[EDITORIALS]Bad debts and the economy

The government announced a three-pronged relief measure for credit delinquents, including the establishment of a “bad bank” where bad loans will be gathered. The main purpose of the plan is to give a second chance to defaulters who have the will to pay back their debts. There is some criticism that the plan is an election ploy, but it is inevitable in some respects if we consider the risks of leaving bad debts as they are.
Household debts and credit delinquents are no longer just problems on an individual level. They are the major stumbling blocks for the Korean economy. By the end of last year, total household debt was 440 trillion won ($375 billion) and the average household debt was over 29 million won. The number of blacklisted borrowers will be over 4 million soon. Without solving these problems, we cannot expect consumption and investment to be normal. Domestic consumption will shrink more, and the vicious cycle of mass unemployment, more debts, mass production of credit delinquents and insolvencies at financial institutions will repeat itself. Considering those problems, the government might have decided that ending the cycle this way was best.
Despite the inevitability, the measure could have some serious side effects. We are concerned, first of all, that a “Debts can be left unpaid” attitude will spread. The government denies that that will happen. Also, the government has paid debts of farmers and fishermen with tax money. What would it say to critical comments that it now allows debtors to live in an unsustainable style and then forgives their debts?
Failed government policies on real estate and credit cards are more responsible for mass credit delinquencies than consumer extravagance. But there is no official who would come forward to hold himself accountable, nor anyone who demands that. In some way, responsibility for the present situation must be assigned.
In order to prevent a recurrence of these problems, such accountability is a must. Even if consumer debts are written off, if economic recovery and job creation do not follow, the solution will be only a stopgap measure.
The government, therefore, must concentrate all its effort on economic recovery as a fundamental solution to debt problems.