Household and corporate debts stand at 2.2 times Korea’s GDP: The DONG-A ILBO

Total Korean household and corporate debt hit a record high of 4.345 trillion won (about $3.07 trillion) at the end of June, according to a Bank of Korea report. The total is 2.2 times the country’s nominal GDP. The debt is astronomical and the debt burden is snowballing due to rapid increases in interest rates. If the debt is not sufficiently contained, it could destabilize the financial system and threaten the viability of the Korean economy.

Household debt alone reached 1.869 trillion won (about $1.32 trillion) at the end of June, up 3.2% year on year, while corporate debt reached 2.476 trillion. won ($1.75 trillion), up 10.8% year-on-year. Household debt growth is slowing due to a slump and a lack of real estate transactions in the real estate market. However, the pace of corporate debt growth is accelerating as more companies have faced soaring production costs, including spending on raw materials, labor and equipment. public services. If the interest burden increases, an increasing number of companies that have had to increase their borrowing due to the financial crisis will be unable to repay their debts and will become “zombie companies”.

Notably, debt owed by the self-employed, which jumped 15.8% to 994.2 trillion won ($702 billion) a year ago, is a significant risk factor. As social distancing has been lifted, these people have been hit even harder by high interest rates amid a slow economic recovery. As financial authorities have continued to extend maturity and defer principal and interest repayment for the self-employed and small business owners, the problem has yet to surface but is getting worse. internally. There is a good chance that excessive debt incurred by young people in their 20s and 30s will become a significant social problem. There are said to be an increasing number of cases where young Koreans are isolating and hiding after suffering significant financial losses due to falling prices of stocks and virtual currencies they have invested with loans.

The wave of US-led interest rate hikes will continue at least into early next year, as the global economic recession drags on even further. Korea is expected to practice an exit strategy to reduce household and corporate debts that have accumulated for more than two and a half years since the outbreak of the Covid-19 pandemic. Despite this situation, the government is reportedly considering extending the maturity of debt by three years and deferring repayment of principal and interest for the self-employed and others by one year.

If this practice continues, resources that should be invested in healthy businesses are spent on “zombie businesses,” further compounding the financial problem. The government should practice debt adjustment programs for economically disadvantaged people, including the working class, and young people. To distinguish sound debtors from insolvent debtors, the government should empower financial institutions to use their discretionary power for business debts, including the self-employed. He should refrain from extending the maturity of debt in a reckless and risky way like in Russian roulette.

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