S. Korean government to run damage control on Kaesong fallout

Posted on : 2013-04-30 15:36 KST Modified on : 2019-10-19 20:29 KST
A task force will assess companies’ losses and provide compensation

By Park Byong-su, staff reporter

The government launched a joint response team to provide assistance to the companies that had withdrawn from the complex. But with disagreement between government and the businesses about the scale of damages and compensation, the process is not likely to work out smoothly.

The government hosted a meeting of the joint response team, chaired by Kim Dong-yeon, chief of the Prime Minister’s Office, on Apr. 29 at the government office in Seoul. Participants in the meeting discussed a study of losses suffered by the companies at the complex and ways that various government ministries could support the companies.

“Since the majority of the companies that were operating in the Kaesong Complex were small businesses, the crisis at the complex means they are facing a situation where it is impossible for them to operate,” Kim explained. “We hurried to launch the response team out of the sense that there was a need for government-wide action and assistance.” Previously, the government had announced the first round of assistance on Apr. 24.

Deputy ministers from related ministries including the Ministry of Strategy and Finance, the Ministry of Unification, and the Ministry of Justice took part in the meeting. The government announced that it had settled upon three principles for support: minimizing the losses to companies at the complex, providing the greatest amount of support available, and rapidly implementing the measures that were decided upon.

At the meeting, government officials largely discussed the issue of applying so-called “inter-Korean economic cooperation insurance” and compensating company losses through loans from the inter-Korean cooperation fund.

96 of the 123 companies that were operating in the complex had taken out this kind of insurance from the Export-Import Bank of Korea (Korea Eximbank). However, since the remaining 27 companies do not have insurance, they are unable to make a claim for their losses. This insurance program is set up to pay out as much as 90% of the money invested by the companies, with a maximum of 7 billion won (US$6.34 million).

Even so, the individual companies are saddled with the burden of writing off any additional tangible and intangible losses, including the raw materials and completed products they were not able to bring out of the complex when the staff withdrew, as well as the loss of clients and damage to their credit rating.

The government is also reviewing the possibility of taking out a special loan from the inter-Korean cooperation fund. The total amount of money in the fund is 11.16 trillion won (US$10.11 billion), which includes 1.83 trillion won (US$1.65 billion) from this year.

The operation and management provisions of the fund specify that it can be used to indemnify company losses that arise when it becomes impossible for them to carry on their business “for reasons external to the management of the business” or when business is suspended for a definite period of time.

For now, the Small and Medium Business Administration (SMBA) announced that as of Apr. 29 it was accepting applications for assistance from firms at Kaesong that have suffered losses. Such firms can apply for emergency business stabilization funds or for an extension for repayment of outstanding loans.

The SMBA is planning to lend up to 1 billion won per firm in emergency business stabilization funds. It also intends to allow companies that have already received government loans to delay repayment on the principle, which normally must be made every three months, to a maximum of one year and six months.

The problem is that there is a significant difference between the estimates that the government and the companies have made in regard to losses to the companies at the complex.

The government estimates losses to be 1 trillion won, including 550 billion in investment and 500 billion in production losses.

But these are not the only losses, companies claim. They argue that, if one includes damage to raw materials and finished products, loss of revenue, and losses to subcontractors, the losses actually add up to 6 trillion won (US$5.44 billion).

As a result, the government decided to base its assistance on a systematic investigation of the current losses to firms at Kaesong. The taskforce entrusted with the job is to be headed by Shim Oh-taek, chief of government operations at the Office for Government Policy Coordination.


Please direct questions or comments to [english@hani.co.kr]


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