Despite Controversy Over 'Debt-to-Investment' Relief, Yoon Decides on 'Preemptive Measures'... "Must Protect National Welfare and Assets"

Announcement of 'Establishment Plan for Special Rapid Debt Adjustment System'... Support for Vulnerable Groups Facing Interest Burden Risks Due to Big Step

[Image source=Yonhap News]

[Asia Economy Reporter Baek Kyunghwan] President Yoon Seok-yeol has been emphasizing proactive management of financial risks day after day. Despite controversies that the youth debt-investment ('Bitt-u', borrowing to invest) relief measures cause feelings of loss or encourage speculation, he personally stated, "I believe that taking timely preemptive measures is crucial to protecting the overall welfare and assets of the nation, rather than allowing complete insolvency and having the government clean up afterward."

The movement toward the proactive management mentioned by President Yoon has already begun. At the emergency economic and livelihood meeting chaired by President Yoon on the 14th, financial authorities announced plans to establish a special rapid debt adjustment system to rescue low-credit youth who suffered significant losses due to 'Bitt-u' and other factors. This comes amid concerns that the Bank of Korea’s historic 'Big Step' (a 0.50 percentage point increase in the base interest rate) will sharply increase interest burdens and severely impact financially vulnerable groups. The government’s disclosure of support measures is seen as an attempt to mitigate ripple effects.

First, for small business owners struggling with repayment, the asset management corporation will purchase loan claims and reduce burdens through maturity extensions and interest rate cuts. Additionally, for high-interest borrowers, the plan is to lower burdens by converting loans to low-interest through credit guarantees from the Korea Credit Guarantee Fund. Other measures include ▲interest reductions before delinquency occurs ▲principal repayment deferrals ▲burden relief through youth safe conversion loans ▲interest rate reductions and long-term fixed-rate loan conversions for mortgage borrowers. Considering that the recent interest rate hike will increase burdens not only for salaried workers but also for self-employed individuals relying on debt, President Yoon urged, "Related agencies should pay special attention to ensure that the burdens of high inflation and high interest rates are not passed on to the common people and vulnerable groups."

Following President Yoon’s directive to reduce debt burdens, the Financial Services Commission (FSC) acted swiftly. The FSC immediately announced the 'Financial Sector Livelihood Stabilization Plan,' which includes establishing a new start fund worth 30 trillion won to purchase non-performing loans and implementing a low-interest refinancing program worth 8.5 trillion won to ease financial burdens on the self-employed and small business owners. The plan also includes expanding the safe conversion loan by an additional 5 trillion won to reduce housing finance burdens, supplying 25 trillion won, and offering preferential benefits such as further interest rate reductions for low-income youth. Support measures also include doubling the low-interest jeonse (key money deposit) loan guarantee limit from 200 million won to 400 million won to reduce interest burdens on jeonse loans.

President Yoon’s repeated remarks at the emergency economic and livelihood meeting that "If the livelihood economy collapses, the foundation of the national economy collapses," and "Related agencies should pay special attention to ensure that the burdens of high inflation and high interest rates are not passed on to the common people and vulnerable groups," align with these efforts. He stated, "Self-employed and small business owners who inevitably had to increase loans due to COVID-19, ordinary citizens who purchased homes with all their assets borrowed amid anxiety over soaring real estate prices, and young people who borrowed to invest in stocks out of future uncertainty are all struggling with principal and interest repayments. If the government does not proactively support them, the social costs our society must bear will ultimately increase, and our future youth generation will lose their dreams and hopes."