The South Korean government will inject 100 trillion won in economic relief package, where 48.5 trillion won will be put into the financial markets and 51.6 trillion won will be funneled into small businesses, to ease the credit crunch triggered by the novel coronavirus called COVID-19. It plans to inject cash into large businesses as well to prevent them from going bankrupt due to a temporary liquidity squeeze.
The first phase of the package was aimed at stabilizing the livelihoods of the public, such as providing loans to small businesses while the second phase concentrates on supporting mid-sized and large businesses suffering financially from the fallout of the COVID-19 pandemic. The virus outbreaks have wreaked havoc on the corporate-bond market, making it extremely difficult for mid-sized and large businesses to finance.
The government is set to inject 48.5 trillion won into the financial markets. It will set up a corporate bond stabilization fund worth 20 trillion won, which is twice that of the 2008 financial crisis. It will also establish a stock market stabilization fund of 10.7 trillion won. In addition to the previously announced primary collateralized bond obligations (P-CBO) program worth 6.7 trillion won, the government plans to use another 4.1 trillion won in stabilizing the corporate bond market and 7 trillion won in supporting the commercial paper (CP) market.
Furthermore, the government will expand loans to small and medium-sized companies to 29.1 trillion won and decided to include large corporates as beneficiaries of the aid package. “We will include large corporates (as the beneficiaries of the aid package) if necessary, so that they will not go bankrupt due to a temporary liquidity squeeze,” said President Moon Jae-in.
After the announcement of economic relief package, the benchmark KOSPI on Tuesday closed at 1,609.97, up 127.51 points (8.60%) from the previous day, climbing above the 1,600-point mark. It was the steepest daily gain since 2008. The won-dollar exchange rate fell 16.9 won to finish at 1249.6 won per dollar.
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