[Weekly Review] Population Disaster and Interest Rate Hike... 4th Disaster Relief Fund Announcement Imminent

Ratification of ILO Core Conventions
Expansion of 'Right to Unionize' Raises Management Concerns

[Image source=Yonhap News]

[Sejong=Asia Economy Reporter Moon Chaeseok] Last year, the birth rate fell to an all-time low of 0.84, marking the beginning of a 'population dead cross' where the number of deaths exceeded the number of births.

Due to the rise in U.S. Treasury yields, the yields on Korean government bonds also showed an upward trend. The Bank of Korea announced that it would purchase 5 to 7 trillion won worth of government bonds to prepare for the supplementary budget (supplementary budget) for the payment of the 4th disaster relief fund and to reduce risks. This is because there is a high possibility that the funding will be covered by issuing deficit bonds.

The disaster relief fund and supplementary budget formation will go through high-level party-government consultations between the Democratic Party and the government on the 28th, approval at the Cabinet meeting on the 2nd of next month, submission to the National Assembly on the 4th, the Prime Minister's policy speech on the 5th, and National Assembly review. The political circle is likely to approve a payment of 19.5 trillion won plus alpha (α).

Total Fertility Rate Hits All-Time Low of 0.84

According to the '2020 Birth and Death Statistics' announced by Statistics Korea on the 24th, last year's total fertility rate was 0.84, down 0.08 from the previous year (0.92). This is the lowest since statistics began in 1970. The total fertility rate refers to the average number of children a woman is expected to have in her lifetime.

Korea's fertility rate is among the lowest in the world. According to UN population statistics, Korea was the only country among 198 countries with a total fertility rate below 1 as of last year.

The number of births also hit a new all-time low. The number of babies born last year was 272,000, down 31,000 from the previous year (303,000). The number of births remained in the 400,000 range for 15 years from 2002 to 2016, then dropped to 358,000 in 2017, and fell to the 200,000 range in just three years.

Bank of Korea Purchases 5 to 7 Trillion Won in Government Bonds Amid Sharp Interest Rate Rise... Base Rate Held Steady

[Image source=Yonhap News]

As U.S. Treasury yields soared, the yields on Korean government bonds, the won-dollar exchange rate, and the securities market were burdened. The 10-year U.S. Treasury yield recorded 1.42% on the 26th (local time). It once exceeded 1.5%, about 0.6 percentage points higher than the end of last year.

Accordingly, the KOSPI index closed at 3,012.95 the previous day, down 86.74 points (2.80%) from the previous day. The won-dollar exchange rate closed at 1,123.5 won, up 15.7 won from the previous day.

Due to high uncertainty, the Bank of Korea decided to purchase 5 to 7 trillion won worth of government bonds. It maintained this year's growth forecast at 3.0% and next year's at 2.5%, and held the base interest rate steady at 0.5%. The consumer price inflation rate for this year was revised upward to 1.3%.

The reason for holding the historically low base rate steady is widely interpreted as evidence that the Bank of Korea views the current economic situation as highly uncertain.

Political Circle: 4th Disaster Relief Fund '19.5 Trillion + α'

Lee Nak-yeon, leader of the Democratic Party of Korea, is attending the Supreme Council meeting held at the National Assembly on the 26th and delivering a speech. Photo by Yoon Dong-joo doso7@

The political circle is discussing a 4th disaster relief fund of '19.5 trillion won + α'. The government's reluctance to provide a uniform payment to the bottom 40% income bracket suggests that this proposal is unlikely to be reflected.

The small business loss compensation plan is expected to be legislated around April next month. On the previous day, Kwon Chil-seung, Minister of SMEs and Startups, said at a meeting with small business association presidents, "The government will promptly legislate the loss compensation plan as promised," and added, "Before that, we will provide broad and substantial support through the 4th disaster relief fund."

Ratification of ILO Core Conventions... "Welcome Expansion of Union Rights" vs. "Concerns Over Tilted Playing Field for Management"

[Image source=Yonhap News]

The National Assembly held a plenary session yesterday and approved the ratification of ILO Core Conventions No. 87, 98, and 29 submitted by the government. These ratifications concern the principles of forced labor, freedom of association, and collective bargaining rights.

Since ratifying the ILO core conventions has the same effect as national legislation, domestic laws had to be amended to comply with the convention standards. Amendments to the Labor Union Act, Teachers' Union Act, and Public Officials' Union Act, which allow unemployed and dismissed workers to join unions in accordance with ILO Core Conventions Nos. 87 and 98, passed the National Assembly in December last year. The amendment process reflecting ILO Core Convention No. 29 in the Military Service Act is also underway.

Once the government deposits the ratification instruments with the ILO, the conventions will take effect one year later. However, the business community has expressed concerns about management difficulties, calling it a 'tilted playing field.'