Moon pushes debt forgiveness

The Moon Jae-in administration will push for the cancellation of debts worth around 1.9 trillion won ($1.7 billion) to help out people who have struggled for a long time to pay relatively small amounts.

The Financial Services Commission is reviewing Moon’s pledge and will come up with specific guidelines in the coming months.

“Details have yet to be announced, but the new measure will cover the applicants for the National Happiness Fund,” said a source at the Financial Services Commission.

The National Happiness Fund is a state-run fund established by the former Park Geun-hye administration to help low-income people write off debts.

Indebted, low-income earners were allowed to sign up for a state-supported debt relief program.

“The fund has relieved debts in a rather conservative manner, but the new program will widen the scope and size of debt relief,” the source said.

In a campaign pledge, Moon said that debts overdue for 10 years in the fund will be completely forgiven if the amount is less than 10 million won.

If all goes as planned, the number of beneficiaries is estimated at 437,000 and an average of 4.35 million won will be forgiven.

The approach can be considered radical since his predecessors opted for partial reduction of debt held by low-income people.

The Park Geun-hye administration promised to help adjust debts owed by 3.22 million people through the National Happiness Fund, but the actual number of beneficiaries was limited to 660,000.

Former President Lee Myung-bak vowed to help improve the credit ratings of 7.2 million people, though he failed to follow through on his pledge.

The late Roh Moo-hyun government eased criteria for individual loan workout programs while his predecessor Kim Dae-jung focused on debt relief for farmers.

Even conservative presidents faced backlashes for such debt relief initiatives. Moon’s plan will likely trigger questions over whether it will increase moral hazards.

Acknowledging potential opposition, Moon vowed strict screening of the beneficiaries.

“We will thoroughly investigate potential recipients’ age, income, wealth and expenses,” Moon said in March.

“If any unreported asset or income is found, we will nullify the support,” he said.

Still, the need for debt relief remained, he said. “Debtors often find it hard to carry out normal economic activities because of their outstanding debt, which has little chance of being collected.”

BY PARK EUN-JEE, HAN AE-RAN [park.eunjee@joongang.co.kr]