The State Lends Money and Repays It... 'Donpullyism' Regardless of Whether It’s Lee or Yoon

Yoon Seok-yeol's Pledge for 'Korean-Style Half-Price Rent Project'
Repay Half of COVID-19 Small Business Loans
Lee Jae-myung Also Proposes 'Basic Savings and Basic Loans'
Experts Warn of "Market Distortion and Moral Hazard" Concerns

On the 2nd, Yoon Seok-yeol, the People Power Party's presidential candidate, speaks at a meeting on self-employed business damage sites. Photo by the National Assembly Press Photographers Group

[Asia Economy Reporter Song Seung-seop] Presidential candidates from both ruling and opposition parties are unleashing unprecedented financial support policies regardless of political orientation and party affiliation. Apart from the necessity of financial support due to the aftermath of COVID-19, concerns are being raised that these populist pledges, which involve massive spending without considering national debt and moral hazard, may cause side effects.

According to political and financial circles on the 3rd, Yoon Seok-yeol, the People Power Party's presidential candidate, announced the "Korean-style Half-Price Rent Project" as a campaign pledge the previous day. The core idea is that the state will repay half of the loans of self-employed and small business owners who suffered damage due to COVID-19. It is a kind of government-guaranteed loan product that lends business funds at low interest rates with a three-year maturity. Yoon explained that it is a concept of loss compensation to compensate for damages caused by business restrictions and a form of pre-support.

Through the project, business owners who borrow money will be exempted from 50% of the amount used for rent and utility bills. The remaining loan amount can be repaid in installments over five years after a three-year grace period. Up to 50 million KRW can be borrowed per person, and multiple loans are allowed. The target group is estimated to be about 2 million people (80% of all small business owners), and the financial input is estimated to be up to 50 trillion KRW.

Regarding the background of preparing the policy, he said, "At first, they borrow bank funds at low interest rates, but if things get worse, they end up using secondary financial institutions and private loans," and "When visiting local areas, many say that compensation is one thing, but first of all, they ask to borrow money to keep their stores open."

National debt continues to rise... Financial support measures pour out ahead of the presidential election

Lee Jae-myung, the Democratic Party presidential candidate, delivering the keynote speech at a forum hosted by the Korea Newspaper Editors Association at the end of December last year. Photo by National Assembly Press Photographers.

Lee Jae-myung, the Democratic Party presidential candidate, has already pledged a "basic loan" that lends up to 10 million KRW to anyone at 3% interest. It is a structure where the state lends money at a slightly higher rate than preferential interest rates over 10 to 20 years, similar to the average loan amount (9 million KRW) from loan companies. Lee's idea is to start with youth in the form of negative loans and gradually expand to the entire population.

Currently, there are about 10.14 million young people aged 19 to 34. Lee's camp analyzed that among them, about 7.5 million low- to medium-credit youths rated 3 or below, excluding those with credit ratings 1 to 2 who have less incentive to borrow. Assuming all of them execute the basic loan, the required budget is about 75 trillion KRW.

He also stated that the guarantee will be fully borne by public guarantee institutions. The funding plan is to use the "basic savings." The basic savings system is a policy where the state sets an interest rate higher than regular deposits and pays interest to the public. It is planned to be introduced with a limit of 5 million to 10 million KRW.

The problem is that national debt and the scale of financial support have already increased significantly. According to the Ministry of Economy and Finance, public sector debt in 2020 was 1,280 trillion KRW, an increase of 14.74 trillion KRW compared to the previous year. The ratio of public sector debt to Gross Domestic Product (GDP) increased by 7.3 percentage points to 66.2%. Both the scale and ratio are the highest ever recorded. The amount for which financial authorities extended loan maturities reached 247.4 trillion KRW as of October last year. Including loans with principal and interest repayment deferrals, it exceeds 260 trillion KRW.

Experts criticized that while financial support may be necessary, unexpected side effects could also arise. Professor Kim Tae-gi of Dankook University's Department of Economics said, "This is a policy conscious of the election and one of the bait products that politicians have frequently used during presidential elections," adding, "Since the government intervenes and adjusts the financial market and price (interest rate) determination, market order distortion and moral hazard may occur."

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