S. Korea sets aside W5tr for subcontractors in key industries

South Korea will provide 5 trillion won ($4.12 billion) to subcontractors in key industrial sectors, in an extended move to shore up the economy amid the fallout of COVID-19, the nation’s top fiscal policymaker said Friday.

“Starting July, (the government) will supply operating fund loans to subcontractors in basic industries,” said Deputy Prime Minister and Finance Minister Hong Nam-ki in an economy-related ministerial meeting held at Seoul Government Complex.

Responding to the prolonged impact of the pandemic, Seoul’s authorities earlier came up with a financial aid package worth over 175 trillion won to inject liquidity in the market. Calls had been mounting for additional policy actions, however, small-sized subcontractors had limited access to the fund due to their low credit rating.

The loans will be offered through an upcoming special purpose vehicle to directly purchase corporate bonds and commercial papers from companies with low credit ratings. The SPV, consisting of 10 trillion won worth of loans including 1 trillion won of state budget, would provide liquidity by purchasing the primary collateralized bond obligations, according to the Ministry of Economy and Finance.

“Subcontractors play crucial roles in our industrial ecosystem but often find themselves in the blind spot of financial support,” Hong said.

“We expect (the latest measure) to be of tangible help for cash-strapped subcontractors as it offers an extraordinary loan in addition to the conventional credit line.”

In a separate move, the government will push for financial support worth 2 trillion won for subcontractors of automakers, he added.

Asia’s fourth-largest economy saw its auto exports nosedive 57.6 percent on-year in May, according to data by the Ministry of Trade, Industry and Energy.

The fiscal chief also renewed calls for the National Assembly to approve the pending extra budget bill worth 35.3 trillion won, pledging to execute 75 percent or more of the amount within three months to revive the virus-hit economy.

By Bae Hyun-jung (tellme@heraldcorp.com)