Korea’s household debt surpassed 900 trillion won ($800 billion) for the first time last year. The quantitative increase is bad enough. Household borrowing expanded twice as fast as the nation’s economic growth rate.
Worse still is its ``qualitative” aggravation: more and more people took out loans for scratching a living rather than buying homes or other investment purposes. As the government forced banks to reduce lending, an increasing number of borrowers also headed to non-banking lenders, which demand far higher interests.
The household debt is approaching 150 percent of disposable income, way above the OECD average and even higher than the comparable ratio of the U.S. households in 2008. The high indebtedness not just threatens the stability of the banking sector but constricts private consumption, which in turn slows down the overall economy in a vicious ― and dangerous ― circle.
What all this shows is clear. In dealing with this ticking bomb, the government should no longer try to delay its detonation time but remove the fuse fundamentally. Officials say the problems it is still ``manageable.” Many private economists say it may already be too late.
It has been said the Lee Myung-bak administration pulled Korea out of the global financial crisis faster than most other countries. What’s left unsaid is the government encouraged households ― probably too much ― to buy new homes by taking out bank loans. The domestic banks also enjoyed record-high earnings by resorting to this lucrative, easy and trouble-free business of capitalizing on the gap between deposit and lending rates.
Large exporters were also major beneficiaries of Seoul’s weak-currency policy, which stunted people’s real income, or purchasing power.
The Bank of Korea’s household debt report shows now is the time for the three parties ― government, banks and big businesses ― to join forces to rescue the most troubled players in national economy currently. This also makes sense it was the people who saved the banks and industries from the 1998-98 financial crisis not just with the symbolic ``gold-collection” campaigns but with the massive public finds, the other name for taxpayer money.
In the short run, the government needs to tell banks to share the pain by restructuring household debts, especially those owed by the poor who barely make ends meet, to the extent of not hurting the principles of financial system and not encouraging moral laxity. Financial authorities ought to provide policy incentives for banks that reschedule debts to long-term loans like those in the U.S. and Europe, as well as apply far lower interests.
A longer-term and fundamental solution will be to create more, and higher-paying jobs. It is significant in this regard that the Supreme Court’s ruled Thursday that employers should shift contract laborers who have worked them for more than two years to regular workers. Not just Hyundai Motor but other family-controlled conglomerates that have resorted to this non-regular employment system should take heed.
The only way the nation sustain its growth is through joint growth. In 1999, Korea got over the crisis from the bottom up. Now, the nation should show it can also solve the problem in top-down way.