Total debts reach 3 quadrillion won
By Kim Jae-won
Korea’s total debt, combining those in private and public sectors, has reached 3 quadrillion won (about $2.75 trillion) in the second quarter, fanning worries that the country is increasingly exposed to a credit crisis.
According to the Bank of Korea (BOK) and the financial industry, the nation’s total debt stood at 2.96 quadrillion won in June, accounting for 233.8 percent of its nominal gross domestic product (GDP). The combined debt increased by 103 trillion won, or 3.6 percent for six months since December.
Experts worry that fast growth in national debt may hamper economic growth of Asia’s fourth-largest economy, which has already been overshadowed by sluggish exports and weak domestic consumption.
“The government needs to implement measures to reduce private sector debt. The finance ministry is hesitant to do so due to the upcoming presidential election but it’s time to act,” said Oh Suk-tae, a senior economist at Standard Chartered Bank in Korea.
Oh said that household and business sectors are suffering from high debt burdens. According to the BOK data, households and businesses saw their debt-to-GDP ratio mark 88.5 percent and 108.1 percent, respectively, compared with 37.2 percent of that for the government in June.
Korean household’s high indebtedness remains a big obstacle, often referred to as a ticking time-bomb, which could deal a massive blow to the economy. In particular, the debt problem for low-income families is deepening as they are marginalized by the prolonged economic slump.
Latest data from the Financial Services Commission show that the delinquency ratio of low-income earners, whose annual income is between 10 million and 20 million won, reached 17.4 percent in June from 11.4 percent in 2010.
The number of multiple debtors, who have borrowed money from more than three financial companies, is also increasing. It marked 3.16 million in the second quarter, increasing burdens on the sector.
The debt-to-GDP ratio is also on the rise in the corporate sector, as the economy has been losing steam since the 2008 global financial crisis. It marked 108.1 percent in June from 106.8 percent in December.
Companies have been under pressure to pay back what they owe. Mid-tier builder Kukdong Engineering & Construction and its holding company Woongjin Holdings recently filed for court receivership, pressured by increasing debt.
Unlike the private sector, the government has maintained relatively strong fiscal health, which has helped the country secure credit rating upgrades from three global credit appraisers. The ratio of state debts against GDP reached 37.2 percent as of the end of the second quarter, up from 35.1 percent at the end of 2011.
However, analysts are sounding the alarm over the government’s growing debt, saying the stimulus measures and a set of welfare pledges by politicians may hurt its fiscal soundness.
Korea has delayed the timing of a fiscal surplus goal by one year to 2014. The government said in September it aims to post a fiscal surplus equivalent of 0.1 percent of GDP in 2014 following a deficit equal to 0.3 percent of GDP next year.