“If you can't repay your debt and become a credit delinquent, you can't conduct transactions with your bank account. Then you can't get a job. You need a bank account to receive your salary, so without one, you can't even do part-time work. This creates a situation where you can't engage in normal economic activities. From the government's perspective, that's a significant loss. Is it really right to just leave this unattended? If it's clear that they cannot repay, it's actually better to clean it up completely for everyone. In fact, I came to Daejeon because I wanted to talk about this issue.”
◇Second town hall meeting in Daejeon… “I came to Daejeon to talk about debt relief”
In a town hall meeting held on the 4th with about 300 citizens from Daejeon, President Lee Jae-myung responded to complaints from creditors regarding the 'debt relief for small business owners and self-employed due to COVID-19.' President Lee dedicated 14 minutes just to explaining why the government should provide debt relief for those in arrears with amounts below 50 million won and for over 7 years.
The event held at the Daejeon Convention Center was organized under the theme 'Listening in Chungcheong,' where President Lee met with local small business owners and self-employed individuals to discuss ways to address severe debts. This was the second town hall meeting, following the one held in Gwangju on the 25th of last month to discuss the 'military airport transfer.' The 300 attendees were selected on a first-come, first-served basis, and the schedule for the event was published on the Presidential Office's website the day before.
At this meeting, the key financial policy of the Lee Jae-myung government, the 'relief program for vulnerable debtors,' was a main topic of discussion. The program aims to establish a debt adjustment organization (bad bank) under the Korea Asset Management Corporation (KAMCO) to purchase unsecured personal loans below 50 million won that have been in arrears for over 7 years. This is included in the government’s supplementary budget plan. Once the policy is implemented, approximately 1.13 million long-term defaulters will benefit, with an expected total amount of 16.4 trillion won.
Some attendees expressed concerns that this policy could lead to 'moral hazard.' They worried it might send a signal that it's okay not to repay debts, potentially resulting in intentional defaults. There was also a point raised about discrimination against self-employed individuals who have diligently repaid their loans despite economic hardships. One attendee, identifying himself as a creditor, claimed that the government’s forced intervention in debt relations discriminates against creditors.
◇“It’s unfair for banks to pursue debts until the end”
In response, President Lee noted, “That’s a good point related to the discussion topic. Let’s have a discussion on such issues.” He added, “From a societal perspective, there are valid points. The debt relief system at the government level is not unique to Korea; it exists worldwide.”
He specifically said that banks have already calculated the 'risk prediction costs' for debtors and charged them through interest, asserting that the financial industry’s collection of long-overdue debts is 'unjust enrichment.' President Lee explained, “If banks calculated that 1 out of 10 people would not be able to repay and collected interest from the other 9, then they are pursuing the one who couldn’t repay until the end. That’s like double charging interest,” and he concluded, “It is fair to clean this up.”
President Lee remarked, “This might lead to thoughts like ‘I don’t have to repay’ or ‘It’s unfair because I’m repaying well,’ but let me point this out: Would you want to live for 7 years in a credit delinquent state, unsure if your debts will be relieved after that period?” He continued, “Would you want to live a life where you face seizure, auctions, cannot conduct transactions, are listed as a credit delinquent, cannot engage in bank transactions, and cannot receive your pay because of that?”
He also shared cases from his time as the mayor of Seongnam where some individuals, despite having the ability to repay their debts, chose not to. He questioned, “Is it socially and economically desirable to avoid consolidating the debts of the overwhelming majority who cannot repay for 7 years due to a few such individuals, and in terms of humanitarian perspective and creditors’ standpoint, is it appropriate?” He added, “This is the core message I want to share with you today.”
He also stated that he would increase the scale of the debt relief program. President Lee said, “We have allocated a budget in this supplementary budget for the debt relief for small debts in arrears under 50 million won for 7 years, and I plan to further reduce the amounts for those who are repaying normally,” indicating that additional measures would be put in place as well.
He further explained, “Most countries dealt with the COVID-19 crisis using state money, but in our country, we lent money to individuals to overcome the crisis. As a result, all small business owners have become debtors. Now, isn’t it the government’s responsibility to take care of this?”