The head of President Moon Jae-in’s de facto transition team Thursday urged the Financial Services Commission to adopt a new way to curb household debt and speed up liquidation of debt-ridden firms.
Kim Jin-pyo, chairman of the State Affairs Planning Advisory Committee, raised the question of the viability of the current measure to tackle what he called “persisting economic woes in the perspectives of pundits and offshore ratings agencies” in a session with the financial regulator in Seoul.
“We need to review whether the current corporate restructuring conducted on a regular basis is working,” Kim said in a keynote speech.
“A string of debates will bring the opportunity for swift corporate restructuring and fresh measures to tackle liabilities (of households and business entities).”
During the financial crisis that swept the nation in 1997, the Kim Dae-jung administration funneled at least 168 trillion won ($150.3 billion) into South Korea’s industries to swiftly salvage indebted firms. But the results were not always good, according to Kim, with only about 45 percent of the money paid back to the government.
Since then, the government has regularly led the restructuring of ailing firms, teaming up with creditor banks, instead of making the support effort a one-off.
Critics say the FSC has ended up overseeing banks’ injection of excessive funds into large troubled firms without adequately assessing the company’s potential for a recovery.
“Economists say the FSC has failed to effectively manage household debt or the liquidation of debt-laden corporates led by bondholding banks,” Kim said.
South Korea’s household borrowing has continued to skyrocket in the last few years. After topping 1,000 trillion won for the first time in 2013, household debt reached 1,344.3 trillion won in 2016. Accumulated household debt reached 1,366.8 trillion won as of April, according to the FSC.
During the session, Kim also urged financial institutions to prop up the growth of startups, instead of “relying on loan-deposit margins.”
“It is not possible for a financial lender to survive solely by relying on the loan-deposit margin amid low interest rates.” Kim said. “Financial institutions should play a role in a wave of startup-led growth.”
The State Affairs Planning Advisory Committee was launched Monday and ministries began to report to it from Wednesday.
By Son Ji-hyoung (email@example.com