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| Soldiers stand in formation during a ceremony to hand over Korean self-propelled K9 howitzers to the Polish Army in northern Poland in this December 2022 file photo. EPA-Yonhap |
By Lee Yeon-woo
As markets are opening up for large-scale export deals, such as defense and nuclear power plants, concerns are growing that limited financial support from Korean export credit agencies (ECAs) could potentially hinder timely assistance to companies.
According to sources, Tuesday, Poland reportedly requested more than 20 trillion won ($15.6 billion) in financial support from Korea for the terms of their second defense contract.
Countries ordering large-scale projects often request financial loans to cover insufficient funds, which makes the scale of financial support key to the finalization of contracts. However, due to the limited support capacity of Korean ECAs, this year's negotiations are encountering difficulties.
The legal capital of the Export-Import Bank of Korea (Eximbank), one of the country's leading ECAs, has remained unchanged at 15 trillion won for nine years. The bank structures its lending and investment based on its capital size. The larger the capital, the more funds they can offer. Eximbank has already utilized 14.8 trillion won, representing 98.5 percent of its legal capital, with a surge in both the volume and price of exports following the pandemic.
The Korea Trade Insurance Corp., another ECA, is also struggling with the same issue. Last year, the corporation provided trade insurance exceeding its 230 trillion won limit for the first time since its establishment.
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| Korea's Land Minister Won Hee-ryong, front left, and Poland's Government Plenipotentiary for Polish-Ukrainian Development Cooperation Jadwiga Emilewicz, front right, shake hands after signing a memorandum of understanding on cooperation for Ukraine's post-war reconstruction, in Warsaw, July 13. The signing ceremony was joined by President Yoon Suk Yeol and Polish President Andrzej Duda. Newsis |
For this reason, market watchers call for a significant increase in the current cap to support Korean firms. Upcoming mega projects, such as reconstruction in Ukraine and Saudi Arabia's NEOM mega-city project, are expected to require initial investments of at least tens of trillions of won.
"Eximbank's financial support cap should be more than doubled to effectively encourage exports and support Korean firms entering the global market," Rep. Yoon Young-seok of the ruling People Power Party (PPP) said. He recently motioned a revised bill that seeks to raise Eximbank's financial limit to 30 trillion won.
"In the case of the defense industry, private financial companies have difficulties participating in projects. The revised bill should be passed as soon as possible to fully support the exports of relevant firms," Rep. Yoon added.
The Ministry of Trade, Industry and Energy also raised the financial cap of the Korea Trade Insurance Corp. to 260 trillion won last year, up from 230 trillion won which had been its level for the previous seven years. The ministry said a further increase could be considered if the raised limit proves to be insufficient.
While the government and the ruling party are advocating improvements, the uncertainty surrounding the passage of the law presents a significant challenge. Even if the cap is increased, it would take time for the government to allocate from its budget. This could potentially lead to delays in providing timely support for export firms.
Relevant industries are urging the government to take a more proactive approach.
"Unlike low-credit countries, Poland is expected to reliably repay the funds if a contract is established," an official from the defense industry said. "The government's proactive financial support is desperately needed."
