The presidential office announced on Tuesday that the debt relief program that halves interest payments for young debtors by up to half is “not designed to cancel the principal, but to extend the debt service period. and lower interest rates in some cases. Kim Joo-hyeon, the head of the Financial Services Commission, even implored to “understand the purpose of this program with a warm heart.” The announcements came after controversies spread over the backlash of the youth debt restructuring, calling it a bailout for heavily indebted investors.

The Financial Services Commission released a plan on July 14 to ease financial hardship for ordinary people, offering interest reduction, deferral of principal repayment and application of lower interest during the deferral period for 48,000 young debtors with a lower credit score. Those who have recorded losses in cryptocurrency investments are also eligible.

The restructuring of existing debt only offers an extension of repayment without cancellation of interest payments, and its agreed annual interest rate is also relatively high at a maximum of 15%. The government argues that the newly introduced debt relief program has only widened its reach to young people with lower credit scores, but it is evident that the new program offers much wider benefits to debtors.

Of the 1.86 trillion won in household debt, 597 trillion won came from large debtors who borrowed money from several financial companies. Financial authorities must verify the exact status of vulnerable households on the verge of bankruptcy before the debt bomb explodes. Good order of business should start with establishing a longer-term plan to induce repayment and liquidate troubled debts if repayment is not viable. Yet they skipped those due process to offer a pork barrel program waiving interest payment and principal repayment for the young and the self-employed, respectively. Due to this controversial decision, the prior restructuring of liabilities is in trouble.

Whether they are young investors or the self-employed, it is misleading to support them when most debtors are meeting their debt service obligations. Above all, reducing interest or arbitrarily canceling a debt can lead to bank failures. It may be the small business owners who have to bear the brunt of this, as their application for urgent loans may be rejected as distressed debt can erode the credit capacity of financial institutions. Supporting debtors without drawing a line between speculators and ordinary debtors could lead to squandering state coffers.