President Yoon's Order: "Defense Acquisition Program Administration to Expand Financial Support" Within a Week

Increase in Funding Supply Scale by 50%... Over 1 Trillion Won Financial Support for 3 Years

[Image source=Yonhap News]

[Asia Economy Yang Nak-gyu, Military Specialist Reporter] The government will provide more than 1 trillion won in financial support to the defense industry over the next three years starting next year to continue the export growth momentum of 'K-Defense Industry'.

On the 1st, the Defense Acquisition Program Administration (DAPA) announced the 'Plan to Strengthen Financial Support for the Defense Industry,' which includes creating a 120 billion won Defense Technology Innovation Fund to encourage advanced science and technology venture companies to enter the defense sector and inducing the formation of private defense funds. This defense finance support package was released just one week after President Yoon Suk-yeol chaired the Defense Export Strategy Meeting on the 24th of last month and ordered the strengthening of financial support.

According to the plan to strengthen financial support, a dedicated bank (Hana Bank), which integrates and manages DAPA's research and development (R&D) funds, will invest 60 billion won in a mother fund, and the mother fund will attract an equal amount of private investment, raising a total of 120 billion won. The first-year 40 billion won has already been raised.

Through appropriate evaluation of defense technology, financial support for technology finance will be strengthened, and the creation of funds investing in companies promoting 'open innovation' such as mergers and acquisitions and technology transfer will also be considered. Financial support will be expanded to defense small and medium enterprises (SMEs) and partner companies through policy finance. For defense companies and their partners, a preferential loan guarantee (guarantee fee, guarantee ratio) will be newly established at the Korea Technology Finance Corporation, including a 20 billion won corporate bank agreement guarantee, and guarantee programs for defense export companies' partners will be prepared at the Defense Material Trade Support Center (KODITS) and the Korea Trade Insurance Corporation.

Discussions will be held to include the defense sector as a 'priority support project' target of policy financial institutions. DAPA has planned to support about 200 billion won over three years to SMEs and partner companies through these policy financial institution programs. The current financial support program, the interest subsidy loan project, will be improved to allow support for more than twice a year per export item.

The interest subsidy loan project is a financial support system in which the government pays up to 87.5% of the interest rate charged by financial companies to defense companies, and currently, support is provided only once a year per item. From next year to 2025, 600 billion to 700 billion won will be supplied through the interest subsidy loan project. Accordingly, the scale of fund supply over the next three years will be at least 1 trillion won, which is more than a 50% increase compared to the current focus on the interest subsidy loan project.

In addition to loan support, plans to promote exports through financial support to importing countries or investment in social overhead capital (SOC) will also be considered. A Framework Agreement (FA) system will be introduced between the Export-Import Bank of Korea and defense importing countries, and linking SOC and resource development rights of weapon-importing countries with export payments will be reviewed. The FA system is a system where the export target country and the Export-Import Bank pre-establish financial support limits and procedures, and when a Korean company's export is decided, financial support is promptly provided. It is currently applied in energy and other sectors, and the plan is to apply it to the defense sector as well.

Plans to secure export payments from SOC and resource revenues by linking them with SOC and resource development rights of developing countries with weak financial power are also being reviewed. However, the linkage between defense exports and SOC/resource development is still in the conceptual stage and is expected to take time to materialize.

Furthermore, to improve the financial support environment for the defense sector, a government-wide and inter-agency working-level consultative body related to defense industry promotion, including financial support, will be formed, and the financial soundness of the Defense Industry Mutual Aid Association will be strengthened.

The Defense Industry Mutual Aid Association was established last year to provide guarantees and mutual aid to defense companies. Efforts will also be made to change the perception of financial institutions that are reluctant to invest by evaluating the defense sector as a business contrary to Environmental, Social, and Governance (ESG) principles.

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