Evolving criterion for insolvency
CHOI HYUN-JOOThe author is a financial news team reporter of the JoongAng Ilbo.
The history of debt is as long as human history. In 2,400 B.C. in Mesopotamia, the Sumerians created a debt relief decree to nullify all previous debts. The Old Testament also states that debt should be written off in the jubilee that returns every 50 years. In 594 B.C. in Athens, Consul Solon issued an unusual debt relief decree called Solon’s economic reforms. Those who became slaves because of debts were freed, and the land and assets taken as collateral for debts were returned to the original owners. The government paid the ransom for the people who were sold to other countries as slaves because of debts.
In the process, the creditors who lent goods and capital suffer damages in properties. But Solon’s reform was successful because carrots also were offered to the creditors. At that time, classes for Athenian citizens were determined by their assets, and suffrage was given according to class. The creditors who suffered losses from Solon’s reforms acquired political rights in return for property losses. The debt relief system existed for more than 5,000 years for coexistence. As more people become slaves due to debt, the number of taxpayers and soldiers would decrease.
The debt relief policies of the Yoon Suk-yeol administration are controversial day after day. The loan maturity extension and interest repayment grace period for the self-employed and small- and mid-sized enterprises due to the Covid-19 losses, which were enforced since April 2020, were extended again instead of terminating at the end of last month. The 30-trillion-won ($21 billion) New Start Fund offers reduced principal up to 90 percent. The policy is already in place to help young people, who borrowed and made failed investments on stocks and cryptocurrency, with a three-year grace period for principal repayment and up to 50 percent interest rate reduction. Criticism on these policies is fierce. While the intention is understandable, it is not fair to use taxes to rescue people who are irresponsibly in debt.
That is not the only problem. The debt relief policy can encourage “blind” insolvency. On Oct. 7, the Financial Supervisory Service announced the result of a full survey into the solar power-related loans and funds. The conclusion was “no insolvency discovered yet,” a vague outcome that insolvency cannot be confirmed.
That is understandable. The criterion for determining insolvency is whether the payment is overdue. But when interest is not received, let alone the principal, insolvency cannot be confirmed. The loan maturity for solar power-related loans which began in 2018 starts next year. In the end, the full survey was meaningless. That’s why the “political financing” is criticized. What we need now is financing for genuine “coexistence.”
with the Korea JoongAng Daily
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