Korea’s three major economic pillars ― the public sector, households and corporations ― have incurred 3,300 trillion won ($2.96 trillion) in financial debt as of June, threatening to undermine efforts to fuel Asia’s fourth-largest economy.
The record amount of financial loans shouldered by key players in the country was revealed by Rep. Lee Han-gu of the Grand National Party on Monday. Lee, a member of the Strategy & Finance Committee at the National Assembly, collected data and reports from the Ministry of Strategy and Finance and the Bank of Korea, and concluded that the ballooning financial debt warrants close watch.
While financial debt continued to rise sharply, debt repayment rates of households tumbled to a record low, suggesting that the trend, if left unchecked, will negatively affect the Korean economy.
“The drastic increase in debt outpacing the growth of income hurt the loan repayment ability on the part of individuals,” said Lee. “The problems with the loan repayment in the household sector could hurt the financial sector and potentially spark an economic crisis if the Bank of Korea begins to raise the benchmark rates to normalize its monetary policy while the issue remains unresolved.”
The amount of financial debt excludes stock and other direct investments included in the total debt.
Financial debt refers to a sum minus stock and other direct investments from total debt.
The country’s economy is already battling against a host of threats including the slowing demand from its key export destinations, runaway inflation and lackluster consumer spending. The snowballing debt could put further pressure on the overall economy at a time when the sovereign debt problem in the eurozone and the U.S.’s struggle against a possible recession have darkened the country’s economic outlook.
According to Lee, the three economic entities had a combined financial debt of 2,401 trillion won in 2007. The figure began to surge from 2008 when the Korean government increased the fiscal spending in the face of the global financial crisis. The financial debt stood at 2,809 trillion won in 2008 before rising to 2,962 trillion won in 2009 and 3,156 trillion won in 2010.
Compared with a level seen in 2007, the country’s total financial debt jumped 881 trillion won, or 36 percent, in three and a half years.
In the public sector, the government had a financial debt of 418.9 trillion won and public enterprises incurred a debt of 353 trillion won. The public sector saw its financial debt surge 65.9 percent from a level in 2007. The figure for the private sector stood at 1,460 trillion won as of end-June this year, up 28.1 percent from 2007.
Individual financial debt also rose at a rapid pace, with the figure climbing from 795 trillion won in 2007 to 1,050 trillion won this year. The ratio between financial debt and disposable income, meanwhile, reached 155.4 percent, the worst level since the government began to compile the data.
By Yang Sung-jin (
insight@heraldcorp.com)
