Chairman Eun Sung-soo of the Financial Services Commission (FSC) speaks at the first strategic meeting of the Korean New Deal at Cheong Wa Dae on Sept. 3. (Photo: FSC)

On Sept. 3, the Korean government laid out its plans to create a Korean New Deal fund and promote private sector investment in New Deal projects.

The Financial Services Commission (FSC) will take the initiative in supporting the New Deal projects.

Under the management of the Korean government, the FSC introduced a 160 trillion won New Deal initiative aimed at transforming the economy for the future.

The successful implementation of the New Deal projects requires not only public sector capital, but also private sector investment.

Therefore, the FSC mapped out a plan to launch the Korean New Deal fund in order to provide strong funding support for the New Deal projects, help channel enhanced market liquidity to productive sectors and make profit sharing from the New Deal investment projects more widely available to the general public.

The Korean New Deal fund is made up of three key pillars: A 20 trillion won public sector led New Deal fund, promoting New Deal SOC investment funds and boosting private sector investments in the New Deal projects.

As for the Public Sector led New Deal Fund, a 20 trillion won fund will be created from 2021 through 2025.

A master fund of seven trillion won will be funded by the government and policy banks over the next five years. A total of 20 trillion will be raised through matching funds between public (35 percent) and private sector (65 percent) investments.

Investment risks are reduced as the public sector led master fund will absorb losses first through a subordinated investment position. This fund will provide the general public with investment opportunities in Korean New Deal protects through public offerings at lower risk.

Tax incentives and fiscal support will be provided to facilitate private sector investments in the Korean New Deal projects. Tax support will be given to impose separate taxation on dividend income earned from Korean New Deal SOC investment funds

The FSC will promote the growth of public equity funds in SOC projects to facilitate more investment from the general public by applying tax incentives only to public equity funds and setting up rules to promote SOC investment by pension funds.

With an eye towards boosting private sector investments in the NEW DEAL projects, the FSC will encourage private sector financial institutions to search for promising new deal investment projects and create funds to supply private sector capital.

The Korea Exchange will develop various New Deal indexes. At the same time, the development of New Deal index-linked investment products such as ETFs and index funds will be encouraged.

The FSC will also help finance new deal projects. The FSC will expand financing support through state-backed financial institutions and improve regulations to promote private sector investment in the Korean New Deal projects.

The FSC will increase New Deal project financing by state-backed financial institutions to more than 12 percent by 20252.

It will also provide 100 trillion won in lending support over five years through low interest rate loans and special guarantees and targeted support to innovative businesses in the Korean New Deal sectors by selecting and designating more than 60 percent of businesses in the New Deal sectors in the fourth quarter of 2020 as part of government-wide plans to cultivate 1,000 innovative firms.

The FSC will improve regulations to facilitate the growth of private sector investment and capital injection into the New Deal sectors.

The FSC will promote project financing asset-backed securities. In SOC projects, the FSC will strengthen support for issuing PF-ABSs by lowering SOC credit guarantee fees from 0.2 percent to 0.1 percent.

In other projects, it will provide support for PF-ABS credit reinforcement by establishing a Korean New Deal specific account at KODIT

The FSC will encourage lending support for New Deal projects. It will create an environment to facilitate investment in the New Deal projects by financial institutions and strengthen support for digital finance and develop an ecosystem for the growth of the New Deal sectors.