Will Vietnam outperform South Korea or Japan
South Korea is fighting the corona virus
South Korea is mainly stabilizing its economy by containing the virus, providing liquidity support, supporting the currency markets and promoting certain industries. (As of March 24, 2021)
Measures to deal with the crisis immediately
The South Korean government made it clear early on that it was ready to provide financial support for the economy. In February / March 2020, there was a strong outflow of foreign capital from South Korea and the US dollar (US $) became scarce despite high foreign exchange reserves. The tension in the currency markets only eased after the country agreed to a US $ 60 billion currency swap with the US on March 19, 2020.
The Financial Services Commission announced on March 24, 2020 that South Korea has more than US $ 85 billion in liquidity. This included US $ 50 billion for small and medium-sized enterprises (SMEs) and in individual cases for large companies, US $ 27 billion to stabilize the bond market and around US $ 9 billion to stabilize the stock market. The package also included $ 17 billion to provide liquidity to exporters and South Korean companies overseas. This was followed by further liquidity support, including for airlines, shipping companies, refineries and shipbuilding.
The Bank of Korea cut its key interest rate by 50 basis points to 0.75 percent on March 16, 2020 and approved bonds from banks as collateral for its open market operations. On March 26, it promised unlimited liquidity for financial institutions for the three months of April, May and June 2020. On May 28, 2020, it lowered the key interest rate by another 25 basis points to 0.5 percent.
For companies that gave their employees paid leave, grants of up to 90 percent of wages were possible from April to September 2020 in the case of SMEs, and up to two thirds in the case of large companies. The grants are tied to a number of formal requirements and do not apply to reduced working hours. For the transport, accommodation, trade fairs and exhibitions, air handling and duty-free shops sectors, the more generous rules apply until the end of March 2021.
Economic recovery measures
In 2020, the government issued four supplementary budgets, increasing planned expenditure by almost US $ 36 billion. One focus was the reduction of social hardship. The budget estimate for 2021 is higher than that for 2020, including the supplementary budgets. In addition, in early March 2021, just over a month before the Seoul and Busan elections, the government launched another supplementary budget of more than US $ 12.5 billion with a focus on aid to small businesses. The largest state-owned housing construction company should almost double its project volume to around US $ 17 billion in 2020.
From March to June 2020, the government cut the consumption tax on car purchases from 5 percent to 1.5 percent. A reduced tax of 3.5 percent now also applies between July 2020 and June 2021.
On June 15, 2020, the Ministry of Economy and Finance (MOEF) announced more than US $ 12 billion in loans, guarantees, funds and insurance to support South Korean firms with construction projects abroad. The establishment of a fund of around US $ 1 billion to promote the export of goods and services in the health sector was also part of the program.
The third supplementary budget approved by Parliament on July 3, 2020 for around US $ 30 billion is primarily used to finance the New Deal, which focuses on digitization and more environmental friendliness. The city of Seoul plans to spend more than US $ 2 billion by 2022 as part of a Green New Deal.
Measures to improve the framework conditions
The Ministry of Science and ICT brought the telecommunications companies by providing financing to want to increase investments in 5G networks to US $ 3.4 billion in the first half of 2020. On July 15, 2020, the ministry announced that the three major wireless service providers and SK Broadband will invest a total of more than US $ 20 billion in the expansion of mobile 5G networks from this date until 2022.
The state budget for infrastructure spending rose by 17.6 percent in 2020, with another double-digit percentage expected in 2021.
As part of the Digital New Deal, artificial intelligence, among other things, is to be used more intensively. In addition, as part of industrial policy, there is funding for other future industries such as biopharmaceuticals, semiconductors, autonomous driving, electromobility, hydrogen economy, robotics, batteries and drones.
Access to funding for German companies
Most interesting for German companies is the tax cut when buying cars. Thanks to this measure, German providers were able to sell more cars in 2020 than in the previous year. In individual cases, according to a survey by the AHK Korea, German companies used the program for grants for employees on paid vacation. In some cases, they could not use the aid programs, as these were aimed at SMEs and the headquarters in Germany were also included in the assessment of the company size of the branches in South Korea. For other programs, survey participants reported that the design of the programs did not fit into everyday business life in the company.
According to the Organization for Economic Cooperation and Development (OECD), the South Korean government was not above average in debt with around 40 percent of the gross domestic product. This can be used to finance the planned programs. However, the rate of debt growth is very high in 2020, the population is aging rapidly and is likely to decline soon, which will make debt sustainability more difficult.
Information on further measures of the South Korean government to support the economy can be found on a special page of the AHK Korea and the MOEF.
South Korean vaccination schedule
South Korea started vaccinations on February 26, 2021 and has vaccinated more than 700,000 people by March 23. The country aims to achieve herd immunity by the next flu season in November 2021.
Priorities published at the end of January 2021 Vaccination schedule are:
On February 16, the Prime Minister's Office announced the purchase of an additional 46 million doses of vaccine from Pfizer / BioNTech and Novavax. This should make vaccine available to 79 million people. South Korea has a population of just under 52 million.
By Frank Robaschik | Seoul
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