[Repeated Defeats Debt Measures-①] 19 Times in 10 Years... The Dark History of 'Debt Policy'

Debt Measures of Lee Myung-bak 4 Times, Park Geun-hye 8 Times, Moon Jae-in 7 Times
Household Loan Balance Surpasses 1,800 Trillion Won as of End of June Last Year
Household Debt-to-Disposable Income Ratio Exceeds 200%
Largest Year-on-Year Increase, Among Top Ranks in OECD

[Asia Economy Reporters Sunmi Park, Seungseop Song] ‘Household debt management failure.’ This phrase appears without fail during the National Assembly audits at the end of every administration. In the October 2016 National Assembly audit of the Bank of Korea by the Planning and Finance Committee, the issue of household debt was intensely discussed. At that time, lawmakers from both ruling and opposition parties unanimously urged for measures, stating that the rapidly increasing household debt was suppressing consumer spending and could become a heavy burden on the Korean economy. Even four years after the change of administration, failure to manage household debt remains a key issue in the audits. Lawmakers criticized not only the failure to manage household debt but also the sharply implemented household loan restriction policies that blocked loans for actual demanders, thereby exacerbating the damage.

On the 18th, Asia Economy analyzed the scale of household debt and related policies by administration. During the presidencies of Lee Myung-bak (2008?2013), Park Geun-hye (2013?2017), and Moon Jae-in (2017?end of June 2021), there were 4, 8, and 7 debt management measures respectively. Despite a total of 19 government measures, the rapid increase in household debt did not slow but instead set record-breaking annual increases. The scale of household debt increased by KRW 298.4 trillion, KRW 378.73 trillion, and KRW 463.33 trillion during the Lee Myung-bak, Park Geun-hye, and Moon Jae-in administrations respectively, and as of the end of June this year, the outstanding household loans surpassed KRW 1,800 trillion for the first time in history.

The ‘household debt to disposable income ratio,’ an indicator that assesses the ability of households to manage debt with their income, has risen continuously every year, reaching a peak. According to the office of Jang Hye-young, a member of the National Assembly’s Planning and Finance Committee, the ratio exceeded 200% last year, which is 26 percentage points higher than the 174.5% recorded at the end of the Park Geun-hye administration. The year-on-year increase was also 12.5 percentage points last year, surpassing the 12.2 percentage points in 2016. Currently, Korea’s household debt to disposable income ratio ranks among the highest within the Organization for Economic Cooperation and Development (OECD) countries.

Photo by Bank of Korea

Private sector debt has far exceeded twice the level of the Gross Domestic Product (GDP). The nominal private credit to GDP ratio, which indicates the leverage level of the private sector, currently stands at 216%, the highest ever recorded. This is due to increased funding demand from households for housing-related loans and companies’ efforts to secure funds amid economic uncertainties, while GDP growth rates have remained low.

As the sharp increase in household debt and the high rise in housing prices continue, the GDP-to-household debt ratio gap and housing price gap (percentage points) have surged from 0.1 and -0.4 at the end of 2012, and 2.2 and 0.6 at the end of 2016, to around 3.7 and 3.6 by the end of last year. This is evidence that financial imbalances are accumulating continuously.

Experts point out that the financial policies implemented multiple times have not been effective. Professor Sung Tae-yoon of Yonsei University’s Department of Economics said, “Especially the current government’s real estate policy was close to a failure,” adding, “Since housing service costs have become so expensive, the household debt problem has additionally derived from this. Unless the real estate issue is resolved, the debt problem cannot be controlled.”

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