Finance minister rules out systemic risk for household debt

Korea's top economic policymaker said Tuesday that there is a slim chance of the country's household debt problem developing into a systemic risk as financial institutions in Asia's fourth-largest economy have the capacity to tackle the issue.

"I see there is no chance that the household debt problem would unfold into a systemic risk," Finance Minister Bahk Jae-wan said during a speech at the Bellwether Series 2012 Korea, an international conference organized and hosted by the British weekly newspaper The Economist. "I can say we can help guide heavy household debt to a soft landing."

Household debt totaled 922 trillion won ($814.5 billion) as of the end of June, up 10.9 trillion won from three months earlier, according to the Bank of Korea (BOK).

The pick-up in household debt came amid an anemic property market, raising concerns that the economic slowdown and a fall in asset prices may spark a spiral of debt deflation.

Bahk also called for efforts to develop what he called a new "Korean route" of development, which is at least one way out of the ongoing global financial crisis.

"This time, the 2008 global financial crisis and the European fiscal crisis, which both began in the West, have thrown new challenges at the Korean economy and demand new policy responses," the finance minister said.

"And now is also the time for Korea to start preparing for a new Korea. Only Korea can pioneer the Korean route," he added.

The minister was apparently referring to the country's development model through industrialization, which helped transform the country from one of the world's most impoverished nations in the 1950s to the world's 15th-largest economy in 2011.

Bahk noted the global economic slowdown sparked by the eurozone debt crisis will continue for some time, saying, "The global economy, which had been gradually recovering at the start of the new year, now sees its conditions worsening with the resurgence of the European fiscal crisis."

He said South Korea has a firm foundation that can cope even with a long-term crisis, but that the country must focus on development rather than dealing with problems at hand.

"It is very difficult for a marathon runner to resume their pace once they have been forced to slow down. Likewise, an economy which has lost its driving force will find it extremely hard to recover from the slump," Bahk told the meeting, according to a copy of his speech released by the Ministry of Strategy and Finance.

To continue growing, the finance minister said the country must first pay attention to the growing importance of Asia, whose financial assets are expected to grow from 23 percent of the world's total financial assets in 2010 to 45 percent in 2050.

This, he said, also calls for South Korea to quickly sign free trade agreements with growing economies in Asia, such as China.

Bahk also noted a need for a balance between economic growth and welfare, as well as a balance between the development of large conglomerates and smaller firms.

"Finally, we need to prepare for future risks, such as demographic changes, climate change and energy supply, and the need for securing future growth engines," he said.

"I think that pioneering the Korean route is the foundation for successfully overcoming the global economic crisis." (Yonhap)