Formation of $500 Mln. Fund

Support for Korean builders in the Middle East and financial institutions to secure funds

The government has decided to set up a fund named the Korea-Middle East Plant Fund in support of construction firms operating in the Middle East with the participation of financial institutions and government investment, which was decided at the meeting of the 117th Emergency Economic Policy Committee on March 15, the committee said recently.
The fund is in answer to various criticisms that financial support to Korean builders in the Middle East has not been satisfactory despite the rise in construction projects in the region in tandem with increases in oil prices. At the same time, the fund will improve the operations of Korean financial institutions in support of Korean construction firms in the region, which have been lagging behind.
The Middle East has been emerging as a global financial source with their oil revenues rising due to recent increases in oil prices.
The Ministry of Knowledge Economy will lead the formation of the fund by setting up a task force with the participation of private banks and the National Pension Service Fund, amounting to around $500 million.
The government plans to promote joint financing with national wealth funds of Middle East nations and global investment funds for construction projects undertaken by Korean builders. The government has scheduled an expert meeting in April to negotiate with Qatari wealth funds.
The government has decided to push a plan to set up an intra-government and private sector joint cooperation task force as a high-level committee to search for joint projects as well to solve difficulties for Korean builders.
The government plans include building a network of state wealth funds and government financial organizations in the Middle East and offices for financial institutions from Korea. Each financial organization will have a number of countries assigned for its relations and will sign MOUs with them and hold regular consultations.
The financial regulations will be changed to allow for freer activities for the investment banking activities for Korean securities firms and banks. And in June, measures will be taken to strengthen the domestic financial institutions? expanded roles overseas.
Mechanisms for domestic banks to support project financing will be made so that banks will be allowed to extend short-term loans for long-term projects under a new short-term repayment system.
For example, Korea Export and Import Bank (Exim Bank) and a commercial bank lend $500 million. The commercial bank will be repaid for its loan after five years and the Exim Bank would get its money back from the sixth year.
The government will also find ways for the National Pension Service to invest in Korean construction firms? projects in the Middle East by taking over the investment stakes from Korean financing and construction firms and others that can give high enough income incentives for the pension fund to participate in construction financing.
The government will also increase the support for medium- to long-term funds, as there is great need for long-term project financing. The government will see that Exim Bank increases its long-term loans by 34 percent in 2015 from 20 percent in 2011 and the Korea Trade Insurance Corp. expands the weight of its medium- to long-term guarantees to 16 percent of all guarantees from 7.2 percent in 2011.
The government has also been considering expanding the capital of those government-run financial institutions, along with loans on credit by the Exim Bank. The government, at the same time, will find ways for policy loan institutions including Korea Investment Corp. and the pension service fund to attend consultative meetings to strengthen their cooperative tie-ups.
In order to ensure that the plans are pushed forward without a hitch, the government will schedule bi-annual meetings including meetings of related ministers in charge of external economic affairs and policy loan financial institutions to check up on the progress of the plans.

President Lee Myung-bak speaks at an emergency economic ministers’ meeting at the Korea Finance Corp. headquarters in Seoul as Minister of Strategy and Finance Bahk Jae-wan looks on. The government decided to set up a $500 million fund supporting Korean contractors’ activities in the Mideast.