The new government proposed restructuring of debts for small business owners

사진 확대

The new government proposed restructuring of debts for small business owners because of the sense of crisis that rapidly increasing debts of vulnerable people could become a detonator for the Korean economy in the future. If a large number of small business owners fail to overcome the debt burden, the risk may spread to other sectors such as financial institutions, so a “safety board” is needed to prevent them from going bankrupt.

According to politicians on the 17th, economic ministries such as the Ministry of Strategy and Finance and the Financial Services Commission delivered plans to implement presidential pledges aimed at strengthening support for the vulnerable to the National Planning Committee. The National Policy Planning Committee plans to analyze and inspect the contents of the report by division and draw up detailed implementation plans and financial plans accordingly.

The government plans to set up a bad bank under the Korea Asset Management Corporation (KAMCO) and strengthen the Credit Recovery Committee’s personal workout program to absorb and write off bad loans for vulnerable groups.

According to the Bank for International Settlements (BIS) and the Bank of Korea, the debt of small business owners reached 369 trillion won in the third quarter of last year, approaching the level of the pandemic (393 trillion won) in 2022, which was the highest ever. Debt, which accounts for 19% of Korea’s total household debt (1929 trillion won, as of the first quarter), is rapidly becoming insolvent.

Another cause of anxiety is that the maturity of small business loans, which have extended the deadline in the COVID-19 phase, will return in large numbers. The financial sector and authorities have extended the maturity of loans to small business owners and others affected by the pandemic since 2020, with the amount of funds extended until September reaching 47.4 trillion won. If the deferred repayment of principal and interest (2.5 trillion won) is included, the maturity will reach 50 trillion won.

The government has decided to set detailed write-off targets for loans to small business owners to relieve pandemic damage. Among the debts of around 10 years, loans of less than 50 million won to less than 100 million won are mentioned as targets for retirement. The specific target of support is expected to be determined by the size of future financial expansion.

Kim Dae-jong, a professor of business administration at Sejong University, said, “In order to boost domestic demand, a bad bank should be created to energize small business owners,” adding, “With the economy so sluggish over the past six months, it has become urgent to come up with support measures to carry out normal economic activities.”

Expand the targets of previous policies and strengthen tax support. The plan is likely to allow small business owners to repay their policy funds in installments and expand the limit on small living expenses loans. A plan to increase the credit card income deduction rate for small business owners was also included in the work report.

Currently, policy windows to ease the debt of vulnerable groups include the KAMCO-led New Start Fund and the Credit Counseling and Reconstruction Commission’s personal workout system. The New Start Fund is a system that adjusts debts up to 1.5 billion won. Personal workout is a program that supports installment repayment and full interest reduction for up to eight years for operators who are overdue for more than three months. The government has decided to reinforce the two systems, believing that they have not been effective. Measures are being discussed to drastically lower the criteria for receiving support. KAMCO tried to purchase insolvent bonds worth 30 trillion won from 2022-2025 through the New Start Fund, but the debt adjustment amount was only 5.8 trillion won (as of April). Analysts say that personal workouts are also not strongly supported by small business owners’ comeback.

However, it is pointed out that even if urgent fire is contained immediately, self-employment structural reform should be carried out in the future.

“If small business owners continue to owe debt and fail to solve the structural problem of not paying it back, the same policy failure can be repeated,” said Jungsik Kim, an honorary professor at Yonsei University’s economics department. “We need reforms to prevent self-employed people from being mass-produced indiscriminately.”

Meanwhile, the Ministry of Economy and Finance is also expected to report structural financial resources to support various national tasks. The main goal is to operate various tax credits, which have been overused due to the pork-barrel policy, to overhaul and reduce tax exemptions on a large scale.

[Reporter Kim Jung Hwan]