On borrowed time

Loans to self-employed businesspeople are teetering on the brink of turning sour and spilling over. The Korea Institute of Finance warned that high-income earners are decreasing while poor earners are increasing in the self-employed business community, raising concerns about their overall ability to pay off debt in time.

The share of low-income earners in the self-employed cadre jumped to 18.6 percent this year from 11.8 percent in 2009.

Their share in lending from the non-banking sector, which levies high interest rates, soared to 45 percent this year from 25.2 percent. Debt holding by self-employed businesspeople has become dangerous as more and more cannot afford to finance their interest cost and repayment. Worse, the debt share by people in their 50s and 60s is on the rise. Korea Ratings pointed out about 40 percent of the loans from self-employed businesspeople have gone toward real estate businesses; a slowdown in the property market could take a heavy toll on their debt load.

Self-employed business has never been easy. Korea has double the number of self-employed businesses than the average among countries in the Organization for Economic Cooperation and Development. Half or more such businesses close within 10 years.

The services sector has half the productivity of the manufacturing sector, though recently it has increased as more and more people were forced to find their own means to make a living after they lost their jobs amid prolonged the economic slowdown and layoffs the resulted from government restructuring.

The circumstances did not bode well for individuals or the economy at large.

The amount of debt per self-employed household surged to 93.92 million won ($82,804) last year from 79.6 million won in 2012. The debt-to-income ratio has exceeded 200 percent. A surge in loans for self-employed individuals could cause the household debt sector’s bubble to burst. The only way to prevent a catastrophic meltdown is to revive the economy.

Jobs must be created and training for rehiring must be made more available. The industry and economy must become leaner and more competent through restructuring. The time bomb is ticking while we lack the leadership needed to achieve a breakthrough.

JoongAng Ilbo, Oct. 25, Page 30