South Korea is to launch a fund to help speed up corporate restructuring amid growing jitters about the economic downturn, officials said Thursday.
Chin Dong-Soo, chairman of the Financial Services Commission, said a state-run debt clearer would manage the fund to buy bad debt from ailing firms or support their restructuring.
"The government will use every possible means to thwart a system risk (in the financial market)," he said after a special economic meeting chaired by President Lee Myung-Bak.
Chin said the government would start the fund, to be run by Korea Asset Management Corp, sometime after March.
"We'll decide on when to launch the fund and the amount needed after monitoring the market situation because there has to be a revision in related law beforehand," he said.
Banks will also review the finances of 44 conglomerates in April to improve their financial structure through restructuring, he said.
The review is part of the government's drive to reduce uncertainty in the financial market. Many local firms especially in construction and shipbuilding are struggling against a shortage of credit.
Officials have said the restructuring fund would be financed by the sale of government-guaranteed bonds.
The government plans to submit a supplementary budget by the end of next month to boost the sagging economy. Local media have reported it would be worth 30 trillion won (20.3 billion dollars).
Bank of Korea governor Lee Seong-Tae said the central bank would consider buying state treasury bonds to help finance the extra budget but this would be a last resort.
Many private researchers predict that Asia's fourth largest economy faces its first recession since the East Asian financial crisis a decade ago.
The International Monetary Fund forecasts a four percent contraction before the economy rebounds next year. Finance Minister Yoon Jeung-Hyun has predicted the economy may shrink by two percent this year.
- Dow Jones Newswires contributed to this report.
Copyright 2009 AFP Asian Edition
