UPDATE 2-S.Korea draws extra $6.6 bln budget to help small businesses, households

* President Moon says economic activities are sharply contracting

* Extra budget will need to be funded by government bond sales

* 3.2 trln won for small retailers, 1.4 trln won for job seekers (Adds context around current curbs and data on small businesses)

By Cynthia Kim and Hyonhee Shin

SEOUL, Sept 10 (Reuters) – South Korea is preparing the fourth supplementary budget of this year of around $6.6 billion to aid struggling small businesses facing mass closures amid unprecedented social distancing restrictions to curb a resurgence of the coronavirus.

At an emergency economic policy meeting, President Moon Jae-in said the fresh spending of 7.8 trillion won ($6.58 billion) will be used to help small businesses and households.

“The unexpected resurgence of the coronavirus is delaying recovery momentum, and economic activities across domestic demand and consumption are sharply contracting,” Moon told the meeting.

Of the new budget subject to parliamentary approval, 3.2 trillion won will be used as cash payments to small businesses, while another 1.4 trillion won will support struggling job seekers.

Moreover, every South Korean aged 13 years old or older will be able to receive subsidies for mobile phone bills.

The fourth extra budget of this year comes on top of 277 trillion won ($233.66 billion) of stimulus pledged so far to prevent a deeper downturn in Asia’s fourth-largest economy.

South Korea had been more successful than many other countries in containing the virus, managing to avoid a full-blown lockdown, but it suffered a setback in mid-August with a church outbreak which spread to a political rally.

The strict social distancing rules imposed since late August have hurt restaurants, hospitality and retail sectors, as the government banned onsite dining after 9 p.m. (1200 GMT) and limited coffee franchises to takeout and delivery.

Small businesses are vanishing fast.

Statistics Korea data show the number of self-employed businesses were down by 128,000 in July from a year earlier to 5.55 million, marking the biggest annual drop since 2009.

The Korea Center for Disease Control and Prevention (KCDC) reported 155 new cases as of midnight Wednesday, which brought the total infections to 21,743, with 346 deaths.

The fresh government containment efforts have led to a steady drop in the daily tally since it reached a peak of 441 last month. But smaller clusters continued to emerge from churches, offices and medical facilities.

The government is set to announce soon whether to extend current curbs, which expire on Sunday, including limiting nightly on-site dining in the Seoul metropolitan area, health ministry officials said on Thursday.

“There are nearly 100 cases occurring daily in the greater Seoul area and we think this trend should be broken,” said Yoon Tae-ho, the ministry’s director-general for public health policy. ($1 = 1,185.4800 won) (Reporting by Cynthia Kim; Editing by Himani Sarkar & Shri Navaratnam)

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