As the government intensifies the provision of the "consumer recovery coupons" to expand debt adjustment and stimulate consumption, small business owners and self-employed individuals are expressing heightened expectations for economic recovery. However, concerns are also being raised that a rapid increase in expenditure may lead to a rise in government debt.

A notice regarding the use of the livelihood recovery support fund is posted at a convenience store in downtown Seoul. /Courtesy of News1

According to the government and the Ministry of Small and Medium Enterprises and Startups on the 8th, the second supplementary budget of 925.8 billion won has passed the National Assembly, accelerating the "small business debt relief program." This program aims to extend the repayment period of policy loans beyond existing terms and lower interest rates to alleviate financial pressure. In particular, the repayment period will be extended to a maximum of seven years, and the interest rate will be reduced by one percentage point.

Small business owners expect that this measure will provide substantial help in recovering sales and normalizing management. The "small business and self-employed debt adjustment program," led by the Financial Services Commission, is part of this effort. This program targets low-income borrowers with debts below 100 million won and applies up to 90% principal reduction, extending the repayment period to a maximum of 20 years.

An official from the Korea Federation of Micro Enterprise (KFME) said, "While alleviating debt burdens, the consumer recovery coupons policy will serve as a catalyst for revitalizing domestic demand." They emphasized that "if local governments expand their budgets for local gift vouchers and hold events in collaboration with local small businesses, a synergy effect will occur."

The government has expanded the size of the central government’s burden for the nationwide distribution of consumer coupons from the previous 10.3 trillion won to 13.2 trillion won. To secure a total of 31.8 trillion won for the second supplementary budget, it plans to issue an additional 21.1 trillion won in government bonds. As a result, the country’s debt is expected to exceed 1,300 trillion won by the end of this year.

The issue is financial soundness. While there are growing expectations for the effectiveness of policies in providing substantial support to small businesses, the long-term financial soundness problems arising from rapid financial expansion remain a challenge to be addressed.

Jo Dong-geun, an emeritus professor at Myongji University, pointed out that "unexpected debt relief could set a bad precedent in a situation where the personal rehabilitation system exists" and suggested that "it would be more desirable to utilize the 13 trillion won for infrastructure investment."

Some argue that proactive fiscal spending by the government is inevitable in the face of economic recession. Woo Seok-jin, a professor at Myongji University’s Department of Economics, explained that "currently, it is not a financial risk situation that could affect the country's credit rating" and stated that "the government's role is to support the economy when it contracts."

President Lee Jae-myung also indicated in a press briefing on the 3rd that "the fiscal situation is not generous" and clarified that there are no immediate plans for a third supplementary budget. However, acknowledging that it is a "time to use national finances," he left the possibility for additional expenditures open.

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