President Lee Jae-myung said on the 13th that "South Korea's interest rates have no choice but to rise, and it seems almost certain that they will," pointing to the possibility that the country is headed into a prolonged period of structurally high rates. He called for sweeping measures to ease the debt burden on vulnerable borrowers, and proposed that the government directly purchase delinquent loans in the market at about 5% of face value to clear them — a suggestion that could translate into actual policy.
Speaking at a Cabinet meeting at the Blue House, Lee said, "There is a strong chance rates will go up going forward," adding that rates were unlikely to spike only temporarily. "I hear the structural possibility is high," he said. "A fairly long era of high interest rates is coming. There appears to be some fluctuation."
He expressed concern that rising rates could push up repayment burdens and delinquency rates among vulnerable borrowers, weighing on the broader national economy.
Relaying concerns raised by Bank of Korea Governor Shin Hyun-song, Lee said, "If rates rise, they won't be able to handle the burden. Delinquency rates will climb, and it will become a burden on the national economy. He told me we need to come up with fiscal measures for this." Lee added: "He's right. We have built up considerable fiscal capacity, and if we don't repair the lower part of the K-shaped growth, isn't there a chance it will hold back growth at the top as well?"
In that context, Lee proposed that the government directly buy and dispose of delinquent loans in the market at around 5% of the principal. The idea represents a new form of inclusive finance policy, distinct from existing debt restructuring or welfare support.
"Those non-performing delinquent loans get traded around in the market, and eventually change hands at 2% or 1% of the principal, ending up with lenders that are not far from loan sharks," Lee said. "Couldn't the government buy them up in the market? We have some fiscal room, so if we can buy them at, say, about 5% of the principal, couldn't we buy them at that 5% and clear them?"
Lee's view is that committing fiscal funds to debt restructuring could ultimately reduce welfare spending burdens over the long term. "Don't people keep saying there is no middle ground between welfare spending and lending money?" he said. "We can use that middle ground efficiently. I think it would also save the government a lot more in fiscal terms."