ed Defusing a time bomb

Tepid, petty steps cannot ease household debt burdens

In describing Korea’s household debt, which swelled to 1 quadrillion won last year, officials use words such as ``bomb,” ``trap” and ``headache.”

Few can blame them. The nation’s household debt accounted for 89 percent of GDP in 2011, 15 percentage points higher than the average of OECD members. In 2012, it reached 164 percent of disposable income, way above the U.S.’s 115 percent and Canada’s 154 percent.

But foreign analysts are wrong to think the household debt is the only potential destabilizer of the nation’s otherwise strong economy, as shown by the continued current-account surplus and relatively small fiscal deficits.

The snowballing household debt epitomizes the government’s economic mismanagement in more than a few ways. It is against this backdrop that we see the Park Geun-hye administration’s policy package to alleviate the problem, unveiled Thursday as the third such effort in a year, reflecting its failure to realize both the seriousness of the issue and take the right approach.

To sum up, the latest countermeasures call for restructuring mortgages based on short-term, floating-rate interest to those based on long-term, fixed-rate interest, which officials expect will reduce the total debt by 5 percent by around 2017.

The measure itself is going in the right direction, given the expected rise in interest rates as the U.S. will tighten its monetary policy later this year. Economic officials may also deserve praise if only they can freeze the debt level in the years to come, let alone trim it. But the practicability of even this modest plan is doubtful because borrowers usually act not in anticipation of unrealized trends, but by considering immediate gains and losses.

Even if the plan succeeds in not increasing household debt noticeably, that will not defuse the time bomb, but delay its explosion for some time. It was especially disappointing in this regard that Cheong Wa Dae had tried to drastically ease the current lending rules, which strictly restrict its ceiling to the value of mortgages and borrowers’ income.

Presidential aides might have thought the recovery of property markets would enhance the borrowers’ ability to repay debts and consume, helping the overall economy to recover. But jumpstarting the economy through increasing people’s asset values has been a tried-and-failed formula, as not being sustainable while ending up only creating bubbles.

The government should try to bolster borrowers’ repayment ability by helping to increase their ``earned income,” encouraging firms to provide more jobs, raise wages and turn part-timers into full-timers in greater numbers. It ought to play its role more actively by implementing monetary and fiscal policies for the better and more equitable redistribution of income and resources. Even the once-neo-liberalistic International Monetary Fund has shifted to emphasizing the importance of addressing the economic imbalance for not only a moral but sustainable economic system.

It was regrettable in this regard Deputy Prime Minister Hyun Oh-seok expressed his doubts that raising the minimum wage would help ease household problems, revealing his extremely microeconomic views.

President Park, who announced her three-year economic plan Tuesday, also needs to think twice. Her return to corporate deregulation in expectation of long-disappeared ``trickle-down” effects, while virtually discontinuing efforts to address economic imbalance through ``economic democratization” will get her nowhere.

How to deal with the household debt problem will be a major test of the direction and ability of President Park’s economic administration. As things stand now, however, her economic team will likely continue to be trapped by that and other headaches.