SEOUL - SOUTH Korea will launch a fund worth US$3.94 billion (S$5.7 billion) to boost corporate investment as part of a drive for economic recovery, officials said on Thursday.

The five-trillion-won fund was approved by President Lee Myung Bak at his meeting with business leaders and policymakers, the Ministry of Strategy and Finance said. It will be launched by next month.

The ministry said the government would receive contributions to the fund from the state-run Korea Development Bank and institutional investors such as the National Pension Service.

The fund will provide firms with capital or will purchase long-term company bonds and get dividends for return, it said.

The ministry plans to expand it to 20 trillion won after drawing participation from other pension funds and institutional investors.

'It's time for companies to invest actively,' Strategy and Finance Minister Yoon Jeung Hyun told reporters. 'The government can't use expansionary fiscal policy forever for an economic recovery.' South Korea has taken a series of steps to revive its sagging economy, but many firms are still reluctant to invest amid lingering jitters about the global economic downturn.

In the first quarter capital investment by companies plunged 23.5 per cent from a year earlier, the largest setback since East Asia's 1997-1998 financial meltdown.

South Korea's economy averted recession in the first quarter by growing 0.1 per cent from three months earlier, after declining 5.1 per cent in the last quarter of 2008.

In April parliament approved a 28.9-trillion-won extra budget to create jobs and boost domestic demand. -- AFP