Finance Ministry prepares to battle bubbles and debt

Korea's Finance Ministry said Tuesday it will carefully manage ample liquidity this year to prevent idle money from causing asset bubbles and increasing household debt.

The Ministry of Economy and Finance also said in its 2021 policy report that the country will soon draw up measures to increase housing supply, while continuing to curb speculative property demand.

"The ministry will meticulously manage liquidity that has increased in the process of tackling the Covid-19 pandemic in a bid to prevent it from producing side effects, such as asset market fluctuations or a debt surge," the Finance Ministry said in the report.

Concerns are deepening that only asset markets, such as the property and stock markets, are booming as economic slumps caused by the new coronavirus outbreak have continued.

Amid record low interest rates, the country's stock prices jumped about 30 percent last year, while the economy contracted for the first time since the 1997-98 Asian financial crisis.

The growing gap between the real economy and financial markets could cause market instability when the country begins to unwind emergency steps taken to cope with the pandemic.

The Finance Ministry said it plans to permit state pension funds to diversify portfolios in local stock investments.

It will encourage people to invest in funds designed to implement the New Deal initiative and other financial vehicles as part of efforts to prompt liquidity to be used for investment in a productive manner. The government will introduce incentives for long-term stock and bond investments.

To deal with growing household debt, the government plans to draw up a set of measures to strengthen bank reviews of borrower capacity for debt repayment in the first quarter.

Korea's household debt has been repeatedly cited as one of the key drags on Asia's fourth-largest economy, as the debt is feared to be curbing domestic demand and thus crimping economic growth.

Touching on rising housing prices, the Finance Ministry said the government will unveil measures to increase home supply, including supporting redevelopment projects and supplying more public houses, the ministry added.

President Moon Jae-in said Monday that the country will roll out steps to ramp up housing supply on a scale that goes beyond market expectations before the Lunar New Year in February.

The ministry said it will go ahead with imposing steeper comprehensive property and sales taxes as planned, dismissing speculation that it may ease the tax rates to encourage multiple homeowners to sell their houses.

Yonhap