The South Korean government will write off as much as 5 trillion to 6 trillion won ($3.6 billion to $4.4 billion) in debt owed by self-employed borrowers who fell behind on loans taken out during the COVID-19 pandemic. The measure is intended to ease the burden on vulnerable groups as interest rates rise, though it has raised concerns that repeated debt forgiveness penalizes those who keep up with payments.
The government announced the plan, titled "Support Measures for Vulnerable Borrowers Amid Rising Rates," at a meeting of the emergency economic task force and economy-related ministers on the 28th.
The measures cover unsecured loans extended during the pandemic that fell into arrears before June 2023 and have remained delinquent since. A total of 358.7 trillion won in loans to individual business owners was extended between 2020 and 2023. Of that, 154.7 trillion won remains unpaid, including 6.3 trillion won overdue by three months or more. The government plans to release detailed debt restructuring terms in the fourth quarter. It will also cancel all debts delinquent for 20 years or longer, wiping out 16.2 billion won in long-overdue claims held by the Export-Import Bank of Korea against small and medium-sized enterprises, along with the obligations of joint guarantors including company chief executives. Yang Joon-mo, an economics professor at Yonsei University, said frequent debt forgiveness risks undermining the principles of a credit-based society.
Incentives will be expanded for small and mid-sized companies and small business owners who have kept up with repayments. The Industrial Bank of Korea will double the supply of its Small Business Hope Dream Loan program to 3 trillion won this year from 1.5 trillion won.
