compared to the previous year.

Lee emphasized, "Discussions to estimate the amount of damage caused by COVID-19 and the scope of compensation must be accelerated." He added, "It is expected that the amount of damage will vary significantly across different industries and sizes," and argued, "Until now, emergency disaster relief funds have been provided to support the most vulnerable businesses, but now is the time for the state to provide substantial compensation through expanded fiscal spending."

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