By Park Hyong-ki
Staff Reporter
The government has set out to save some 470,000 people troubled by growing debts from private moneylenders this year.
The Korea Asset Management Corp. (KAMCO), a state-run debt-restructuring firm, has launched the Consumer Credit Assistance Fund, aimed at restructuring the finances of credit delinquents.
The government also hopes the measure will boost the micro-credit finance market, eventually helping defaulters get back on their feet and spur the economy.
However, market watchers are skeptical as to whether such a rescue mission will have a positive effect on the economy.
Some say the government created the fund for people with poor credit ratings mainly for political purposes, while others noted that it was a generous gesture.
Above all, most agree that it will certainly raise moral hazard issues.
``I see this as a very negative move as helping to repay the debts of defaulters will certainly and only create moral hazards,'' said an analyst, who asked for anonymity.
He doubts that the debt saving measures will at the end spur the economy, and said that the government should tackle other immediate problems facing the country.
``Problems are emerging in project financing, and household and corporate loans, which are beginning to put a heavy burden on the economy,'' he said. ``The government needs to set guidelines for these troubling areas, before trying to eliminate or lower interest rates on debts for people who have failed to be financially responsible.''
Lim Il-sung, an analyst of Meritz Securities, agrees, ``The problem remains as it will create moral hazards, although I think that the measures will spur the economy over the long term.''
Choi Chul-kook, a lawmaker of the Democratic Party, lashed out at the rescue plan, saying, ``It is geared more toward rescuing private moneylenders rather than people with low credit rating.''
He added that the current measures are insufficient, and that the government needs to devise policies that ensure the stability of the lives of insolvents and assist them in not falling back to private lenders in the future.
The Consumer Credit Assistant Fund, or so-called the bad bank, will purchase defaulters' overdue loans or bad loans owed to private lenders or financial firms as part of efforts to restructure their finances.
Through debt restructuring, the fund will cancel their overdue interest on loans and repay the interest to lenders.
This means credit delinquents will only have to repay the principal to the bad bank.
The government also seeks to help insolvents gain loans with low interest rates from banks through the fund.
The rescue program aims to help 470,000 people who borrowed less than 30 million won with over 30 percent annual interest rate from private lenders, with such loans being three months overdue.
The government is seeking support from commercial banks and savings banks for the debt-restructuring scheme.
However, analysts believe it will ultimately burden banks, adding that there should be clear guidelines or rules that encourage active participation rather than forced.
An official of KAMCO said, ``Financial firms that agree to participate under the rules set up by the government will only be asked to join.''
He said the government has not yet devised the rules.
phk@koreatimes.co.kr