27^th Meeting of Central Economic Response Headquarters

 

 

Government Announces Framework

to Strengthen FX Liquidity Management

 

 

Deputy Prime Minister Hong Nam-ki presided over the 27^th Meeting of the Central Economic Response Headquarters, held on January 20, and discussed Korea’s response to COVID-19 over the last year and ways to strengthen disease prevention during the Lunar New Year holiday as well as stabilizing the supply of produce on demand. Plans to provide around 500 trillion won worth of policy financing is one of main topics of discussion, along with FX liquidity risk management guidelines for non-banking institutions.

 

The following is a summary of Deputy Prime Minister Hong’s keynote address.

 

Korea’s response to COVID-19 over the last year

 

January 20th marks one year since its first COVID-19 patient was reported in Korea. Korea’s disease prevention and government’s financial support worth around 310 trillion won were among the key policy measures to respond to the crisis.

 

The government has completed delivering all unemployment benefits, emergency reliefs and majority of relief payment to small businesses. COVID-19 vaccines will be provided to all Korean people for free of charge starting in February, and the government will make sure to respond to both economic recovery and disease prevention.

 

Protect livelihood of people before the Lunar New Year holiday 

 

- Strengthen disease prevention: Operate 620 testing sites and 74 hospitals designated to treat COVID-19, and provide financial support to private medical facilities running test centers.

- Provide financial support for vulnerable groups: Provide financial support to those impacted by exceptionally cold weather by giving additional coupons worth 30,000 won to purchase fuel for heaters and supplying 653 heaters. Lend 38.4 trillion won worth of loans to SMEs and small businesses before the holiday.

- Stabilize consumer prices: The government will work on stabilizing the supply of produce on demand for holiday which includes increasing supplies of agricultural livestock products, and temporarily lifting tariffs on eggs to contain egg prices.

- Provide benefits to vulnerable groups: Temporarily relax anti-corruption laws to allow gifts worth up to 200,000 won for fam and fishery products, an increase from 100,000 won

- Promote sales at traditional markets and small businesses: Promote sales of traditional market gift certificates by providing various incentives, which includes increasing discount rates for local gift certificates and holing online shopping events

 

2021 Policy Financing

 

494.8 trillion won of policy financing will be provided, up 16 trillion won from the previous year, for disease prevention, the Korean New Deal, and industrial innovation. 

 

- Extend financial support to 302 trillion won, up 16.9 trillion won, for small businesses and SMEs.

- Deliver more than 17.5 trillion won funds to help foster companies pursuing the New Deal and accelerate the process by providing special loan program[1].

- Work on plans to allocate total of 101.6 trillion won to improve industrial competitiveness, 57.3 trillion won for BIG3[2] and industrial innovation, 27.2 trillion won for strengthening manufacturing of material, parts and equipment and 23.2 trillion won for accelerating industrial innovation.  

 

Strengthen monitoring of FX liquidity for non-banking institutions

 

The government will work on strengthening monitoring of FX liquidity for non-banking institutions considering their vulnerability witnessed during the COVID-19 and help market prepare for potential FX liquidity risk in the future.

 

- Encourage financial institutions to draw up their own risk management framework to strengthen FX risk management.

- Introduce three indicators for non-banking institutions which includes 1) monitoring non-bank institutions’ FX supply and demand plan for 30-days on a monthly basis 2) monitoring currency mismatch to manage the gap between foreign assets and foreign liabilities 3) monitoring maturity mismatch to measure the condition of foreign currency funding and maturity. Also, extend stress test on FX liquidity to non-banking institutions to strengthen monitoring of FX liquidity.

- Work on plans to improve FX soundness of non-banking institutions by 1) improving FX liquidity ratio taking into account of characteristics of non-bank institutions, and 2) include securities firms and insurance companies in the system to ensure FX liquidity in times of crisis