‘Giveaway’-style Financial Support Focus... 4·7 By-election Promises Risk Becoming Populism

In-depth Analysis of the 3 Major Pledges in the April 7 By-Election - ① Real Estate ② Jobs ▶ COVID-19 Support
Loan Repayment Extension & Interest-Free Pledge
Concerns Over Future Bankruptcy and Default
Need to Check for Overlapping Existing Support
Restoration Infrastructure Like Market Development Also Needed

[Asia Economy Reporters Chae-eun Koo, Bo-ryeong Geum, Jun-yi Park] Experts unanimously pointed out that the COVID-19-related support pledges for small business owners and self-employed individuals proposed by the 4/7 Seoul mayoral by-election candidates Park Young-sun, Oh Se-hoon, and Ahn Cheol-soo are "too focused on financial support." The pledges mainly involve delaying debt repayment periods or exempting interest, collateral, and guarantees. However, there is concern that this could lead to "blind" lending. In other words, it could become a populist policy that shifts the financial risks onto the Seoul city budget. Oh Jung-geun, president of the Korea Financial ICT Convergence Society, warned, "There is no such thing as free money in finance," adding, "If loans borrowed without collateral or interest are not repaid, the Seoul city budget may have to bear the burden." Professor Lee Jung-hee of the Department of Economics at Chung-Ang University also expressed concern, saying, "If interest-free loans are implemented when there is high loan demand, there will be excess demand (people applying for loans even if they do not need to borrow). Since the budget is limited, the financial support may not reach those who really need it."

"Are these pledges really based on voices from the field?" Lack of specificity

Six experts criticized the financial-centered small business support measures proposed by candidate Park (50 million KRW interest-free loan), candidate Oh (four no’s loan: no guarantee fee, no interest, no collateral, no documents), and candidate Ahn (deferment of principal and interest repayment, retroactive loss compensation system) for having unclear sources of funding and lacking specificity. These pledges are essentially similar to debt reduction and automatic interest suspension procedures that occur after bankruptcy and rehabilitation processes, but they lack specificity when applied to small business owners and self-employed individuals with diverse business durations, industries, and sales channels, and are particularly skewed toward the supply side.

Professor Shin Min-soo of Hanyang University’s Business School said, "These pledges do not seem to have come from listening to voices on the ground," emphasizing the need to approach support by creating so-called ‘restoration infrastructure’ such as demand stimulation, market development, and value chains changed after COVID-19, as much as cash flow support. Professor Kim So-young of Seoul National University’s Department of Economics pointed out, "If loans are given to small business owners without interest, collateral, guarantee fees, or documents, there is a problem that debts from future bankruptcies cannot be recovered," adding, "It is unclear whether these pledges are feasible with local government budgets or require central government assistance, and some assume unrealistic budgets."

Need to examine funding effectiveness, method appropriateness, and pledge overlap

Evaluations of each candidate’s pledges mainly differed based on the effectiveness of funding sources. Regarding the pledges of candidates Park and Oh, who plan to secure funds through the Seoul Guarantee Foundation, Professor Jeon Sung-in of Hongik University’s Department of Economics said, "It is meaningful that the policy utilizes a foundation with discretionary authority of the city," but also pointed out that "the outflow of small business owners from Seoul is intensifying, and with different quarantine measures between the metropolitan area and Seoul, it is a problem that cannot be decided solely by Seoul’s own capacity."

Regarding candidate Ahn’s core pledge of a retroactive loss compensation system, Professor Park Joo-heon of Dongduk Women’s University’s Department of Economics said, "Small business owners often underreport sales to the National Tax Service," and evaluated that "it is more appropriate to impose an obligation to repay through loans, considering the aspect of self-responsibility." About Ahn’s pledge to defer principal and interest repayments and reduce interest, President Oh warned, "This is a complacent pledge in a situation where the Financial Services Commission is already implementing such measures and about 130 trillion KRW has been injected, raising concerns about excessive financial insolvency."

Fragmented pledges are problematic... Need to consider quarantine rules alongside support

Experts also noticed that candidates unnecessarily fragmented pledges that could have been combined into a single ‘program.’ Professor Jeon said about candidate Park’s pledge to reduce small business rent by 30%, "Because landlords and tenants, debtors and creditors are all interconnected, releasing pledges one by one is not very meaningful," adding, "It is desirable to create a temporary program during the COVID-19 recovery period that integrates debt restructuring and market revitalization policies into one track."

There was also an opinion that a step-by-step approach starting with the major issue of social distancing for demand stimulation would be effective. Candidate Ahn’s proposal to abolish the 9 p.m. business curfew and operate 30-40% of business spaces under a ‘Seoul-type social distancing’ model was cited as a good example. Professor Lee said, "Ultimately, policies should enable small business owners and self-employed individuals to increase income while social distancing effects are maintained," adding, "We need to refine and ease existing quarantine rules and find ways to compensate for lost income." Professor Kim said, "Removing gathering bans and limiting space are realistic issues," and suggested, "It would be good to incorporate scientific evidence or analysis into the pledges to empirically determine whether space restrictions are better than time restrictions."

This content was produced with the assistance of AI translation services.