The South Korean government published its intentions to carry out credit amnesty programs for the removal of overdue records. Chairman Eun Sung-soo of the Financial Services Commission (FSC) said in a conference with leaders of financial organizations on Wednesday that there is a need to suspend sharing of overdue data among financial businesses, requesting that such data not be used to calculate credit scores. His message seemingly intends to make sure that credit grades of those who fail to pay off debts in time stay intact given the COVID-19 situation. It is an innate obligation of the government to lessen the burden of the self-employed and working-class families. However, the government’s disruptive action against the principle of credit with expanded financial assistance cannot help but being seen as part of populism with the forthcoming presidential election in mind. Ironically, it sticks to quarantine measures and grant programs to help closed or soon-to-close establishments with a growing burden on the shoulders of the self-employed.
It is true that small-sized business and factory owners have become less capable of settling debt than before since the COVID-19 pandemic broke out. When they have lower credit grades, they are likely to find it harder to get out of the debt circle. However, moral hazards may occur if the government allows them to maintain the current credit grades without any set of clear standards in action. Also, it may inevitably lead to reverse discrimination against those who have done their best to pay off debts in time despite difficult conditions.
Six trillion won’s private corporate debts were forgiven in the early days of the current administration. After the government gave six extra months to loan maturity and interest payments of the self-employed and small-sized business and factory owners last September, it even offered them a further extension this March. As of late July, the amount with an extension of debt maturity reached as many as 209 trillion won. Earlier this year, it lifted a requirement that allows the self-employed to have their debt adjusted only when their business lasts more than a year. Despite the necessity of all of such assistance programs, they are only seen as a quick fix. It is time that the government should take measures to minimize harm to the self-employed while increasing a range of support from demolition to taxation to re-employment for those who have closed or are soon to close their businesses.
Recklessness in offering financial support can undermine the nature of the financial business, which is operated based on trust and credibility. It is common sense that a higher grade is supposed to be given to a person who pays off debts more faithfully than anyone else. Such a basic principle needs to be observed to prevent public trust in finance from being shaken and eroded. If marginal enterprises are left to fail at interest payment and small-sized business and factory owners stay saddled with a growing debt, the nation as a whole can be driven into financial insolvency, which may create a ripple effect throughout the rest of the public. If it is the case, the economy as a whole will be found negatively affected following the end of the COVID-19 situation.
Considering that most presidential candidates are scrambling to lure voters to pork barrel financial support initiatives, it is not the right way to go for the government to adjust its policy direction according to the rise of populism before the presidential election. The government should not be dependent on financial support programs that can damage the roots of a credit-based system but has to come up with reasonable and practical policies to assist the working-class and the self-employed. If financial support is offered repetitively without any rule or principle in place, the government will only be met with criticism for its tactic of “politicized finance.”