S. Korea to launch 20 tln won fund to bolster facility investment

(ATTN: ADDS finance minister's comments at bottom)
By Koh Byung-joon
SEOUL, July 2 (Yonhap) -- South Korea said Thursday that it will establish a 20
trillion won (US$15.8 billion) fund aimed at boosting facility investment as part
of its efforts to encourage corporate spending for an economic recovery.
The move is part of investment-bolstering measures determined earlier in a
meeting chaired by President Lee Myung-bak. During the meeting, business leaders,
lawmakers and financial and economic policymakers discussed how to boost slumping
corporate spending amid a protracted economic slowdown.
"We aim to establish a 20 trillion won facility investment fund??? The envisioned
fund will focus on supporting investment that carries high risk for an individual
company such as building industrial infrastructure and seeking new growth
engines," the Ministry of Strategy and Finance said in a statement.
The government, the state-run Korea Development Bank, the Industrial Bank of
Korea and the National Pension Service will initially inject a combined 10
trillion into the fund by August, with an additional 10 trillion won to be
offered later, according to the ministry.
The ministry said that the fund will be mostly intended to help cash-strapped but
promising small and medium-sized companies, adding that it will not interfere
with their management even if they receive financial support.
The moves come as companies are sharply reducing investment in facility and
research and development projects for fear of clouding business conditions.
According to government data, facility investment plunged 23.5 percent in the
first quarter of this year from a year earlier. The downturn accelerated from a
14 percent contraction reported in the final quarter of last year.
Investment is expected to remain in a slump for the time being. In a survey of
the nation's top 600 companies by the Federation of Korean Industries, a business
lobby group, they will reduce facility investment by an average 2.5 percent this
year compared with a 18.6 percent growth last year.
"Thanks to stabilizing financial markets and additional fiscal spending by the
government, the environment for corporate investment seems to be improving to
some extent in the second half of this year but it still remains to be seen when
spending will rebound," the ministry said.
"Though the contraction is not as steep as a decade ago when the nation was hit
by the Asia-wide financial crisis," investment conditions remain bad since the
global economy has deteriorated significantly," it added.
Along with the 20-trillion won fund, the ministry said that it will also expand
tax credits for R&D investment in order to encourage active corporate spending on
development of technologies.
Companies will receive tax credit equal to 20-25 percent of R&D investment on
core technologies or future growth engines, the ministry said. Previously, the
tax credit rate ranged from 3 percent to 6 percent of the total R&D investment.
More tax credits will be offered to small and medium-sized enterprises, it added.
In a press briefing held later in the day, Finance Minister Yoon Jeung-hyun
emphasized the importance of corporate investment in accelerating an economic
revival, adding the government will make more efforts to enhance the nation's
investment environment by removing roadblocks that hamper business operation.
"We cannot keep averting an economic downturn and creating jobs by depending on
government spending," Yoon said. "Now is the time for companies to invest."
kokobj@yna.co.kr
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