President Lee Jae-myung on the 15th ordered financial authorities to expedite debt restructuring for long-term delinquent borrowers unable to repay, stating 'we must quickly settle debts for those with no repayment capacity' during a Financial Services Commission briefing at Cheong Wa Dae. The directive stems from Lee's view that Korea's debt forgiveness system is 'harshly strict' compared to other developed nations where bankruptcy discharge procedures occur routinely and rapidly. Lee criticized the current system where borrowers with original debts of 10 million won see balances balloon to 50 million won over 5-15 years, forcing individuals into permanent debtor status and sometimes tragic outcomes, arguing that swift debt relief enables normal economic activity and benefits society overall.
President Lee Criticizes Korea's Strict Debt Forgiveness System Compared to Developed Nations
President Lee stated 'finance often becomes something that kills people' and 'our country is harshly strict about debt forgiveness' during the morning briefing. Lee pointed out that 'there are many cases where people criticize debt relief by saying "then who would faithfully repay debts," so we are very passive about delinquent debt forgiveness,' adding 'in other developed countries, bankruptcy, discharge, and fresh starts happen very routinely and quickly, but in our country it is too difficult.'
Lee described scenarios where borrowers become lifelong debtors: 'After 5 years, 10 years, 15 years, the original borrowed amount of 10 million won grows to 50 million won, they become permanent debtors, and eventually they make extreme decisions while holding their children.' The President questioned 'who would live unable to get a job or open a bank account because they became credit-delinquent over a few tens of millions of won,' emphasizing 'people who cannot repay must receive quick debt forgiveness so they can conduct normal economic activities, and only then does the economy as a whole operate normally. This is socially necessary work.'
President Lee Refutes Moral Hazard Concerns Over Debt Relief
Addressing criticisms that debt forgiveness induces moral hazard, President Lee countered 'nevertheless, we must do what is necessary,' stating 'if we do not do what must be done because we are attacked by criticism or incitement, what will happen to society?'
Lee explained that financial institutions anticipate non-repayment when lending: 'Financial institutions originally lend with the expectation that a certain number will not repay debts, they calculate all those costs and receive them as interest, and they also pre-set loan loss reserves,' adding 'so it is not actually a loss.'
The President further argued 'rather, financial institutions' harsh management of long-term delinquent debtors is moral hazard,' emphasizing 'there should be no cases where people die because of debts they cannot repay, or are isolated from society and cannot conduct economic activities, ultimately causing the entire social community to suffer losses.'
President Lee Directs FSC Chairman to Implement Bold Debt Relief Measures
President Lee directed FSC Chairman Lee Eok-won: 'You must act boldly. If necessary, create systems and persuade others.'
Chairman Lee responded 'as you said, this is not a problem connected to moral hazard but a problem of attention and management,' stating 'we are changing toward a system that can internalize this within the system itself so it can be done within the system.'
FAQ
What did President Lee Jae-myung order on the 15th regarding debt relief?
President Lee ordered financial authorities to expedite debt restructuring for long-term delinquent borrowers unable to repay during a Financial Services Commission briefing at Cheong Wa Dae, stating 'we must quickly settle debts for those with no repayment capacity.'
Why did President Lee criticize Korea's debt forgiveness system?
President Lee criticized Korea's system as 'harshly strict' compared to other developed nations where bankruptcy discharge procedures occur routinely and quickly, pointing out cases where original debts of 10 million won grow to 50 million won over 5-15 years, trapping borrowers in permanent debtor status.
How did President Lee respond to moral hazard concerns about debt relief?
President Lee refuted moral hazard arguments by explaining that financial institutions already anticipate non-repayment when lending and calculate those costs into interest rates and loan loss reserves, arguing that harsh management of unpayable debts constitutes the real moral hazard by isolating individuals from economic activity.
