Household Debt and Interest Rate Hikes Are an Urgent Issue... But Financial Pledges Are Being Pushed Back

Real Estate Issues Overshadowed
Concerns Over Flood of Populist Pledges

The preliminary candidates for the Democratic Party's presidential primary are taking a commemorative photo before the first joint debate held at KBS in Yeouido, Seoul, on the afternoon of the 3rd.
[Image source=Yonhap News]

[Asia Economy Reporter Kiho Sung] As the presidential election race in the political sphere intensifies, signs of financial sector marginalization are reemerging. Household debt has reached 1,765 trillion won, and the Bank of Korea has announced an interest rate hike within the year, yet the election scene is likely to unfold similarly to the April 7 by-election, where real estate issues dominated. With growing uncertainty in the financial market in the second half of the year, the financial sector is concerned that populist pledges aimed at winning votes will flood the scene as the election approaches.

According to political sources on the 5th, among the ruling and opposition presidential candidates, Gyeonggi Province Governor Lee Jae-myung is the only one to have presented a full-fledged financial pledge. Lee, who is leading the ruling party’s approval ratings, is hastening the legislative process of pledges centered on the ‘basic series’ including basic income, basic housing, and basic loans. In particular, the related bill for basic loans, the last item in the basic series, has also been proposed.

The basic loan proposed by Lee focuses on the ‘Amendment to the Microfinance Act and the Regional Credit Guarantee Foundation Act,’ which provides loans of up to 10 million won at a low interest rate of 3% per annum to financially marginalized youth aged 19 to 34. Last month, Gyeonggi Province co-hosted a ‘Basic Finance Forum’ with 41 Democratic Party lawmakers. According to Gyeonggi Province and Democratic Party lawmaker Kim Byung-wook, the funding for basic loans is structured so that financial institutions and the government jointly contribute, effectively making the loans financed by bank money. This is expected to be a controversial point throughout the election.

The problem is that there are few financial pledges that can be scrutinized by public opinion. Looking at the pledges of presidential candidates from both parties, except for Lee’s case, no concrete outlines have emerged as real estate issues overshadow them. For example, former Prime Minister Chung Sye-kyun and Jeju Province Governor Won Hee-ryong mention ‘strengthening regulations’ and ‘complete deregulation’ respectively regarding loan regulations, but both are linked to real estate pledges.

The financial sector expresses concern that discussions on financial pledges are not taking place due to being overshadowed by real estate issues. Especially in the case of financial pledges, many impose burdens on the financial sector in terms of funding methods, but there is criticism that indiscriminate populist pledges may flood the scene without much public attention.

A financial sector official pointed out, “During elections, there are often many pledges aimed at appeasing the financial sector to win votes. If financial pledges proceed without much public scrutiny, the market will be distorted, and the side effects leading to unintended policy outcomes will inevitably be passed on to consumers.”

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