Controversy over youth debt interest reduction, clarify the principle of ‘debt investment’

[사설]

Regarding the special program that reduces loan interest for young borrowers by up to half, the presidential office said on the 19th that “it is not to cancel the principal, but to extend the maturity and lower the interest rate.” Kim Joo-hyun, chairman of the Financial Services Commission, also said the day before, “Please understand this measure with a warm heart.” As the controversy spread over the debt adjustment of the youth, “Isn’t the tax to prevent even the ‘debt investment’ loss?”, the government began to explain each day.

The FSC decided on the 14th to provide benefits such as interest reduction and exemption, deferment of principal repayment, and low interest rate to 48,000 youth debtors with low credit ratings through measures to stabilize people’s livelihoods on the 14th. Young people who owe debt through investment in virtual assets are also eligible to benefit. Existing debt adjustment programs only defer the repayment of the principal, but do not reduce interest, and the interest rate is high at up to 15% per year. Although the government says it has expanded the existing debt adjustment system to vulnerable youth, this measure greatly exceeds the previous benefits.

At the end of last year, 597 trillion won out of 1,860 trillion won in household debt was debt from multiple debtors who borrowed money from various financial companies. A proper authority should have checked the condition of vulnerable households before the debt bomb exploded. The order is to set up a mid- to long-term plan to induce debts to be paid off, and to arrange bad debts according to the procedure. Nevertheless, the authorities skipped the usual steps and introduced a generous policy of interest reduction for young people and forgiveness of principal for the self-employed. The government’s self-inflicted controversy is hampering its preemptive debt restructuring plan.

The government’s support for debt investment losses, whether young or self-employed, deceives the majority of borrowers who faithfully repay their debts. Reducing interest and canceling principal without principle can promote bank insolvency. As the guarantee capacity of the financial sector decreases, it may block the flow of funds for small business owners who are in dire need of a loan. Supporting the debtors for subsistence and debt investment without distinguishing them is to turn the money into blind money.

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