SEJONG -- The government will offer policy financing worth 68 trillion won ($51 billion) to small merchants and the underprivileged on a step-by-step basis, starting from the end of July, the Finance Ministry said Friday.

Government-initiated low-interest loans will be divided: 43 trillion won will go to small merchants and 25 trillion won to young people and low income households.

“The government has set consumer prices and stability in people’s living conditions as the primary administrative affair,” said Second Vice Finance Minister Choi Sang-dae, in Seoul. “The government would continue to create measures to ease the burden of people.”

The measure is to relieve small merchants and other vulnerable people from the burden of rising borrowing costs.

On Wednesday, the central bank made a historic rate hike of 0.5 percentage point to tame inflation, despite rising market fears of a recession.

The nation’s inflation reached 6 percent in June on an on-year basis and the benchmark interest rate was raised to 2.25 percent per annum.

The policy financing scheme, however, sparked concerns that it could create moral hazard among young people, as the loan assistance for people with low credit ratings targets them.

Asked about such concerns, President Yoon Suk-yeol reiterated the need for preemptive action.

“Financial risk is tremendously fast (to manifest itself), compared to that of the nonfinancial sector, in terms of expansion,” he said.

“As far as I’m concerned, securing the national welfare and assets by taking preemptive measures is better than implementing a policy to wind up (the debt) after insolvency.”

Concerns have been rising over the financial risks posed by young people who have rushed to cryptocurrency as well as the stock market when the markets were high on expanded liquidity and ultra-low borrowing rates. Many jumped into the markets by taking out credit-based loans from commercial banks, second-tier financial firms and others.

Experts say large portion of them are suffering from plunges in their asset value and are set to face heavier financial burden with the Bank of Korea delivering a series of rate hikes.

By Kim Yon-se (kys@heraldcorp.com)