Analyst faults gov’t view of debt

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Analyst faults gov’t view of debt

After the unprecedented National Assembly hearing on household debt last week, the biggest question remains: Are there no immediate solutions?

Market experts say the government is too optimistic on the country’s household debt as it closes in on 1,000 trillion won.

“If the government postpones the debt situation, it will not only increase potential risks, but also increase instability of the overall financial market that could hinder the nation’s economic growth,” said Seo Young-soo, Kiwoom Securities’ banking analyst.

Top economic officials, including Hyun Oh-seok, deputy prime minister on economics and finance minister, Financial Services Commission Chairman Shin Je-yoon and Bank of Korea Gov. Kim Choong-soo were summoned by lawmakers to face questions regarding the level of household debt, which at the end of March stood at 962 trillion won. During the hearing, although acknowledging that the size of the nation’s household debt is a problem, Hyun told lawmakers it is not at a critical level that could threaten the soundness of the overall financial market, while acknowledging that it could slow economic growth

Seo said the government’s debt restructuring will likely be delayed for an extensive period and limited when it begins.

“The government was too optimistic over the household debt and even though 30 percent or 306 trillion won is borrowed by 3.3 million self-employed entrepreneurs with multiple loans [from different institutions], the government hasn’t introduced any appropriate measures,” the analyst said.

Seo said that although the government operates several programs to ease the debt burden - especially for low-income, low-credit borrowers with multiple loans - they lack practicality and have failed to address fundamental problems, such as repaying principal. The analyst added that the government also lacks measures to help improve the real income of average households, which is essential in solving the debt situation.

“Not only would the burden of paying principal ease, but also it could prevent borrowers from going bankrupt if their real income improves,” said Seo.

The analyst said that although he agrees that household debt is not at a critical situation that could start a panic and disrupt the financial market at the present time, a swift move by the government is essential.

“However, if a financial crisis is triggered by an external impact, it could quickly turn into an influential factor that could further deepen the crisis,” Seo said. “Therefore it is important for the government to resolve the situation through preemptive restructuring.”

BY LEE HO-JEONG [ojlee82@joongang.co.kr]

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