[Economic Outlook] 27 Trillion Injected to Ease COVID-19-Induced Financial Market Instability and Corporate Funding Difficulties

Lee Ju-yeol, Governor of the Bank of Korea, is heading to his office after finishing a Q&A session with the press regarding the Korea-US currency swap agreement at the Bank of Korea headquarters on Sejong-daero, Jung-gu, Seoul on the 20th. Photo by Kim Hyun-min kimhyun81@

[Asia Economy Reporter Kim Bo-kyung] The government will announce a financial market stabilization plan worth around 27 trillion won this week in response to the novel coronavirus disease (COVID-19) crisis.

The financial market stabilization plan is the second program among the 50 trillion won worth of livelihood and financial stability packages announced by the government on the 19th. It is expected to be announced at the 2nd Emergency Economic Meeting chaired by President Moon Jae-in on the 24th.

The plan is expected to include at least 10 trillion won for the Bond Market Stabilization Fund, 6.7 trillion won for the Project-Collateralized Bond Obligation (P-CBO) program, and up to 10 trillion won for the Securities Market Stabilization Fund, the size of which has not yet been determined.

The first part of the financial market stabilization plan is the Bond Market Stabilization Fund. The government has currently announced a bond market stabilization fund worth about 10 trillion won. The fund will provide liquidity to companies temporarily facing financial difficulties.

To stabilize the stock market, a Securities Market Stabilization Fund will also be established. The purpose is to create a market stabilization fund through joint investment by financial institutions to serve as a safety net for the stock market. Although the size has not been finalized, it is expected to be up to 10 trillion won, similar to the bond market stabilization fund.

However, detailed coordination is still needed as the participation of contributing institutions has not yet been confirmed. The government plans to announce the scale and implementation schedule sometime next week.

To stabilize the corporate bond market, the P-CBO program for companies affected by COVID-19 will also be expanded to 6.7 trillion won. The P-CBO is a system that issues securitized bonds based on newly issued bonds from companies with low credit ratings that find it difficult to directly issue corporate bonds, enabling these companies to raise funds at low interest rates directly in the financial market.

[Image source=Yonhap News]

The Bank of Korea will announce the results of the March Consumer Sentiment Survey on the 27th. In the February survey, the Consumer Confidence Index (CCSI) plunged 7.3 points from the previous month to 96.9. The decline was the same as in June 2015, when Middle East Respiratory Syndrome (MERS) was prevalent.

Considering the rapid increase in confirmed COVID-19 cases in the Daegu and Gyeongbuk regions since late last month, a further sharp drop in the Consumer Confidence Index in March is inevitable.

The Ministry of Economy and Finance will announce the 2021 budget formulation guidelines on the 24th. These guidelines serve as a framework that each ministry, local government, and public institution must follow or refer to when preparing next year's budget proposals.

The Statistics Korea will release the January population trends on the 25th. The average number of children a Korean woman is expected to have in her lifetime fell to a record low of 0.92 last year. Accordingly, the number of births barely stayed above 300,000, at 303,100.

The Bank of Korea will publish the February trade index and terms of trade statistics on the 25th. Export volume in January decreased by 2.9% compared to the same month last year, turning back to a decline just one month after increasing by 7.7% in December last year.