To Provide Liquidity to Companies with Funding Problems
The South Korean government announced a 50-trillion-won-plus emergency financing package for small businesses on March 19.
The Korean government has decided to set up a 15-trillion-won bond market stabilization fund to provide liquidity to companies faced with temporary financial difficulties. The fund will be raised by financial institutions such as banks, securities companies and insurance companies and provide liquidity by purchasing high-quality corporate bonds. In December 2008, during the global financial crisis, the Korean government established a 10-trillion-won fund for the same purposes.
In addition, the government will set up a 5-trillion-won stock market stabilization fund through joint investment by financial institutions. The fund will invest in representative index products of the stock market. The government will also issue primary-collateralized bond obligations (P-CBOs) worth 6.67 trillion won over the next three years to stabilize the corporate bond market and help companies raise funds easily.
The Bank of Korea lowered the key interest rate to 0.75 percent, and virtually started quantitative easing. For the first time since 2009, the central bank purchased conditional receivables (RPs) of one trillion won from securities firms. At the same time, it will purchase 1.5 trillion won worth of government bonds on March 20 to stabilize the bond market.
“To overcome the economic crisis, the government will continue to come up with measures and find ways to finance them,” said Hong Nam-ki, deputy prime minister and minister of strategy and finance.