The South Korean government announced a 90-trillion-won economic package to support key industries and stabilize the job market at the fifth emergency economic meeting on Wednesday. 40 trillion won will be allocated for key industries such as the airline, shipping, shipbuilding and car industries under the condition that they retain jobs and limit the payroll. 35 trillion won will be used to buy corporate bonds and support small businesses while 10 trillion won will be set for stabilizing the job market. The total COVID-19 financial support from the government now adds up to 240 trillion won, which is more than 10 percent of the nation’s GDP.
As the coronavirus outbreak prolongs, not only small but also large businesses are faced with a lack of liquidity. The National Assembly Research Service estimates that the airline industry, hit hardest by COVID-19, has lost 6 trillion won in revenues for the past four months. The operating loss of four oil refineries is expected to exceed 3 trillion won for the first quarter of the year, and the automotive, steel and machinery construction industries are also on the brink of collapse due to a sharp drop in production and demand. Their crisis will inevitably ripple through related industries, which will then result in millions of job losses.
The government took a step in the right direction by creating a fund to address both short-term and long-term challenges brought by the outbreak. The problem is the timing. The new package for key industries requires changes in the law as well as the third supplementary budget to secure the fund. Discussions about the 9-trillion-won emergency relief grant, which requires the second supplementary budget, have been ongoing for a month, which, of course, will affect the timeline for the third supplementary budget. Weeks of discussions between the government and the National Assembly can jeopardize the future of key industries. This is why the fund for the new package should be created separately and made accessible as soon as possible in cooperation with financial institutions.
South Korean President Moon Jae-in said at the Wednesday meeting that the government would formulate “South Korea’s New Deal,” a large government-let project that involves creating 550,000 jobs. The new policies will be designed to overcome the coronavirus crisis just as the New Deal was deployed by the U.S. government in the 1930s to deal with the Great Depression, which involved creating public jobs and building large infrastructure. If South Korea’s New Deal were to be a success, the government should take pressure off key industries as quickly as possible while devising plans to create new innovative industries.