[Initial Timing] Is the Kian Fund Going According to Plan?

[Asia Economy Reporter Jo Gang-wook] The four-character idiom "Yongdu Sabi (龍頭蛇尾)," which means "a dragon's head and a snake's tail," commonly implies that something starts off promising but ends up insignificant and fizzles out. Recently, there are concerns that one of the government's measures to resolve the liquidity crisis caused by the novel coronavirus disease (COVID-19) might end up as a case of Yongdu Sabi. This is the 40 trillion won-scale Industrial Stabilization Fund (Gian Fund) established to support companies facing financial difficulties.

The Gian Fund is finally announcing the application for financial support and entering the full-fledged support process. It has been more than a month since the grand launch ceremony was held on May 28, when private experts were appointed as members of the Fund Management Deliberation Committee to ensure fairness. Although it started with an ambitious goal to support key industries that form the foundation of the national economy, the threshold is high and the execution is slow, leading to criticism that the fund, created with taxpayers' money, might not be properly utilized.

Initially, the government's voice in establishing the Gian Fund was louder than ever, and its steps were swift. Even President Moon Jae-in urged the National Assembly to cooperate in amending the law, and thanks to this, the amendment bill passed the plenary session of the National Assembly just one week after the government's announcement. Companies desperate for government support cheered, gaining hope that they could overcome the crisis if they held on a little longer. However, as more than a month has passed, the voices of companies desperately seeking the Gian Fund have faded, and now there is even doubt about whether any companies will apply for support.

The problem is that the government, which proposed the measures, is now standing by with folded arms. In fact, the government's perspective on the Gian Fund has changed. Son Byung-doo, Vice Chairman of the Financial Services Commission, recently said, "If companies can secure funds on their own in the financial market or receive support through the Financial Stability Package, the Gian Fund should reserve its capacity for response." Unlike the rapid law amendment completed with the purpose of providing practical financial support to protect key industries and safeguard citizens' jobs, it is now explicitly stated that "its main purpose is to serve as a buffer to stabilize the market in emergencies."

Accordingly, the criteria for applying for support have been raised, and the conditions the government demands after support are also stringent. In particular, at least 10% of the total support amount must be acquired as equity-linked securities, which raises concerns that the government might intervene in corporate management later. Another factor causing concern over the fund's lack of popularity is that the loan interest rate provided by the fund is not very attractive compared to commercial banks. Although the loan interest rate will likely vary depending on the company or industry, the initially announced rate was "market interest rate + α." For this reason, even within the Korea Development Bank, where the fund is established, there are doubts about whether any companies will apply for support. The sluggish pace of fund execution is also criticized as possibly reflecting difficulties in finding companies that meet the support criteria, aside from Korean Air.

In the movie "Parasite," the protagonist Ki-taek looks at his son Ki-woo, who is drawing up a big plan to parasitize Mr. Park's household, and says with satisfaction, "Son, you have a plan." Similarly, we want to ask the government whether the current situation is unfolding according to the plan drawn up when the Gian Fund was first announced. High expectations lead to great disappointment, but conversely, without expectations, the financial market cannot function. The market is already tired of superficial measures or patchwork solutions.