[Inside Chodong] When the Autumn Wind Blows... Hidden Latent Bad Debts Will Surface

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Loan Maturities for COVID-19 Financial Support Ending in September

Urgent Need for Measures Against Debt Bomb Amid Additional Interest Rate Hikes

[Asia Economy Reporter Park Soyeon] I was born in 1981, and my father in 1955. Although from different generations, we share a common trauma: the IMF (International Monetary Fund) foreign exchange crisis. In 1997, I was a high school senior, a time when household spending burdens were at their peak. My father, a teacher, was not laid off, but because my mother had taken on large debts to invest in stocks, our family quickly found itself buried in debt. It was a time when I personally experienced how a national economic crisis could have devastating effects on a single household. Following the IMF crisis, South Korea’s growth rate in 1998 was -5.1%, and the suicide rate surged by 40.5 percentage points compared to the previous year. This powerful economic trauma that defined that era has been deeply etched into the minds of the millennial generation who experienced the IMF during their youth and the Z generation who went through the financial crisis.

Now, at the age my father was during the IMF period, our economy is once again facing a major crisis. The United States, which collapsed under a $1 trillion bubble during the financial crisis, has now become a $9 trillion bubble economy. This is unprecedented since the Great Depression. The U.S.’s greatest concern is maintaining the dollar’s value as the global reserve currency, and the pain the world must endure for this is beyond prediction. As the money unleashed during the Trump administration and the COVID-19 pandemic is being aggressively withdrawn, what will happen next? Experts warn that the collapse in asset values will hit our economy like a massive wave with a time lag. The weakest sector, the cryptocurrency market, was hit first, followed by the stock market. Next, real estate and commodity prices are expected to undergo strong corrections. Real estate has already peaked and is on a downward trend. When real estate listings dry up, there is no way to clear bad assets. This means a bomb is dropping on people’s livelihoods.

The current government has focused on price stabilization policies to control inflation, but inflation is only a precursor to collapse. Rather, it is time to focus on cleaning up latent bad debts. While controlling inflation is difficult, it is possible to investigate, predict, and partially adjust bad debts in advance. This will begin this fall. Since April 2020, the government has been extending loan maturities and deferring repayments for small and medium-sized enterprises and small business owners struggling due to the COVID-19 crisis. Now, the time has come to repay two years’ worth of COVID-19-related interest and principal all at once. When the COVID-19 financial support program’s loan maturity extensions and interest repayment deferrals end this September, pessimistic forecasts suggest that bad debts will surface like a snowball. As of the end of last year, the total outstanding loans for all self-employed individuals stood at 909.2 trillion won, a 13.2% increase over one year. Considering that self-employed debt was 684.9 trillion won at the end of 2019 before COVID-19, it has surged 32.7% in two years. Household debt ranks first worldwide. As of the end of 2021, South Korea’s total household debt reached 2,713 trillion won, mostly related to housing. National debt is also about 1,100 trillion won, with annual interest nearing 30 trillion won, a serious situation.

With additional interest rate hikes anticipated, the government must urgently prepare policies to minimize damage to people’s livelihoods before the debt bomb explodes. It is time for the government, the Bank of Korea, and financial institutions to come together and devise unprecedented debt countermeasures. A famous doctor once said that a true healer cures a disease before its symptoms even appear. There is not much time left.

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