Gov't to implement rigorous screening for debt relief program to prevent moral hazard

Notices from private lenders advertise loans that are offered using a credit card in Seoul, May 21. Yonhap

The government will thoroughly search for any hidden assets belonging to individual borrowers in determining their eligibility for a massive debt relief program that has sparked concerns over moral hazard, officials announced Friday.

Officials said the the measures include strengthening the screening process to select the right beneficiaries for the program, aimed at forgiving 16.4 trillion won ($12.08 billion) in debt for 1.13 million individuals.

All relevant organizations will be mobilized to track bank deposits, securities, land, cars and other assets that can be kept secretly.

The organizations include the Financial Services Commission, Financial Supervisory Service, National Tax Service and Ministry of Land, Infrastructure and Transport.

They will pay closer attention to cryptocurrency and other digital assets that are easier to hide than conventional assets, due to the anonymous nature of digital transactions.

The organizations will work closely with the Korea Asset Management Corp. (KAMCO), a state-run enterprise that is at the center of materializing the program.

“We’re fully aware of concerns over moral hazard surrounding the program, and will make sure to strengthen procedures in verifying incomes and assets of the potential beneficiaries,” a government official said.

A separate official explained that a special task force has been set up at KAMCO to “serve the program fairly and objectively.”

The Lee Jae Myung administration introduced the program on June 19, when it announced its first supplementary budget worth 30.5 trillion won.

The program is based on a belief that long-term defaulters may contribute to the economy once they are debt-free and can resume economic activity.

The targeted 1.13 million accounts for 5.6 percent of all individual borrowers nationwide.

Most of them are self-employed individuals and small business owners who are not capable of making repayments amid a prolonged economic downturn.

The program targets unsecured loans of up to 50 million won that have been delinquent for more than seven years.

The debt will be fully written off if a borrower is deemed to have completely lost the ability to repay.

For those with assets but limited repayment capacity, up to 80 percent of the principal may be forgiven, with the remainder repayable over a 10-year period.

The program, however, has sparked controversies about fairness, as many other borrowers have been diligently repaying their debts.

In a joint survey released Thursday by Embrain Public, KSTAT Research, Korea Research and Hankook Research, 59 percent of respondents opposed forgiving debts for self-employed individuals and small business owners affected by the COVID-19 pandemic, while 37 percent supported helping the affected entrepreneurs.