More Koreans forced to take out loans due to economic difficulties caused by COVID-19
It appeared that South Korea was finally pulling out of the COVID-19 pandemic before the summer holiday season started. But highly transmissible omicron strains, led by BA.5, are hitting the nation, sending the number of new infections spiking in recent weeks.
Nonetheless, the government does not have a plan to restore strict social restriction rules on the assumption that the country can handle the current resurgence and, over time, infections will fade away.
It is not certain whether such a rosy outlook will prove correct. What’s clear, though, is that the social and economic impact of COVID-19 will last far longer and bring about much more pain than previously thought, even in the long-awaited post-pandemic period.
Hit by a shrinking income and fewer job opportunities, a growing number of Koreans are feeling the squeeze. According to a survey of 3,923 people by the Korea Institute for Health and Social Affairs, about 1 out of 8 middle-aged people have borrowed money due to economic problems caused by COVID-19.
Some 12.5 percent of people in their 40s and 11.5 percent of those in their 50s said they have taken out loans because of pandemic-related economic troubles, the survey showed Sunday. The average figure for all respondents stands at 8.5 percent.
The personal loan surge is linked to pandemic-driven income declines. The survey showed that 31.4 percent have seen their income shrink as a result of COVID-19. The figure for the self-employed was particularly higher at 76.6 percent.
The bleak data demonstrates that the coronavirus outbreak has taken an economic toll on many Koreans. More importantly, it seems it would be difficult to restore incomes to previous levels as the country grapples with runaway consumer prices and high interest rates -- a toxic mix that further adds to the cost-of-living burdens on vulnerable, debt-heavy households.
The survey claimed the government should provide more systematic financial support to those hit by the pandemic. But there is a slew of issues plaguing such support programs, including a limited budget and moral hazard claims when it comes to comprehensive debt forgiveness.
But the government should pay closer attention to signs that more people are financially suffering from the pandemic, a condition that could lead to serious social problems.
Back in the late 1990s, when the Asian economic turmoil slammed Korea, there was a spike in suicides and disintegrating families due to dire economic situations.
The COVID-19 pandemic has all the factors that could generate such serious social issues unless proper measures are taken to help out those struggling to cope with economic difficulties.
While it is an appropriate course of action for the government to come up with more steps to offer subsidies to pandemic-afflicted self-employed merchants, it should also take care of single households, especially the elderly with little to no income.
Also worrisome is the gloomy outlook regarding the country’s snowballing household debt. The Hyundai Research Institute said Sunday that the household financial imbalance came in at 78.5 points during the COVID-19 period, far higher than the long-term median set at 50.0. The figure was higher than the 75.4 recorded during the global financial crisis between 2007 to 2009.
The increase means the ratio of household debt to gross domestic product is going upward beyond a normal level. Bank of Korea data shows that household credit hit an all-time high of 1,859.4 trillion won ($1.4 trillion) as of end-March this year.
Given the negative factors such as galloping inflation, higher interest rates and rising household debt, the government should devise more comprehensive and systematic measures to help people tackle pandemic-induced economic difficulties and minimize the related social impact on vulnerable groups.
By Korea Herald (firstname.lastname@example.org