Gov't to expand loan guarantee coverage for SMEs, exporters

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SEOUL, Feb. 12 (Yonhap) -- The government said Thursday it will expand loan
guarantee coverage to help smaller businesses and exporters cope with a liquidity
shortfall caused by the worldwide economic slump.

The Financial Services Commission (FSC) said after an emergency economic policy
meeting chaired by President Lee Myung-bak that the support measures will be
maintained up until the end of the year to help companies secure fresh loans from
banks and allow roll-overs on all of the 30.9 trillion won (US$22.1 billion)
worth of loan guarantees that come due in 2009.
The global financial crisis, brought on by the collapse of U.S. investment bank
Lehman Brothers Holdings Inc. last September, has caused banks to shy away from
giving loans to SMEs that are more exposed to economic difficulties. This is
despite efforts by the central bank, which has lowered its benchmark seven-day
repo rate to record low levels to fuel loans.
The new measures call for state-run credit insurers to guarantee up to 100
percent payment on loans that do not exceed 10 billion won to small and medium
enterprises (SMEs), exporters and people trying to set up new businesses.
At present, the maximum coverage stands at 95 percent of loans with the
protection ceiling set at 3 billion won.
President Lee spotlighted the measures as the most far-reaching steps yet to be
taken by the government, but said businesses also need to do all they can to
overcome the ongoing economic crisis.
"The measures are an exceptional step that include everything that was ever asked
for by the business community," the president was quoted as saying by his
spokesman, Lee Dong-kwan.
Lee warned, however, that these steps could backfire and burden the public if
they create a moral hazard, the spokesman told a press briefing.
"As we are facing an unprecedented economic crisis, owners of small and
medium-sized firms must put their entrepreneurship to work to keep their
businesses alive," the president said.
In addition to raising overall coverage levels, the FSC said both the Korea
Technology Credit Guarantee Fund and the Korea Credit Guarantee Fund will adjust
operating rules to make it easier for small companies and exporters to get loan
guarantees.
Helping SMEs is crucial for the economy, as they make up 99 percent of all
businesses in the country and hire roughly 88 percent of the workforce.
The commission added that the amount total funds that can be used to cover export
credit guarantees will be increased to 6 trillion won this year from the 1.5
trillion won set aside in 2008.
Other changes include an increase in government funds used to help small-time,
family-operated shops to 1.5 trillion won from 500 billion won last year.
The new measures come as the government predicted the economy to contract by 2
percent this year. Exports, industrial production, business investments and
consumption all show signs of heading south.
The National Statistical Office on Wednesday said over 100,000 jobs disappeared
last month, the largest contraction since 2003 and far more than the 12,000 lost
in December.
The number of companies filing for bankruptcy hit 345 in December, the highest
level since March 2005. Exports plunged 32.8 percent annually in January in the
worst showing since Seoul started releasing monthly statistics in 1980.
yonngong@yna.co.kr
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