[2024 Economic Policy] 'Prevent the Second Yosusu Crisis'... 10 Trillion Won for Supply Chain Stabilization

The government is establishing a pan-government supply chain control tower to prevent a 'second urea solution crisis.' It plans to create a fund worth up to 10 trillion won to achieve technological independence in key materials and components, and will also expand incentives for overseas resource development investments. This is a long-term strategy to respond to the intensifying trend of resource weaponization in the global arena.

The '2024 Economic Policy Direction' announced by the government on the 4th includes pan-government measures to address global supply chain risks. In light of the vehicle semiconductor shortage triggered by the COVID-19 pandemic and growing concerns over a recurrence of the China-originated urea solution crisis, the government has determined that legal and institutional risk management for key economic security supply chains is necessary.

Newly appointed Deputy Prime Minister and Minister of Economy and Finance Choi Sang-mok is speaking about recent economic issues at the Macroeconomic and Financial Meeting held on the 29th at the Bankers' Hall in Jung-gu, Seoul. Attending the meeting were Lee Chang-yong, Governor of the Bank of Korea; Kim Ju-hyun, Chairman of the Financial Services Commission; Lee Bok-hyun, Governor of the Financial Supervisory Service; and Park Chun-seop, Senior Secretary for Economic Affairs. Photo by Jo Yong-jun jun21@

Currently, the pan-ministerial economic security task force (TF), which includes the Ministry of Economy and Finance, Ministry of Trade, Industry and Energy, and Ministry of Environment, temporarily manages about 200 key items. The government plans to go further by establishing a Supply Chain Committee as a national control tower for supply chains and operating a rapid response team that can swiftly respond according to an emergency response manual when crisis signs arise.

Additionally, through the creation of a fund worth up to 10 trillion won, the government will promote technological independence in key materials and components and strengthen resource development capabilities. The goal is to establish a 'Three-Year Basic Plan for Supply Chain Stabilization' within the first half of this year. The Ministry of Economy and Finance plans to build a pan-government response system based on the 'Supply Chain Basic Act,' which is set to take effect on June 27, and to strengthen supply chain diversification and energy security.

To respond to the intensifying resource weaponization by countries amid the US-China hegemonic rivalry on the global stage, support for overseas resource development will also be significantly expanded. Incentives such as tax credits for overseas resource development investments will be introduced, and in cases where resource development projects fail, up to 80% of loan repayments (currently 70%) can be waived. Tax credit targets include investments (equity) for acquiring mining rights and direct overseas investments in foreign subsidiaries by domestic entities.

Measures to curb soaring household debt will also be implemented. The government has identified household debt, which amounts to about 1,900 trillion won, as the biggest threat to the Korean economy and aims to reduce the household debt growth rate to within 100% of GDP by 2027. According to the Institute of International Finance (IIF), Korea's household debt-to-GDP ratio was 100.2% as of the end of Q3 last year, the only country among 34 surveyed to exceed 100%.

To this end, the Ministry of Economy and Finance, Financial Services Commission, Ministry of Land, Infrastructure and Transport, and other related ministries will jointly operate a housing policy finance consultative body to strengthen qualitative management such as the speed of policy mortgage supply in response to household debt conditions. The goal is to raise the proportion of fixed-rate mortgages in bank housing loans from 45.5% in 2022 to 50% this year to stabilize livelihoods.

Kim Byung-hwan, First Vice Minister of Strategy and Finance, is delivering opening remarks at the Emergency Economic Vice Ministers' Meeting held on the 17th at the Export-Import Bank in Yeouido, Seoul. Photo by Kang Jin-hyung aymsdream@

Furthermore, support measures for companies struggling due to prolonged high interest rates and geopolitical risks will be strengthened. The scope of managing malignant zombie companies that have not been able to pay interest for over seven years will be expanded, and the credit guarantee support limit from banks to prevent temporary liquidity crises leading to profitable bankruptcies will be significantly increased from 1 billion won to 1.5 billion won.

Improvements to the Corporate Restructuring Promotion Act (hereinafter referred to as the CRPA), which recently expired but has been revived, will also be pursued. The CRPA is the foundation of the workout system that provides maturity extensions and funding support to companies facing liquidity crises with the consent of over 75% of creditors. To support the rapid normalization of workout companies and companies showing signs of insolvency under the CRPA, funding support will be expanded, and low-interest loans for SME restructuring will be increased from 98 billion won to 119.3 billion won. Additionally, a Corporate Structural Innovation Fund will be established in the second half of the year to discover investment companies.