Seoul has been going all-out to restrict the economic fallout from the Covid-19 outbreak this week, and following an interest rate cut on Monday, South Korea has committed 61.7 trillion won (US$48.36 billion) to buttress its economy.
Although the country has won international kudos for its measures taken against the novel coronavirus, and has refrained from the kind of draconian travel bans and extensive lockdowns underway in the EU and elsewhere, the trade-reliant economy is staggering from collateral impact.
Seoul this week announced two separate trenches of relief funds. On Thursday, President Moon Jae-in announced a 50 trillion ($39.1 billion) aid package for small businesses. Late on Tuesday, the National Assembly passed a highly-anticipated supplementary budget of 11.7 trillion won ($9.53 billion).
The two steps follow moves by the Bank of Korea, which chopped its benchmark to a record low of 0.75% on Monday, in an emergency play that followed the actions of the US Federal Reserve and other central banks.
Meanwhile, debate is underway about a “Disaster Basic Income” for some or all citizens. While this has been shot down by the administration, with National Assembly elections looming on April 15, some local governments are pushing ahead independently.
In downtown Seoul the owners of a coffee shop, a salad bar and a convenience store all told Asia Times the same thing – business is down by 50% or more.
Matters appear to be even worse beyond the capital.
“Revenues have decreased by more than 80%, and I feel the number of tourists has decreased by 70%,” said the owner of Cafe de Paris in Korea’s second city, Busan on the southeast coast. “Because of labor costs, I had no choice but to tell part-timers and employees to stay home until visitors start returning, so I am working alone.”
Almost every neighboring small business owner has either shup up shop or is working with minimal hope of earning. The owner of a small hotel at Busan’s iconic Haeundae Beach broke down in tears while speaking to Asia Times.
“I cannot even pay rent if Covid-19 keeps spreading, and our employees asked me if they can stay at home,” she said. “How can I do business without them? It is a real nightmare.”
The hotel has been closed for two weeks, but will reopen next week. “I have to reopen … I cannot just sit on my hands for like a month,” she said.
Both small businesses said they had received no offers of assistance from local governments, but may win some relief from central government steps taken this week.
Seoul steps in
President Moon Jae-in announced in an emergency economic policy meeting Thursday that the government would provide 50 trillion won ($39.1 billion) as emergency financing for small businesses, to prevent companies going bankrupt. The government did not specify the source of the money, but it is understood that Moon tapped “emergency funds the president can use without enlisting the cooperation with the National Assembly.”
Small businesses with less than 100 million won ($78,000) in annual revenues will be able to access cash to assist those worried about how to pay service loans.
Moon has characterized the economic impact of the Covid-19 outbreak as being worse than the 2008 global financial crisis, and has announced that the government will launch an Emergency Economic Council headed by himself, implying more measures for economic revival are in the pipeline.
Moon’s move on Thursday follows the National Assembly’s passage of a supplementary budget of 11.7 trillion won late on Tuesday.
The government submitted an extra budget request to the National Assembly on March 5, but it took 12 days for squabbling parties to pass it, largely intact. The government is set to execute more than 75% of the budget within two months.
It consists of four parts. A total of 2.4 trillion won ($1.95 billion) goes toward the healthcare system, 2.4 trillion won ($1.93 billion) will support SMEs, 3 trillion won ($2.41 billion) goes toward welfare and employment, and 600 billion won ($0.48 billion) is earmarked for Daegu and its surrounding North Gyeongsang Province, which Moon declared a “special disaster zone” on Sunday.
Some of the above will go toward direct payments, and $2.42 billion would be paid to 310,000 low-income households. Non-cash benefits are also coming online. Low-income groups whose health insurance is in the bottom 20% are eligible for 50% discounts on their insurance for three months, a measure that will assist 4.8 million families.
The budget has been increased for those who have not been earning for four months and they can access up to $484 per month. Employers can get up to $322 per employee to pay for indirect labor costs – welfare, insurance and similar payments. Supportive funds for those businesses that need to hire replacements amid the crisis were set at $646.
However, there was little for Daegu and North Gyeongsan – the city and province in the southeast that have been hardest hit. Some 1.7 million shops in the hot zone get a mere 50% electricity cost reduction.
More to come?
Some said the supplementary budget was too dispersed.
“I think the government is trying to have its cake and eat it,” Ahn Dong-hyun, a professor of economics at Seoul National University, told Asia Times. “As we have limited resources and budget, it should’ve put more effort into supporting people in [the most affected regions] Daegu and North Gyeongsang Province, not trying to support everyone.”
Ahn also expressed his frustration at the government for not focusing more sharply on supporting medical staff, companies and people who urgently need help.
Kim Tae-ki, a professor of economics at Dankook University, predicted the government would submit a second extra budget to the National Assembly after the April election, but warned it to be responsible: “The government should not bite off more than it can chew,” he warned.
Pundits variously expect another supplementary budget to follow in late April, May or June. Government officials have so far denied this speculation, but Ahn was unconvinced.
“As the situation in the US is getting worse, there will be no choice for the government but work up a budget again,” he said.
‘Disaster Basic Income’
Perhaps surprisingly, opinion is divided over the issue of “Disaster Basic Income,” which has become a locus of national debate.
Up to 57.6% of Koreans say they do not support giving every citizen $830, while 39.8% were in favor and the remainder undecided, according to a survey conducted Friday by local pollster Embrain Public.
Some localities are acting independently.
In the southwest, Jeonju City last week passed a bill to grant 527,158 won ($424) to 50,000 financially-hit citizens. The money, however, can only be spent in the city, and comes in the form of a debit card. Jeonju is the first city to take this action, but other are expected to follow, with three other governors making clear their intention to offer similar handouts.
However, it is not going to become national policy – at least not yet. Minister of Economy and Finance Hong Nam-ki was downbeat on the policy when questioned by lawmakers this week.