Seoul is hoping that massive injections of new funds will clear gloomy economic skies caused by Covid-19's rampage. Photo: Andrew Salmon/Asia Times

South Korean President Moon Jae-in said on Tuesday he was doubling last week’s 50 trillion won (US$40 billion) aid package for businesses to 100 trillion won, plans for bond and stock market stabilization funds were revealed and a major province announced a “disaster basic income” for all residents.

Tuesday’s moves were the latest in a series of steps the country has taken to shore up its economic flood gates.

Last week, the National Assembly approved a supplementary budget worth 11.7 trillion won ($9.5 billion), while Moon announced a 50 trillion won emergency aid package. Also last week, the Bank of Korea slashed its benchmark interest rate to a record low of 0.75%. And, the country was the beneficiary of a currency swap arrangement with the US Federal Reserve.

South Korea, a global top-two infection hot zone in February, has managed the novel coronavirus crisis to the point where it has been seeing falling numbers of new infections in March. It has done this without enacting the city- or country-wide lockdowns seen across much of China, Europe and the United States. Across Korea, many businesses – shops, restaurants and cafes, even bars, night clubs and gymnasia – remain open.

Even so, viral fear has dramatically undercut social and commercial intercourse. Capital markets have been hammered, and the evaporation of consumption across the developed world is expected to gut Korea’s exports. All this suggests looming economic damage that could thrust South Korea into its first recession since the 1998 Asian financial crisis.  

‘Firm breakwater’

In an Emergency Economic Council meeting, Moon announced he was doubling the financial package announced last week from 50 trillion ($40 billion) to 100 trillion won ($80.3 billion) in total. Last week’s package, comprising government-backed loans and aid, was largely aimed at the self-employed, mom ‘n pops and SMEs. The expanded package has broadened its scope to encompass major businesses.

In televised comments, Moon said the government will act as a “firm breakwater” and vowed that no company would founder due to a lack of liquidity. Concerns are current that businesses could face liquidity crises arising from imploding global supply chains, nose-diving exports and subsequent credit rating downgrades, Moon said.

In further measures, Seoul will reactivate a bond-market stabilization fund first activated during the 2008 global financial crisis. Worth 20 trillion won, it is, according to Yonhap news agency, double the fund’s size in 2008. According to Financial Services Commission Chairman Eun Sung-soo, who was speaking separately from Moon, the fund will be put together by dozens of financial companies.

Moreover, a 10.7 trillion won securities market stabilization fund will be launched by brokerages to obviate capital outflows. That fund will be more than 20 times the size of the 500 billion won funding made available for the same purpose in 2008, Moon said.

Markets were impressed. The KOSPI, which has lost approximately one-third of its value since the advent of the virus crisis, closed up 8.6% on Tuesday, more than reversing a 5% plunge on Monday. The Korean won also gained ground.

Money for all

In separate developments, Gyeonggi Province Governor Lee Jae-myung announced in a news conference that his province would pay 100,000 won to every resident of the province, regardless of their income level, in April.

Gyeonggi, the prosperous province which surrounds Seoul, is home to about 13 million inhabitants. It encompasses the port city of Incheon, the electronics manufacturing hub of Suwon and the high-tech cluster of Pangyo.

The money will be paid via debit card, and should be redeemed in three months, according to reports.

Gyeonggi is the first province in South Korea to pay out “disaster basic income.” Though Seoul has said it will not introduce the measure on the national level, it has become a hot issue, with a number of provinces actively mulling the measure.

National Assembly elections, which are held every four years, are scheduled on April 15.