Crisis of Domestic Loans

Increasing national and household debts have taken a serious turn.

The economic experts warn that we will confront a crisis of domestic loans like a financial crisis before five years. They also emphasized that such problems will be an assignment of the first economic policy of next government.

According to the government authorities such as the ministry of finance and economy on December 3, the national debts as of the end of 2001 are 122 trillion won by the official statistics of the government. It doubled 67 trillion won of 1997.

However, experts analyze that there are larger debts to be paid in the actual.

The actual national debts have 4~7 times of the government’s official statistics, considering △ national liabilities on guaranties, △ potential liabilities of public funds such as the government employees’ pension and soldiers’ pension and △ non-repayable public funds, except debts of the central government and local authorities.

Na Seong-Lin, professor of Hanyang University said, “The government finance played a role of breakwater during the financial crisis of 1997. If the crisis arises, the insolvent finance cannot execute its roles. The actual national debts quadrupling the minimum official statistics of the government will be one of the crisis factor.”

Park Gae-Seong, CEO of Garib & Company said, “Like a business accounting, debts which the country must repay are at least 760 trillion.”

There are another problems of sharp increase of household debts and mass production of delinquent customers.

The balances of household loans were 424.3 trillion won as of the end of September, doubled 211.2 trillion as of the end of 1997.

In particular, the Bank of Korea (BOK) forecasts that the household credit rate (household debt proportion out of disposable incomes) will exceed 100% for the first time this year. It means that the average house family cannot pay out debts (principal and interest) with one-year incomes. Particularly, 6 out of 10 persons have 250% of the household credit rate.

As the household insolvency can lead the financial insolvency, a new economic crisis has been worried at home as well as abroad.

Choi Gong-Pil, senior researcher of Korea Institute of Finance(KIF) said, “There are serious problems which the household debts of Korea have rapidly increased. As the funds are concentrated in the household loans, a possibility of an insolvency is very high.”

Kwang-Hyun Kim Kwang-Am Cheon kkh@donga.com iam@donga.com