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More wages are covered by the government now

Mar 26,2020
Support for companies keeping employees on the payroll has increased to as much as 90 percent of wages, a first for the government, while all industries are now eligible for the subsidy.

A total of 500 billion won ($406 million) has been committed to the initiative.

The move is aimed at convincing companies, especially small- and medium-sized enterprises (SMEs), not to fire employees if the company is burdened by labor costs as business declines due to the pandemic.

Currently, the government covers 67 percent of business suspension wages for SMEs and 50 percent for large companies. It has also been limiting the coverage to certain heavily-affected industries, such as tourism.

The expansion of business categories will run through June.

Funding available for the support has been increased significantly from the original 100 billion won.

Under the new guidelines, the support for SMEs will be raised to a maximum of 90 percent. Large companies can request up to 67 percent of wages.

“As the Covid-19 impact spreads to the overall economy, requests for the employment maintenance subsidy have surged in all industries, including education, wholesale and manufacturing,” Finance Minister Hong Nam-ki said during a government meeting on Wednesday. He expects the increase in the subsidy will help employers maintain staffing during this time of uncertainty.

During the second economic emergency council meeting on Tuesday, President Moon Jae-in ordered the expansion of the job security subsidy.

At the meeting, President Moon stressed that the ultimate goal of the “pre-emptive” actions is helping business, which is receiving 100 trillion won of support.

As of March 19, requests had been received to subsidize wages for 140,000 employees.

The government is also making efforts to ensure dollar liquidity and stabilize the equity markets.

It said it will ease the minimum liquidity coverage ratio (LCR) on foreign currencies, which is currently at 80 percent. The LCR ratio is the ratio of high-quality liquid assets that could readily be converted into cash within 30 days in case of a short-term liquidity crisis.

The LCR ratio has been rising 10 percentage points every year since 2017. It was at 60 percent in 2017.

The latest regulatory easing is a follow-up to other efforts to raise dollar liquidity, including the lifting of the limit on foreign exchange forward contracts for banks from the previous 40 percent of capital to 50 percent and 200 percent to 250 percent for foreign banks. A $60 billion currency swap agreement with the United States was signed last week.

“We will actively support the supply of foreign currency into the private sector by easing macro-prudential regulations that were implemented since the 2008 financial crisis,” Hong said. “Our current situation against eternal risks, including the size of the foreign reserve and net external liabilities, is different when compared to the past International Monetary Fund and global financial crisis.

“It is important that the government as well as banks and companies are fully prepared and act pre-emptively not to be shaken by the external and domestic market volatility.”

The market has been recovering in recent days, while the won has appreciated slightly against the dollar.

The government has disclosed some details of the 100 trillion won in business support measures.

Finance Minister Hong said of the 100 trillion won, 20 trillion won will be used for an emergency fund to help exporters affected by the coronavirus pandemic.

The state-owned Export-Import Bank will suspend payments on 11.3 trillion won in loans of 877 companies that are to expire within six months. The suspension will last a maximum of one year.

Companies large and small have been hit by the outbreak. Hyundai Motor and Kia Motors had to shut plants in Europe and the United States.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]


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