President Moon Jae-in has called for measures to support delinquent borrowers who have borne the brunt of the fallout from the COVID-19 pandemic. “I want you to prepare ways to help delinquent borrowers restore their credit if they have faithfully repaid their debt resulting from the coronavirus crisis,” Moon told his aides Tuesday. The president's instruction is aimed at easing the financial burden of vulnerable groups, including the self-employed and small businesses, who have been hit hard by strict social distancing regulations put in place during the ongoing pandemic.
As the disruption to businesses, caused by the COVID-19 pandemic, has continued for over a year, more and more owner-operators have fallen into a situation where they must borrow from Peter to pay Paul. According to the financial authorities, the number of borrowers who requested debt rescheduling increased to 65,000 in the first half of 2020 from 5,900 the previous year. The figure remained high at 64,000 in the latter half of 2020 and at 63,000 in the first six months of this year. Given that the fourth wave of the pandemic is currently raging, this figure is likely to increase. The Bank of Korea said that the outstanding debt of small businesses amounted to 831.8 trillion won ($720 billion) as of March 31, up 18.8 percent from a year ago.
If people fail to repay their debt and become delinquent in terms of their credit, their economic lives suffer a heavy blow. If these defaulters happen to be the breadwinners for their families, the lives of everyone in their families can also be ruined. Some experts have pointed out that support for delinquent borrowers to help them restore their credit can be a cost-effective welfare policy. If the government just leaves them to their own devices, that will result in far greater financial burdens later when they need to be bailed out of absolute poverty. Now that this presidential instruction has been issued, government officials should come up with the most appropriate steps as soon as possible.
At stake is how to fairly and correctly select beneficiaries. The government should never spend precious taxpayer money on easing the difficulties of lazy or dishonest borrowers. It may not be easy to keep some debt-ridden people from becoming morally negligent. However, there are many ways to differentiate good borrowers from bad. The most important standard will be checking whether the borrowers have done all they can to repay their debts, as the president pointed out.