Published : 2013-10-29 14:02
Updated : 2013-10-29 14:02
More than 600,000 debtors in South Korea are expected to be bailed out via state debt relief programs this year on the back of government support, data showed Tuesday, amid criticism that such a policy has been encouraging people to increase borrowing regardless of their financial capabilities.
The government has helped some 602,000 debtors reduce their financial liabilities so far this year through various state debt restructuring funds, according to related authorities, including the Financial Services Commission (FSC).
The total number of state bailout recipients is estimated to reach 620,000-630,000 by the year-end, the largest ever to be salvaged by the incumbent administration in a year.
The National Happiness Fund, a state debt relief program designed by President Park Geun-hye, has placed nearly 190,000 heavy debtors who are financially underprivileged as its recipients.
Launched in late March, the 1.5 trillion-won (US$1.353 billion) fund is aimed at helping delinquent borrowers settle their debts by offering a lower interest rate and an extended maturity.
An eligible applicant must have less than 100 million won in debts that have been in arrears for more than six months as of February.
Another nearly 400,000 borrowers have benefited from other state bailout funds through which they get the bulk of their debts remitted and are instructed by a financial institution to repay the rest of debts over the course of a longer maturity at a lower interest rate.
But experts have raised concerns that such a way of bailing out heavy debtors instigates a moral hazard among individual borrowers who might seek to take out loans and decide not to pay them back, thinking that they can easily get help from the government.
They cite the rapid increase in personal bankruptcy applications lodged with financial authorities this year. According to government data, the number of applicants came in at 61,446 in the January-July period, up 16.3 percent from a year earlier.
A government official, however, said the debt relief programs are aimed at providing support for those with heavy overdue debts.
"It is to help them reduce the burdens and encourage them to stand up on their own feet again, which eventually leads to a virtuous cycle of the economy." (Yonhap news)