Korea Credit Guarantee Fund and Its Contribution to the Korean Economy

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time, it implemented measures to boost the collection of payment and to cut operationalexpenses. The Korean government made contribution of 25 billion KRW for the first time sincethe establishment of KODIT, thereby enhancing the payment ability of KODIT anddemonstrating the strong will of the government to bring the credit guarantee system back tonormal. Such collective effort of the Korean government and KODIT enabled the furtherdevelopment of the credit guarantee system. In the 1980s, along with the economic growth ofKorea, the credit guarantee system witnessed progress as well. Especially during this period, theSME policy started to be regarded not just as a measure to protect the disadvantaged SMEs, butas an indispensable tool for the balanced economic growth. As the importance of SMEs wasnewly recognized by the government, credit guarantee became one of the major tools ingovernment s SME policy. In line with this, KODIT also overhauled its guarantee system toaccommodate the change in government’s policy. Before this period, the commercial bankswere reluctant to use credit guarantees, because of the obligation to collect guarantee-backedloans first in case of default. Such obligation as well as the duty to implement follow-upmanagement was abolished. These changes laid the foundation for guarantee provision on alarger scale. As a result, in 1986 the outstanding credit guarantee reached over KRW 2 trillionand in a mere 2 years, the amount reached over KRW 3 trillion.Table 5Business performance in the 1980s(Unit : billion KRW)104
Korea Credit Guarantee Fund and Its Contribution to the Korean Economypp. 97-126D. Economic reform and the credit guarantee system (1990~1997)KODIT, which had recorded stable growth thanks to the booming economy in the 1980s,witnessed further growth in the 1990s. In 1993, the newly elected government implemented aneconomic reform. And as part of such reform, it actively supported the SME sector throughcredit guarantee. Accordingly, the outstanding credit guarantee more than doubled in just 4years from KRW 3.9 trillion in 1989 to KRW 8.5 trillion in 1993. However, the increase incredit guarantee provision led to the increase in payment under guarantee as well. And in orderto assure the sound management of the system, the government made a large amount ofcontribution to KODIT. In 1994 and 1995, the governmental contribution was KRW 240 billionand KRW 290 billion, respectively. Considering the fact that the tax revenues in thecorresponding period were KRW 43 trillion and KRW 52 trillion, the amount of governmentalcontributions were quite considerable. The contribution from financial institution was alsoraised to secure financial resources for credit guarantee. During the process, however, the highoperational costs incurred in operating the credit guarantee system came under criticism.Nevertheless, the policy effectiveness of credit guarantee was proved, which laid the foundationfor the active use of credit guarantee after financial crisis in 1997.Table 6Business performance in the 1990s(Unit : billion KRW)105
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Korea Credit Guarantee Fund and Its Contribution to the Korean Economy

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