South Korea Launches $1.35 Billion ‘National Happiness Fund’ To Ease Consumer Debt
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The South Korean government on Monday announced the creation of a $1.35 billion fund that will help low-income households restructure or repay overdue loans, the Associated Press reported.
The South Korean government on Monday announced the creation of a $1.35 billion fund that will help low-income households restructure or repay overdue loans, the Associated Press reported.
The Kookmin Hangbok Giguem, or National Happiness Fund, had been part of President Park Guen Hye’s election promise to ease consumer debt; and could see as much as 210,000 South Koreans benefit from partial debt cancellation, while another 340,000 would qualify for a reduction in loan interest from over 20 percent a year to under 10 percent.
South Korea’s Financial Services Commission said that the debt relief scheme will apply to debts up to 100 million won ($90,000); and the fund will cancel up to half the debt of individuals who have been unable to make repayments for more than six months.
Meanwhile, repayment periods will be extended to as long as 10 years, whilst promising lower interest rates for individuals earning less than 40 million won ($36,000) a year, and postponing repayment of student loans until graduates have a job.
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[quote]The Financial Services Commission said that no public money will be needed to operate the fund as a third of the capital will come from the state- controlled consumer credit recovery fund, while additional capital will be raised by selling bonds.[/quote]In January this year, South Korea’s central bank had warned that high household debt was causing a slowdown in consumer spending at a time of weakening economic growth. Central bank data showed that South Korean household debt had reached a record 959.4 trillion won ($860 billion) as of end-2012.
The State-owned Korea Asset Management Corp. is expected to oversee and manage the fund for the next five years. According to Bloomberg News, about 4,000 financial institutions, including banks and consumer lenders, will also assist the government by purchasing or rescheduling overdue loans.
[quote]The Financial Services Commission expects economic benefits in the form of lighter individual debt burdens and improved soundness among the nation’s lenders, it said in a statement.[/quote]
