South Korea increases COVID-19 Rescue Package to $80 billion

On Tuesday, South Korea increased a planned economic rescue package, making it double to 100 trillion won ($80 billion) to safeguard companies affected by the coronavirus and provide a foundation to falling stocks and bond markets.

Parts of Rescue Package

The package consists of 29.1 trillion won in loans to small and medium-sized companies, while another 20 trillion won is going to be utilized to purchase corporate bonds and commercial paper of companies encountering a credit crunch, President Moon Jae-in stated in an emergency economic meeting. The declaration follows the same measures by governments and central banks globally as the world economy faces the pressure due to the weight of national shutdowns. On Monday, the U.S. Federal Reserve, in a dire move, pledged to back purchases of corporate bonds and buy unlimited amounts of Treasury bonds to make sure credit flows to corporations and local governments.

“We will make sure that companies don’t go bankrupt from the COVID-19 shocks. Normal, competitive companies will never be shut just because of a temporary liquidity shortage,” Moon said during a meeting with finance chiefs and Bank of Korea Governor Lee Ju-yeol.

The rescue package has a part according to which the Financial Services Commission declared a 10.7 trillion won facility set up to stabilize stock markets. It is also going to start a bond-buying facility in April that is going to be funded by 84 institutions, consisting of the Bank of Korea, commercial banks and insurers.

Economic impact

South Korean companies are running to secure lifelines as self-isolation across the country affects restaurants, airlines, hotels and the entertainment industry in Asia’s fourth-largest economy. Investors are dropping their holdings of commodities, stocks and riskier bonds, resulting in funding constraints for companies.

The economic impact of the pandemic has erased about a third of the benchmark KOSPI share index this month, while the spread between corporate bonds and treasury debt has expanded, which is a sign of a possible credit crunch.

Over 210,000 small businesses have filed an application for “emergency loans” the government offered earlier this month, FSC chief regulator Eun Sung-soo said during a news conference.

The COVID-19 crisis has led to lockdowns in auto factories and dealerships in the United States and Europe, which might affect automakers from South Korea, such as Hyundai Motor Co and Kia Motors Corp.

On Tuesday, South Korea registered 76 new coronavirus cases maintaining a decreasing trend in new infections and raising hopes that Asia’s largest outbreak outside China may be slowing down. The daily total brought the country’s total infections to 9,037, as per the Korea Centers for Disease Control and Prevention (KCDC). The death toll increased by two to 120.

It marked the 13th continuous day the country when it has posted new infections of around 100 or less. On Monday South Korea reported its lowest number of new cases since the peak of 909 recorded on Feb. 29.

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