Additional public funds to be raised

The government will raise additional public funds needed for the restructuring of the finance sector by receiving the necessary approval from the National Assembly.

In addition, to alleviate the cash liquidity situation of mid-sized enterprises (SMEs) prior to Chuseok, Korean Thanksgiving, 4.5-5 trillion won will be supplied, and to urge banks to be more proactive in giving loans to SMEs, management evaluation will take into consideration support to such companies.

These financial market stabilization measures were devised through meetings with political parties and the financial policy committee held on August 23.

As this is the first time the government has officially disclosed the additional raising of public funds, in the National Assembly approval process, there may be voices demanding accountability for incompetence in raising 64 trillion in public funds previously.

Finance-Economic Minister Jin Nyum asserted that the government estimated the additional amount of public funds needed at around 30 trillion in last May.

The government was considering retrieving some of the already injected public funds and reusing them, but decided to amend the plan to account for recent situational changes. He added that the process of figuring out just how much more is needed by item has begun.

The Ministry of Finance and Economy plans to publish a white book detailing the use of public funds and their management by early September and will strongly enforce related personnel to take responsibility for bad management. Moreover, the ministry will allow Korea Deposit Insurance Corporation (KDIC) to file for compensation on behalf of financial institutions against debtor company owners. In addition, the ministry is likely to amend the existing law to allow KDIC and the Financial Supervisory Commission (FSC) to investigate the causes of insolvency.

On the other hand, for the alleviation of liquidity problems faced by companies, the government will make a complementary measure to the related policy to give more 3% p.a. low interest funds from the Bank of Korea to banks that deal out more corporate loans. Moreover, the government will reflect each bank¡¯s support performance for SMEs in their management evaluation. The government will buy RPs (repurchased agreements) from merchant banks, security brokerage firms and investment trust companies to alleviate their liquidity problems.

To give breathing space to mid-sized companies, the government plans to increase the limit on the primary collateralized bond obligation of the Korea Credit Guarantee Fund from the existing 250 billion won to 500 billion won and increase the limit on partial guarantees on CBOs from 25% to within 50%. The limit on guarantees on individual corporate bonds will be adjusted from the current 25% to 70%

Moreover, each bank¡¯s performance in credit facilities to SMEs will be strongly reflected in their management evaluation by the Financial Supervisory Service (FSS). In addition, if credit facilities have been properly handled, related personnel will not be questioned for responsibility even if the facilities go sour.

The government will speed up the review procedures of the Korea Credit Guarantee Fund and the Technology Credit Guarantee Fund and will allow these funds to make 14 trillion in guarantees to alleviate the liquidity problems of SMEs.

On the other hand, the finance policy coordination meeting decided upon to enact a prime minister`s order to prevent government intervention in the finance sector for the transparency of finance policies, and to improve the accounting system based on the treatment of insolvency accounting of Daewoo affiliates.