Over the coming year, the Bank of Korea will make available a total of 9 trillion won ($7.28 billion) in low-interest loans for small and medium-sized enterprises in a bid to reinvigorate the economy.

Of the amount to be channeled to SMEs through commercial banks, starting Tuesday, 3 trillion won will be used to support their trade finances and 2.9 trillion won will be spent on boosting their capital investment. The remainder is earmarked to help start-ups.


The measure to augment the bank’s intermediate lending support is in line with a stimulus package announced by the government last month to spur the country’s slowing growth.

It is seen as the central bank’s alternative to further cutting its key interest rate that has been held at a record low of 1.5 percent since June. In a monetary policy-setting meeting in February, BOK Gov. Lee Ju-yeol argued a lower rate would do more harm than good to the economy.

Central bank officials have expressed hope that the massive provision of low-interest loans will help expand the country’s growth potential by helping SMEs export more as well as increase their facilities investment. It will also help to forge a more favorable environment for start-ups.

But they admit that it is difficult to gauge how big an effect the measure will have on growth and macroeconomic indicators.

Some critics argue it will only result in increasing liquidity reserves at banks without bringing actual benefits to small and medium-sized companies. In fact, more than half of local policy and commercial banks have failed to follow rules that require a certain portion of increased loans to be extended to SMEs. Bank officials say they have to take into account different levels of corporate credit.

Economists agree that making small and medium-sized firms more competitive and productive is a key part of the effort to strengthen the country’s growth potential, which decreased from 5.2 percent in 2000-2005 to 3.0-3.2 percent in 2011-2015.

What is important is to find and focus on more effective and efficient ways to support SMEs, they say, noting existing programs are too complicated and remain out of touch with the changing economic environment. A growing number of small and midium-sized companies have been driven into marginal conditions in the decades since Korea was hit by a foreign exchange crisis in 1997.

In this regard, Joo Hyung-hwan, the minister of trade, industry and energy, has pledged to put priority on strengthening support for SMEs that ship their goods abroad.

In an economic forum in Seoul last week, he said Korea should make a fundamental policy shift to boost its sagging exports. Data released by the Trade Ministry on Tuesday showed the country’s outbound shipments fell by 12.2 percent in February from the year before, marking the 14th consecutive monthly decline.

Joo emphasized the need to diversify exports and explore opportunities in emerging markets, including India, Iran and Vietnam.

In this context, support for SMEs will be concentrated on those “capable of selling products abroad,” he said.

Currently, only 3 percent of SMEs, which number at about 3 million, ship their goods overseas. The minister said he would push to increase the number of first-time exporters -- which has risen by around 2,000 annually over the past years -- by more than 5,000, from this year.

His initiative has received a positive response from economists.

“Focusing support on exporters can be a turning point in solving the problem of marginalized SMEs,” said Shin In-seok, head of the Korea Capital Market Institute.

Experts also note that encouraging more SMEs to export goods will help the country adapt to changing conditions and fluctuating demand in global markets.

Growing exports by intermediate-sized companies, which are corporations that have an annual turnover of more than 150 billion won and are not affiliated with a business conglomerate, strengthen the case for nurturing more SMEs into competitive exporters.

According to figures from the Trade Ministry, overseas shipments by intermediary companies rose by 3.2 percent on-year in 2015, while those by big corporations and SMEs fell by 11.1 percent and 6.6 percent, respectively. The country saw its overall exports plunge by 8 percent last year.

The number of intermediary companies shipping their goods abroad climbed from 1,742 in 2012 to 2,271 in 2015, accounting for nearly 60 percent of the total. The volume of their exports increased from $90.1 billion to $92.9 billion over the cited period.

By Kim Kyung-ho
(khkim@heraldcorp.com)