Belated support could risk the nation’s entire economy

The impact of COVID-19 has started to materialize in key industries as five South Korean automakers are expected to export 43 percent less this month compared to the same month last year. In response, the government will discuss support measures for key industries in the fifth emergency meeting this week. Once lost, their global competitiveness is difficult to regain no matter how much time and effort you put into it. It is also worth noting that their crisis would inevitably ripple through other industries and push up unemployment.

The Korea Automobile Manufacturers Association said that Hyundai Motor’s exports went down from 90,000 units to 55,000 units this month year on year while Kia Motors’ exports decreased from 80,000 units to 46,000 units over the same period. Considering that 60 percent of South Korean cars are exported, a third of their revenues will be lost even though domestic demand remains strong. The automobile industry forecasts that 32.8 trillion won will be needed to prevent a series of bankruptcies in the industry. Other key industries such as the shipbuilding and petrochemical industries are already struggling with the lack of liquidity. In the first quarter of the year, the shipbuilding industry could not secure a single order for an LNG carrier, which is its strength.

The aviation industry, which saw a 90 percent drop in its international routes, is already in a coma. Its lost revenue for passenger flights stands at 600 billion won every month while Korean Air have asked 70 percent of its 19,000 domestic employees to take turns on leave. Nevertheless, there was no further support from the government since a 300 billion-won support was announced for low-cost carriers. This is a stark contrast to the U.S. government promised to provide more than 30 trillion won for its airline industry.

It is said that the South Korean government is looking at providing up to 20 trillion won in corporate bond guarantees for the new scheme that will be released this week. The government would back corporate bonds when they need re-issuing after expiration. This would help greatly businesses that suffer from a lack of liquidity as a result of their business credit scores adjusted downward, but it might not be enough to hold up the entire industries.

Many point out that government support for key industries has come late due to the April 15 general elections. Experts argue that the government delayed making the decision in regards to the support because they were worried that it might be seen as helping conglomerates. This is not about politics, however. The government should be swift and bold in protecting domestic companies that are competing in the global market. The government needs to consider the conditions of government support such as efforts to ease the burden of major shareholders, but it is much more important to introduce right measures at the right time.