Finance Minister nominee vows to tame record household debt

Finance Minister nominee Choi Sang-mok speaks during a parliamentary confirmation hearing held at the National Assembly in western Seoul on Tuesday. [JOONGANG PHOTO]

Finance Minister nominee Choi Sang-mok has pledged to facilitate a smooth resolution to the challenges in project financing and to stabilize Korea's record household debt, aiming to effectively manage any potential risks.

Choi said on Tuesday that he will manage household debt growth to move it in line with the nominal growth rate and will lower Korea’s household debt-to-GDP ratio, which currently ranks among the highest across major economies. As part of this strategy, the expansion of fixed interest rate loans was introduced.

“I will strictly manage the potential risks in vulnerable sectors,” said Choi in prepared remarks at the parliamentary confirmation hearing at the National Assembly in Yeouido, western Seoul.

“I will drive the soft landing [of the property market] through a customized response toward different project finance projects.”

The prospective defaults of real estate project finance loans in Korea represent a significant and looming risk for the country's economy.

The balance for real estate project finance loans reached 134.3 trillion won ($102.5 billion) as of the end of September, up more than 40 trillion won within three years, according to financial regulators. The delinquency rate rose 0.24 percentage points over the same period to 2.42 percent.

The Financial Supervisory Service (FSS) Gov. Lee Bok-hyun said last week it would be “inevitable” for real estate developers and financial institutions with weak financial soundness and unprofitable projects to take responsibility for the situation.

Choi said he would enhance the sustainability of the country's finances by implementing fiscal rule — a durable constraint on fiscal policy involving numerical limits on various budgetary aggregates.

As of October this year, Korea's fiscal balance, excluding social security fund, recorded a deficit of 52.2 trillion won, as reported by the Ministry of Economy and Finance. This shortfall is attributed to diminished tax collections stemming from the downturn in the property market and lackluster business performance.

Choi touted slowing consumer prices in the country, which has slid to the low 3 percent range from a 6.2 percent peak in July last year. But he added, “A lot of citizens still have not felt a recovery,” citing the extended period of high-interest rates and inflation.

Choi, the former presidential secretary for economic affairs, was tapped as the new finance minister who doubles as the deputy prime minister in early December.

In a press conference earlier this month, he underscored the importance of fostering a "dynamic economy," signaling the necessity for relaxed regulations and the advancement of the high-tech industry to sustain continuous growth.

BY JIN MIN-JI [jin.minji@joongang.co.kr]