Korea to Use Pension Money to Bolster Its Stock Market

By: Don Kirk
The New York Times, April 5, 2001

SEOUL, South Korea, April 4 — Korean economic policy makers today prescribed a huge dose of government money to brace a stock market that has declined to its lowest level since the economic crisis that swept Asia in 1997-98.

The measures adopted by the Finance Ministry, the Bank of Korea and the financial supervisory commission — South Korea's three leading financial agencies — are based on the premise that more public financing can stave off a collapse in the private sector. Similar thinking is behind a plan being debated in Japan to sponsor a fund that would buy large stock holdings from banks.

But the announcement in Seoul that the huge National Pension Fund and smaller funds would pour $4.4 billion into the stock market by the end of the year had no effect on Korean investors who were scrambling through another down day on the stock exchange.

The Korea composite index slipped below the psychologically crucial 500-point barrier, closing at 493.69, down 9.57, from Tuesday. It was the lowest close in 28 months.

As in the crisis of a few years ago, a steady decline in stocks and the currency has been attributed in part to external factors — the fall in prices on the New York Stock Exchange and the Nasdaq. The local equivalent of the Nasdaq, the Kosdaq, once a hot market dominated by high-technology issues, fell for the seventh consecutive day, dropping 2.9 percent, to 64.34.
The complex rescue formula calls for the National Pension Fund, which has a nest egg of 65 trillion won ($47.61 billion), and other state-run funds to pump 6 trillion won ($4.39 billion) into the market by the end of the year. As a special reward for long-term investors, the council also decided that those who held stocks for more than a year would not have to pay taxes on dividends.

The value of the infusion of government-held money, however, was open to question, as the won fell in tandem with the market, settling at 1,365.2 to the dollar, its lowest value in two and a half years. The won opened the day at 1,343.2.

The finance minister, Jin Nyum, indicated that more help, in a different form, was on the way for construction companies, which have yet to recover from the last crisis.