The Peninsula

Can the Government and SMEs Reconcile?

Following a new report on record-low new cases on April 18, the government lifted most coronavirus-related restrictions such as social distancing and curfews that limited business hours. Small business owners welcomed the government’s decision, hoping to recover from the losses incurred in the past two years.

While the South Korean government’s restrictive public health measures kept COVID-19 case numbers low (until a resurgence in early 2022), the aggressive measures came at the cost of the relationship between the government and small and medium enterprises (SMEs). The government’s rules against large gatherings and mandatory curfews were particularly costly for small business owners in the services sector. The pushback intensified in December 2021, when these businesses called for restrictions to be lifted and better compensation from the government for their losses.

SME owners reported that the government’s social-distancing regulations and restrictions led to fewer customers, reducing their annual profit by 24% in 2020. The Bank of Korea added that debts owed by small business owners increased by 14.2% in 2021 compared to the previous year. The government responded to this crisis with a USD 3.6 billion stimulus to subsidize the losses; however, many small business owners claimed that this assistance figure was insufficient.

With restrictions relaxed starting on April 18, small business owners hope for a gradual return of sales and profit to pre-pandemic levels. The government promised that more restrictions will be lifted in the near future to help with the recovery, including the normalization of in-person classes for K-12 schools and the normalization of social gatherings.

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

Korea View was edited by Yong Kwon with the help of Kayla Harris, David Lee, Sarah Marshall, and Mai Anna Pressley. Picture from the flickr account of b cheng