‘Happiness fund’ might be ready by end of March
In a meeting with senior officials yesterday, Choo asked the FSC to “thoroughly prepare for specific measures to launch the people’s happiness fund within March.”
It was the first time a high-ranking government official specified a time frame for launching the fund that aims to assume some mortgage debt of homeowners suffering in the sluggish economy and frozen real estate market.
“Due to Italy’s election and a possible sequester in the United States, international financial markets are temporarily experiencing falling stock prices and rising interest rates,” Choo said.
“The FSC will strengthen its monitoring of these situations to ensure that the people’s happiness fund will be launched without a glitch.”
Choo serves as interim head of the FSC after FSC Chairman Kim Seok-dong resigned Monday.
Kim, who left 10 months before his official term ends to pave the way for the new government to choose its own FSC chief, had opposed Park’s idea of using public funds to bail out indebted households.
“Household debts can be resolved only when they are regarded as an issue between lenders and borrowers,” Kim said in December.
Park proposed creating an 18 trillion won people’s happiness fund during the election campaign as her No. 1 pledge to tackle mounting household debt.
The administration estimates the people’s happiness fund will be used to write down the debt of about 3.2 million people by a maximum of 70 percent of debts for low-income and 50 percent for middle-income households.
The government will also allow households to repay remaining household debt in installments over longer periods of time.
Park’s presidential transition committee has said the new government will bankroll the fund by issuing bonds equal to 10 times the amount of 1.8 trillion won in seed money from the Korea Asset Management Corporation’s credit restoration fund (870 billion won), nonperforming loan resolution fund (300 billion won) and other funds (700 billion won).
Market observers say the mounting household debt problem could be a major drag on economic growth. Recent statistics from the Bank of Korea showed the country’s household debt stood at a record 959.4 trillion won in 2012, up 47.6 trillion won from the previous year.
Choo also ordered FSC officials to make sure the 196 trillion won from the Korea Credit Guarantee Fund and Korea Technology Credit Guarantee Fund go to small- and medium-sized enterprises this year as planned.
In addition, the FSC will check to be sure the 3 trillion won for Smile Microcredit and Sunshine Loan is used for low-income aid as planned.
Meanwhile, experts warn that Park’s people’s happiness fund could encourage indebted households to intentionally delay repaying loans.
“In the worst case scenario, loan delinquency ratios could go up as the scheme may give the impression to heavy debtors that the government will clear their debt again in the future and that they don’t have to work hard to pay them back,” said Lee Joon-hyup, a research fellow at the Hyundai Economic Research Institute.
By Kim Mi-ju [firstname.lastname@example.org]
* President Park Geun-hye’s No.1 election pledge to effectively tackle mounting household debt.
An 18 trillion won people’s happiness fund is expected to write down the debts of about 3.2 million people.
Sourced from bonds equal to 10 times of the amount of 1.8 trillion won in seed money from the Korea Asset Management Corp.’s credit restoration fund, non-performing loan resolution fund and others.
To be used for writing off a maximum of 70 percent of debts for low-income and 50 percent of middle-income households.
To be launched in March.