By Lee Hyo-sik

The Korean economy is managing to weather the global financial crisis well despite the eurozone debt crisis spinning out of control. While many are expressing concern about external shocks, as the fiasco in Spain shows, the epicenter of the crisis is already inside domestic economies.

In Korea, household debt is, in fact, a time bomb for the economy, with the amount approaching an unsustainable level. This escalating problem is under the spotlight once again, following a new report warning that Korea may follow Spain, which recently sought bailout funds from other countries to prop up its struggling banking sector.

Spanish banks have been reeling from a surge in bad property loans extended to households that have speculated in real estate for years.

The Korea Chamber of Commerce and Industry (KCCI), a lobbying group for 14,000 businesses across the country, said Thursday that Korea’s outstanding household debt is equivalent to 81 percent of its gross domestic product (GDP) in 2010, similar to Spain’s 85 percent and higher than Greece’s 61 percent. The average figure for OECD countries stands at 73 percent.

Oh Suk-tae, an economist at Standard Chartered Bank Korea, warned that Korea could become like Spain if more families become unable to meet debt payments because of the tight labor market and other negative economic conditions.

``Korea is not free from Spanish-style trouble. But fortunately, Korea had long recognized its problems and has been managing them well. In contrast, Spain has continued to let its people speculate on the real estate market with borrowed money,’’ Oh said.

He said the Korean government must refrain from implementing any policies that could prompt households to borrow more.

``A real problem is that there are no macroeconomic theories showing us how to fix the growing household debt problem. Korea is like a patient suffering from an illness with no cure. It is just keeping the symptoms under control.’’

In 2011, families in Asia’s fourth largest economy owed a combined 911.9 trillion won ($779.4 billion) to banks and other financial institutions, according to the Bank of Korea.

``It is alarming to find out that Korea’s household debt to GDP ratio was higher than that of Greece, which is on the verge of sovereign default,’’ a KCCI official said. ``It is also disturbing that the nation’s household debt problem is as serious as Spain’s.’’

Household debt here grew by 9.8 percent in 2010 from the previous year, higher than its GDP growth rate of 6.3 percent. Among 34 OECD members, only Greece and Turkey saw household liabilities increase at faster rates than Korea, at 12.1 percent and 10.8 percent, respectively.

The KCCI official said that to curb rises in household debt, the country should implement growth-oriented policies to create jobs and help families make more money, rather than only rely on discouraging financial institutions from extending loans.

``The government also needs to cut taxes and provide other support to businesses making investments and generating jobs,’’ the official said.

Given that home-backed loans account for nearly 45 percent of total household liability, the government should make it easier for properties to be traded in order to prevent the sector from failing into a slump.

``Additionally, the central bank should refrain from raising interest rates steeply because it will increase the interest burden on leveraged households. The government, businesses and families should all join hands to cope with the debt problem,’’ the official said.