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Controversy Brewing over Utilization of National Funds for Economic Stimulation
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Controversy Brewing over Utilization of National Funds for Economic Stimulation
  • By matthew
  • July 18, 2014, 07:02
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The web site of the Korea Credit Guarantee Fund.
The web site of the Korea Credit Guarantee Fund.

 

Experts are expressing concerns over the government’s attempt to stimulate the national economy by encouraging corporations and households to take out loans.

Some examples are funds, such as the National Housing Fund, Small and Medium Enterprise Establishment and Promotion Fund, Korea Credit Guarantee Fund, or Korea Technology Credit Guarantee Fund, which effects are considered to be dubious at best.

These funds, in fact, are money that should be borrowed with interest by the beneficiaries. The annual variable rate of the Home Purchase Loan for Housing Market Stability of the National Housing Fund, planned to be 46.5 trillion won (US$45.1 billion) this year, is 3.5 percent. However, the minimum mortgage loan rate in the banking sector is slightly over 3 percent nowadays.

In the meantime, 3.82 trillion won (US$3.7 billion) out of the 5.0282 trillion won (US$4.867 billion) of the Small and Medium Enterprise Establishment and Promotion Fund is scheduled to be spent on financing this year. The base rate is 3.12 percent, and the rate goes up to way over 4 percent when the additional interest depending on corporate credit rating is added. With the rates for start-up funds based on bond issues slightly over 4 percent, the possibility of a reverse margin is preventing any further drop in the lending rate.

This means that the policy interest rate, which is characterized by a high downward inelasticity, has to be burdened by the borrowing companies with the commercial rate going down. “The decision to make use of the funds is based on the current situation in which the financial resources are limited but economic stimulus effects have to be shown,” said the National Assembly Budget Office, adding, “However, the actual amount that can be spent is likely to be limited in view of the original purpose of the funds.”

Under the circumstances, the DTI and LTV ratios that are slated to be relaxed soon, along with the provision of the funds, are also to encourage home purchases by means of additional lending, and concerns over debt increases are on the rise.