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2017-10-24 16:45
The media have been comparing Korea’s snowballing household debt to a “time bomb” for quite a while.
If the Bank of Korea begins to raise the benchmark interest rate in a few months, following the example of its U.S. counterpart, the central bank will be lighting the bomb’s fuse — finally.

Korea’s household debt is the second-fastest growing in the world only after China. According to the Bank for International Settlements, the ratio of household debt to GDP rose to 93 percent in the first quarter, the eighth-highest in the world, and up 4.6 percentage points from a year ago. The rise was second-highest among 43 major countries.
The debt-to-disposable-income ratio reached a hefty 178.9 percent last year, way above the OECD’s average of 129.2 percent.

It is against this backdrop the Moon Jae-in administration came up with yet another policy package to dissolve one of the gravest economic risks Tuesday.

The government’s new policy is going in the right direction, trying to keep people from buying homes with bank loans and prevent speculators from making money by dealing properties. It is also justified in its attempt to minimize the adverse effects the financial squeeze will have on working families as their access to bank borrowing gets limited. That also explains why policymakers need to distinguish between good (“real” borrowers) and bad (speculators).

There are two more caveats for the success of the new policy. First, the government should crack down on “predatory” landlords — multiple homeowners who jack up the deposit money and monthly rent as high as they can, driving tenants to take out more bank loans. Second, they ought to curb institutional predators — large commercial banks — which maximize the gap between lending and deposit rates as the easiest way to fatten their pockets.

The Moon administration has not created the current debt crisis. Like it or not, however, the challenging and sensitive task of defusing the debt bomb while minimizing the impact on the overall economy has fallen to it.


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