Park to tackle household debts

By Kang Hyun-kyung

Rep. Park Geun-hye, presidential candidate of the ruling Saenuri Party, pledged Sunday to issue bonds to create an 18 trillion won fund to combat snowballing household debt, if elected.

During a news conference held at the party’s headquarters in Seoul, Park promised to use the money to help resolve financial troubles facing bankrupt people or households suffering from high mortgage rates.

“Household income has not increased over the past years but debts have risen gradually. Many families are suffering now because they find it difficult to pay high interest rates on bank loans and live under pressure to repay them,” Park said.

“Debts from the non-banking sector have increased, and if this continues, it could rattle the stability of the financial system.”

Park said preemptive action on the debt was necessary.

She made the remarks as the ratio of household debt to gross domestic product (GDP) is higher than the average among members of the Organization for Economic Cooperation and Development (OECD).

In June, the Korea Chamber of Commerce and Industry said the debt to GDP ratio in Korea was 81 percent in 2010, compared with 73 percent for OECD members.

Park pledged to fight the policy headache with “a principled approach.”

Regarding the specifics of the plan, the candidate said only those who are committed to following a repayment schedule set out by the government will be eligible for assistance from the newly-created fund.

Rep. Park said financial institutions that offered loans are also responsible for financial delinquency as they failed to screen debtors’ ability to repay debt.

Working-class citizens increasingly borrow short-term loans, such as credit card cash services, credit card loans and from loan sharks, which require them to pay high interest rates.

These loans are easier to borrow because the eligibility criteria are generally less strict than those of banks. The down side, however, is that due to the high interest rates charged, many borrowers end up defaulting.

Park unveiled the temporary plan to lower the interest rates on loans of up to 10 million won, which currently carry a 20 percent rate or higher, to the 10-percent range of bank loans.

Debtors can pay back the loans over a relatively longer period of time, she said.

The ruling party candidate also vowed to help approximately 3.22 million bankrupt people by easing repayment plans.

Park unveiled a plan to help students who are in debt as they were unable to find jobs after graduation and thus could not repay back bank loans taken out to cover tuition.

The candidate pledged to put a halt to debt collection against these young jobless people until they gain employment.