Lee Jae-myung's Pledge for '1,000,000 KRW Credit Line for Every Citizen'... Opposition Criticizes as Confusing Finance with Welfare (Comprehensive)

Lee Jae-myung "Up to 10 Million Won Basic Loan
High-Interest Rates Should Not Be Like Junk Food for Low-Credit Borrowers"

[Asia Economy Reporter Koo Chae-eun] Lee Jae-myung, Governor of Gyeonggi Province, announced a ‘basic finance’ policy pledge to lend up to 10 million KRW at low interest rates (around 3% as of now) for a long term (10 to 20 years). He stated that the current legal maximum interest rate of 20% would be gradually lowered to within five times the economic growth rate.

However, opposition parties criticized the basic finance pledge as confusing 'finance' with 'welfare,' arguing that bringing areas that should be protected by the social safety net into the financial domain and intervening in prices would only cause more adverse effects.

On the 10th, Lee held the ‘5th Policy Announcement (Basic Finance) Press Conference and Briefing’ to unveil the ‘basic finance’ policy. This is his fifth policy announcement following ‘transitional fair growth’ on the 18th of last month, ‘basic income’ on the 22nd, ‘basic housing’ on the 3rd of this month, and ‘first youth policy’ on the 5th.

The core of Lee’s basic finance policy is the guarantee of basic loan rights. It allows any citizen to borrow up to 10 million KRW over 10 to 20 years at an interest rate slightly higher than preferential rates (around 3% currently). The interest rate will be adjusted according to changes in the base rate, and the loan can be used in a ‘negative loan’ form with deposits and withdrawals at any time. Lee added that measures to prevent moral hazard would be implemented through the registration and management of delinquency information.

He said, “People who cannot receive financial benefits and fall into the trap of high-interest loans or illegal private loans face a high risk of becoming welfare recipients due to their inability to bear high interest rates,” adding, “The government’s welfare cost burden will inevitably increase accordingly.” He emphasized, “Strengthening basic finance and other financial services for ordinary people will provide opportunities for rehabilitation in advance, improving citizens’ lives and saving national finances.”

A basic savings system will also be introduced. It is a savings scheme with a limit of 5 to 10 million KRW, offering higher interest rates than general rates to help build assets. Basic savings will be used as a resource for basic loans.

The current legal maximum interest rate of about 20% is planned to be maintained within five times the economic growth rate. For example, if the economic growth rate is 2%, the legal maximum interest rate will be linked up to a maximum of 10%. However, if it exceeds 4% this year (government forecast 4.2%, Bank of Korea 4.0%), the 20% level will be maintained. Lee stressed, “Illegal loan contracts that violate the Interest Limitation Act will be nullified entirely, and crackdowns on illegal lending activities, which currently result only in small fines, will be strengthened.”

During a Q&A session with reporters after the policy announcement, Lee focused on dispelling concerns about ‘moral hazard’ raised by some. Regarding the 10 million KRW loan limit for ‘basic loans,’ he said, “It is an amount where moral hazard is impossible.” Lee explained, “Those who are capable compare the disadvantages of not repaying with the benefits of repaying. This is economic rationality,” and asked, “Can someone capable really not repay 10 million KRW and risk becoming credit impaired?”

Lee said, “I am prepared to be heavily attacked,” adding, “There are many points to attack. First, private loan sharks will try to devour me.” He continued, “If loans around 10 million KRW are offered at rates slightly above bank interest rates, the business area of high-interest lending in the financial sector will shrink significantly, so how much would they hate it?” He added, “Fiscal officials inevitably have close relationships with financial operators, and because they have judged and thought from the supplier’s perspective rather than the financial consumer’s, I am prepared for a massive onslaught.”

Lee also pointed out that citizens give politicians not only representation but also authority. He said, “Even if there is resistance and backlash, if it is the right thing and necessary for all citizens of the country, the majority of citizens have given the authority to do it.”

Regarding concerns that lowering the legal interest rate might make it difficult for low-credit borrowers to find appropriate lenders for loans exceeding 10 million KRW, he said, “They can use existing financial services for ordinary people or other measures to borrow more than 10 million KRW,” seemingly targeting opposition presidential candidate Yoon Seok-youl by saying, “Guaranteeing ‘junk food’ in the form of high-interest loans to low-credit borrowers is not freedom.”

Meanwhile, the opposition strongly criticized Lee’s basic finance policy as “not even basic.” Yoon Chang-hyun, head of the economic policy division of Yoon Seok-youl’s campaign and a member of the People Power Party, said, “Excessively low interest rates cause excessive borrowing and make sincere repayment difficult,” adding, “It also limits incentives to return to institutional finance on their own, so it becomes a sweet poison for struggling ordinary people.”

Yoon mentioned that the government-backed 100% guarantee product, ‘Sunshine Loan 17,’ which converts high-interest loans for ordinary people into medium-interest loans, exceeded a 10% subrogation repayment rate within about a year of its launch, and that ‘Change Dream Loan,’ which once had a subrogation repayment rate soaring to 30% with a 100% government guarantee, was abolished. He said, “Those who have nowhere to borrow even small emergency funds in urgent situations should be protected by the social safety net,” adding, “The social safety net should be well established separately, but it should not be disguised as finance. Finance is finance, and welfare is welfare.”

Yoon particularly stated, “If the principal is not recovered, only the first recipients benefit, and the next people have no chance to use the money, so the money does not circulate,” adding, “The essence of finance is that the principal is recovered and the money circulates second and third times, providing services to you.”

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