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Coronavirus

Cash aid for South Korean businesses gains currency after GDP shock

First contraction in 22 years and key elections pressure government to take action

An empty storefront in Seoul. (Photo by Sotaro Suzuki) 

SEOUL -- A proposal for financial relief for struggling small-business owners has quickly advanced within South Korea's government and the ruling Democratic Party after the nation's economy shrank for the first time since 1998 last year.

The likelihood of such support has risen ahead of April's Seoul and Busan mayoral by-elections, widely seen as a prelude to the 2022 presidential election.

The government and private-sector forecasters expect the economy to bounce back from the coronavirus pandemic with growth of 3% or so this year, led by semiconductor exports. But these headline figures do not capture the chill in business sentiment on the ground.

"We must provide appropriate assistance to people who are struggling with their business because they are following government infection control standards," Prime Minister Chung Sye-kyun said Thursday.

While the fiscally conservative Ministry of Economy and Finance is hesitant about covering business owners' losses, the idea has only gained momentum, with President Moon Jae-in telling the government and the ruling party Monday to look into how they can make such aid a reality.

South Korea so far has averted a full-fledged lockdown over COVID-19. But it has put in place many restrictions to curb the virus, such as banning dine-in service at restaurants after 9 p.m. and shutting down nightclubs. Many businesses have been driven to close their doors permanently.

The number of self-employed people in South Korea averaged 5,531,000 a month in 2020, down 75,000 from 2019. Pressure is growing on the government to compensate businesses for income lost to coronavirus restrictions.

Democratic-proposed legislation would compensate businesses forced to shut down with up to 70% of their usual income. Those facing reduced hours and other restrictions would receive 50% to 60%.

Payments would be funded through new government bonds. Lawmakers hope to pass the measures in February and start the payments by the end of March.

There is also a push to redistribute profits from companies that have thrived during the pandemic -- the likes of tech groups Naver and Kakao -- to struggling small-business owners. Moon on Jan. 18 expressed support for the idea raised by Democratic leader Lee Nak-yon.

But the proposal has alarmed some in the business community. Participation would be voluntary, but companies may feel pressured to join. Finding the right distance from the government could prove a challenge, given how a business leader who donated to a foundation at then-President Park Geun-hye's behest was later convicted.

Foreign demand is expected to drive an economic recovery in 2021. The Korea International Trade Association predicts a 6% jump in exports, driven by a strong showing in semiconductors and computers, as well as double-digit growth in auto and petrochemical shipments.

The government expects gross domestic product to increase 3.2% in 2021. The Bank of Korea central bank and private-sector think tanks have also made forecasts around the 3% mark.

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