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| Financial Services Commission Chairman Eun Sung-soo |
The Financial Services Commission (FSC) is expected to announce the measures on March 24 during an Emergency Economic Council (EEC) meeting presided over by President Moon Jae-in.
They include the establishment of two funds worth 10 trillion won each for the stabilization of the bond and stock markets, respectively. The government and financial firms ― including banks ― will jointly set up the funds.
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| Finance Minister Hong Nam-ki |
The government will also expand its primary collateralized bond obligations (P-CBO) program to up to 6.7 trillion won over the next three years to supply more capital to firms with low credit ratings.
The introduction of such measures comes at a critical time where the local economy is taking a hard hit as the coronavirus outbreak spreads. The benchmark KOSPI closed at 1,566.15, Friday, a drop of 28.7 percent, compared to earlier this year, as fears of the virus spreading nationwide resulted in a mass selling spree by foreign investors. The tech-heavy Kosdaq also declined by 30.2 percent.
But with the epidemic and contagious disease escalating into a global pandemic affecting the United States and Europe, the U.S. economy is also suffering from a serious setback. In recent weeks, both the NYSE and Nasdaq plunged to historic lows, pushing the country's financial authorities to announce strong pump-priming measures to offset the growing panic.
On Saturday, Larry Kudlow, the director at the U.S. National Economic Council, said the country would spend over $2 trillion in coronavirus relief measures. He said the amount "comes in at about 10 percent of GDP."
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| Bank of Korea Governor Lee Ju-yeol |
It remains to be seen how the joint funds will take effect here in terms of minimizing the ongoing economic shock. But market watchers remained optimistic over the measures.
"Banks are willing to take part in the plans by the government, as they are aimed at revitalizing the economy amid the ongoing financial turmoil here," an official from the financial sector said. He added that the steps, in themselves, would help ease a sense of uncertainty and fear regarding the economic turmoil from the virus.
SK Securities analyst Yoon Won-tae also noted that the government move was in the "right direction" as the measures could possibly help revive investor confidence; however, he pointed out the scale of the bond market stabilization fund needs to be expanded.
"The funds appear to be aimed at preventing any potential market fallout, and the move will play a positive role in recovering investor sentiment," he said. "But 10 trillion won is not enough."
Last week, the government and financial players also agreed to possibly increase the size of the fund if the initial plan does not generate satisfactory effects on the market.
Lingering setbacks
The virus panic is paralyzing every industry here. In particular, small business owners are facing difficulties in borrowing money, as demand for loans has sharply increased in recent weeks after the virus weakened consumption by the public.
They have to win approval from regional credit guarantee foundations before receiving loans from banks. But as the authorities are failing to process the surging demand in time, calls have grown for the Moon Jae-in administration and his economic team to apply wide-scale emergency measures to resolve the setback.
FSC Chairman Eun Sung-soo urged local governments to actively cooperate with the regional credit authorities for them to deal with the problem in a swift manner. But as the regulator failed to offer practical measures to do so, local governments are also in a position where delays are now inevitable.
Despite such lingering problems, market experts said the government's plan to introduce the market stabilization measures will help balance the local stock market to some extent.
Hwang Sei-woon, an analyst at the Korea Capital Market Institute, said the market stabilization funds would help expand liquidity in the market and have a positive impact, but only for listed companies. He underlined the future of the local economy, however, still depends on how fast the coronavirus spreads in the U.S. and other major European countries.
"Despite the introduction of such steps, the outlook for the KOSPI's rebound remains up in the air until early April, as the pace of the pandemic spread in the U.S. and Europe will have a huge impact on the local stock market," he said.
To dispel worries over a possible dollar shortage, the Bank of Korea (BOK) signed a $60 billion currency swap agreement with the U.S. Federal Reserve.
