COVID-19 Impacts - South Korea
The retail, travel, and financial verticals are three examples that provide insights into a measured outlook on the economy in South Korea as it is recovering from COVID-19. These three verticals hinge on the government's policies, economy relief packages, and intervention funds as tools implemented for economic recovery in the pandemic's face.
- Since the outbreak of COVID-19, there have been governmental interventions in this vertical to help sustain businesses and these have provided a measured outlook on the economy in South Korea as it is recovering from the pandemic. Between February 5-12, 2020, the Korean government started the first economic support lifeline to curtail the effects of COVID-19.
- To keep the retail economy in business, the Korean government supported vulnerable SMEs with emergency relief funds and expedited customs clearance at the ports, particularly for raw and sub-materials. It also opened the door for procuring these raw and sub-materials from alternative countries.
- Rising from his first-chaired emergency economic council meeting, South Korean President Moon Jae-in announced a plan on March 19, 2020, to "offer 50 trillion won ($40 billion) of emergency financial aid packages for small businesses, micro-business owners, and the self-employed."
- Through some financial institutions, SMEs also received special guarantees on business loans worth 5.5 trillion won ($4.5 billion). The banks and some other financial institutions offered six months of loan deferment, while loan interest payments are put on hold for six months also, starting April 1, 2020.
- As the country is recovering from COVID-19, the government implemented a fourth financial stimulus package on March 24, 2020, toward providing financial support for businesses. These packages come in the form of "emergency loans and guarantees for microbusiness owners, the purchase of arrears, and adjusting liabilities."
- The government released 58.3 trillion won ($47 billion) for this stimulus package, toward expanding benefits to retail businesses and conglomerates in the country.
- To create liquidity in the retail market, the government, on March 30, 2020, also provided "emergency relief payment to households with income levels that fall in the bottom 70%." The emergency payment will total 9.1 trillion won ($7.4 billion) as it awaits passage by the National Assembly in April.
- 14 million households will be beneficiaries of this emergency payment, while benefits of this intervention fund will include consumption coupons and relieve health insurance. Families will receive payments via "online and offline gift certificates issued by local governments." These families will spend this money in the retail market, therefore, the measured outlook on the retail sector looks bright during recovery from the pandemic.
- There is a projection that South Korea will lose around 2.9 trillion won ($2.4 billion) in tourism revenue in Q1, 2020 due to the COVID-19 pandemic. By the end of the quarter, there is an expectation that the number of foreign tourists coming into the country would reduce by two million.
- However, unlike many countries around the world, South Korea did not order a lockdown. Therefore, there remain inbound and outbound flights in the country. It is the only country with over 50 million population that didn't impose "an extreme personal travel or movement restrictions, or closed its airports or took other authoritarian actions."
- Although there is no lockdown in South Korea, tourism is one business hit hard by COVID-19. This is the reason the Korean government is giving employment support and discount coupons to the industry. While the former will help stakeholders keep their businesses afloat, the latter will promote consumption in the industry.
- Since March 19, 2020, the country has been expanding "special entry procedures to all travelers and is requiring a 14-day self-quarantine or isolation in facilities for all travelers entering Korea from April 1." The exception is for those on national or public interest.
- All quarantined travelers make use of "the self-diagnosis app to update their health status." There is also a safety app every traveler must install so long as they are under self-quarantine. The safety app enables authorities to check "their suspected symptoms, their locations, and compliance with the quarantine guidelines."
- The Incheon International Airport has its 'walk-through' testing facilities for travelers showing symptoms. Operating in an open space, these facilities allow free flow of natural air at all times.
- These quarantine facilities at the airport guarantee a "low possibility of infection via surface contact, which allows quick and safe collection of samples from many people."
- This process is incomparable with a general screening clinic, which allows for sample collection "every 30 minutes to allow time for disinfection and ventilation." However, foreigners without symptoms get to make use of temporary living facilities for their testing.
- On the strength of non-suspended travel activities, safety measures at entry points, employment support, and discount coupons for tourism in South Korea, the measured outlook in the travel industry looks bright during the economic recovery from the pandemic.
- As the country is recovering from COVID-19, "the Monetary Policy Board of the Bank of Korea reduced the Base Rate by 50 basis points from 1.25% to 0.75%, effective March 17."
- Effective from the same date mentioned above, the Board also "reduced the interest rate on the Bank Intermediated Lending Support Facility from 0.50%-0.75% to 0.25%." The Board is also proposing to incorporate debentures issued by banks as part of collateral qualified to operate in the open market.
- As part of measures to prevent a shock wave, the Korean government raised "the forex futures trading limit by 25% to 50% for local banks and 250% for foreign bank branches from March 19." This was despite the high volume of forex liquidity by banks in the face of the COVID-19 pandemic.
- The government has created "an equity market stabilization fund — a temporary fund jointly invested by the financial sector, designed to be invested in equity index products." It is also safeguarding the capital market by paying attention to unfair trading practices.
- On March 19, 2020, the central banks of South Korea and the US said there will be an establishment of "a temporary bilateral currency swap arrangement to provide U.S. dollar liquidity" in the tune of $60 billion for South Korea won. This new facility will be in place for six months minimum.
- From March 24, 2020, there were financial market stabilization measures put in place by the Korean government "to help provide sufficient liquidity to businesses and deploy market stability tools to absorb shocks in the financial markets amid the spread of COVID-19." The stabilization fund will total 100 trillion won ($81 billion).
- The government, on March 26, eased the forex market stability rules, which were first introduced in 2008. This became necessary because of the uncertainties in capital flows because of the pandemic. On the same day, the central bank of the country "supplied unlimited liquidity to financial institutions as part of its efforts to combat the coronavirus pandemic."
- As mentioned earlier, there is a high volume of forex liquidity among banks in Korea despite the scourge of COVID-19. Despite the liquidity, these financial institutions are receiving tremendous support from the Korean government. Hence, the measured outlook on the financial industry in South Korea looks bright during its recovery from the pandemic.
To provide examples with a measured outlook on the economy in South Korea as it is recovering from COVID-19, we focused on three sectors of the economy — the retail, travel, and financial verticals. We thoroughly explored the article by the Government of the Republic of Korea. The article was also a reference point in a blog post by the World Bank. Through careful study and analyses of this article, we provided three examples with a measured outlook on the economy in South Korea as it is recovering from COVID-19. We also corroborated and highlighted some facts from other relevant sources.
The government of the Republic of Korea is providing tremendous impacts on the three verticals of the economy through policies, economy relief packages, and intervention funds as it is recovering from COVID-19.