Addressing recent controversies over plans to write off or adjust long-term overdue debts of small business owners affected by the COVID-19 pandemic, Minister of Planning and Budget Park Hong-keun stated, "This is because while other countries had the state shoulder the burden, in South Korea, individuals often had to bear it themselves."

Appearing on a radio broadcast yesterday (August 31), Minister Park gave this response regarding criticisms that the government's debt adjustment would induce moral hazard.

Regarding the background of the policy review, Minister Park stated, "We determined that helping those without the ability to repay make a swift comeback helps the nation's overall wealth and individuals' stable lives."

He went on to explain, "The fruits of growth from the semiconductor super-boom must reach citizens evenly and go extensively to vulnerable groups, so we plan to provide support to young people and vulnerable borrowers."

According to the "Support Measures for Vulnerable Borrowers Preparing for Interest Rate Hikes" unveiled by the government on July 28, the target of support is approximately 6.3 trillion won in unsecured bonds held by small business owners whose delinquencies began before June 2023.

The government is considering purchasing the bonds through the Korea Asset Management Corporation and then reducing the principal or extending the repayment period.

However, criticisms have emerged alongside equity issues concerning self-employed individuals who have diligently repaid their debts, with concerns that the measure could foster moral hazard by signaling that holding out leads the government to write off debts.

In fact, according to data submitted by the Credit Counseling & Recovery Service to the office of People Power Party lawmaker Park Sung-hoon of the National Assembly's Political Affairs Committee yesterday, cases of vulnerable borrowers who had been repaying their debts after receiving debt adjustments and then borrowing livelihood funds again are on the rise.

Micro-loan applications by diligent repayers in the first half of the year totaled approximately 78.8 billion won. Applications in the second quarter alone reached 47 billion won, marking a quarterly high since 2022.

In response, the government stated it will strengthen incentives, such as offering preferential interest rates to diligent repayers. However, voices are calling for fundamental measures to support a fresh start to take precedence rather than simple debt adjustments and write-offs that could trigger moral hazard.

Reported by Lee Hyeon-yeong | Video by Lee Yu-jin | Graphics by Lee Jeong-ju | Produced by SBS Digital News