News / Asia

South Korea Faces Looming Debt Crisis

South Korean housewife buys vegetables at a market in Seoul February 1, 2011.
South Korean housewife buys vegetables at a market in Seoul February 1, 2011.
TEXT SIZE - +
Jason Strother
— South Korean economic analysts say rising household debt indicates a U.S. or European-style debt crisis is looming.

Baek Seong-jin, who runs a financial advocacy group just across the street from the South Korean National Assembly building, says he sees the signs that times are getting tough for many families.

Baek says he has seen two to three times as many people going broke and declaring bankruptcy than a year ago.  He says inflation, stagnant wages and high interest loans are reasons why his clients cannot afford to pay their bills.    

From saving to overspending

South Korea has changed from a nation that traditionally saved money to one that is overspending.  And now, experts are warning that South Korea could join the United States, Europe nations and others that are experiencing a debt crisis.    

Jeong Young-sik, an analyst at the Samsung Economic Research Institute in Seoul, says Korean households have not gotten the message yet.

"In the U.S., Japan and European countries, household debt is decreasing.  But in Korea, household debt is increasing," Jeong said.

A recent report by the Bank of Korea says household debt is nearing $600 billion.  The Organization for Economic Cooperation and Development says Korean families are spending about one-and-a-half times what they earn each month.  That is one of the highest ratios in the developed world.

Debt burden

According to Jeong, real estate and education are the two biggest expenditures that are putting households into debt.

That is the case for Cheon Sun-kyoung’s family.  Two years ago, she took out a $100,000 loan for a new apartment in a pricey Seoul neighborhood so her teenage daughter could attend what she considers to be a better school.

Cheon says the family’s budget is now very tight.  She says, since moving her family, it has been impossible to save money because they are paying off the loan.  Cheon even has to go to another neighborhood to buy groceries at cheaper supermarkets.

Jeong Young-sik says South Korea faces a similar situation as Japan did back in the 1990s.  Then, Tokyo had to bail out families who were submerged in debt.  Now, Japanese government debt is 200 percent of its GDP.

Jeong says Japan has not been able to get back on its feet, in part, because of  its low birthrate and high number of non-working senior citizens.  It is a problem that Korea is now facing.

"In the long term, the debt crisis is likely to happen in South Korea because the population will decrease, the working force will decrease.  That means, I think, the housing price will begin to fall," Jeong said.

Jeong predicts that, between 2015 and 2020, the South Korean government might need to intervene to prevent the nation from going into crisis.

Jeong says a government bail out would hurt Korea’s economic credibility and keep foreign investors away, as it has done in other nations.  

"The Korean government got a lesson from European countries, the U.S. and Japan," he said.  "The Korean government doesn’t want to increase government debt sharply."

If South Korea is to avoid that scenario, households will have to tighten their belts and start saving money again, Jeong adds.

You May Like

Wikipedia Proves Useful for Tracking Flu

Technique gave better results than Center for Disease Control (CDC) and Google’s Flu Trends More

Turkish Law Gives Spy Agency Controversial Powers

Parliament approves legislation to bolster powers of intelligence service, which government claims is necessary to modernize and deal with new threats Turkey faces More

Video Face of American Farmer Changing

Average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population More

This forum has been closed.
Comment Sorting
Comments
     
by: Yoshi from: Sapporo
September 26, 2012 4:09 AM
Yes, Japanese government has a national loan of 200 percets of its GDP. That is the second place following Zimbabwe and extreme a frontrunner among industrialized countries. But Japanese national loans are popular and bought by foreign investers including governments and Interest rate remains low. why? Japanese government is close to bankruptcy and debt crisis even now. Are other countrys' economic conditions too bad? We Japanese hope our economic power shoud be estimated propery and yen should become weeker.

In Response

by: See Meen from: New Tork
September 26, 2012 6:47 PM
This is a very timely article given all the recent popularity of the "gangnam style" video which lampoons the over-the top lifyestyle of South Korea's Gangnam district - which projects some sort of a collective cultural aspiration, which is unsustainable in the long run.

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Face of American Farmer is Changingi
X
Mike Osborne
April 18, 2014
The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Face of American Farmer is Changing

The average American farmer is now 58 years old, and farmers 65 and older are the fastest growing segment of the population. It’s a troubling trend signaling big changes ahead for American agriculture as aging farmers retire. Reporter Mike Osborne says a new report from the U.S. Census Bureau is suggesting what some of those changes might look like... and why they might not be so troubling.
Video

Video Donetsk Governor: Ukraine Military Assault 'Delicate But Necessary'

Around a dozen state buildings in eastern Ukraine remain in the hands of pro-Russian protesters who are demanding a referendum on self-rule. The governor of the whole Donetsk region is among those forced out by the protesters. He spoke to VOA's Henry Ridgwell from his temporary new office in Donetsk city.
Video

Video Drones May Soon Send Data From High Seas

Drones are usually associated with unmanned flying vehicles, but autonomous watercraft are also becoming useful tools for jobs ranging from scientific exploration to law enforcement to searching for a missing airliner in the Indian Ocean. VOA’s George Putic reports on sea-faring drones.
Video

Video New Earth-Size Planet Found

Not too big, not too small. Not too hot, not too cold. A newly discovered planet looks just right for life as we know it, according to an international group of astronomers. VOA’s Steve Baragona has more.
Video

Video Copts in Diaspora Worry About Future in Egypt

Around 10 percent of Egypt’s population belong to the Coptic faith, making them the largest Christian minority in the Middle East. But they have become targets of violence since the revolution three years ago. With elections scheduled for May and the struggle between the Egyptian military and Islamists continuing, many Copts abroad are deeply worried about the future of their ancient church. VOA religion correspondent Jerome Socolovsky visited a Coptic church outside Washington DC.
Video

Video Critics Say Venezuelan Protests Test Limits of Military's Support

During the two months of deadly anti-government protests that have rocked the oil-rich nation of Venezuela, President Nicolas Maduro has accused the opposition of trying to initiate a coup. Though a small number of military officers have been arrested for allegedly plotting against the government, VOA’s Brian Padden reports the leadership of the armed forces continues to support the president, at least for now.
Video

Video More Millenials Unplug to Embrace Board Games

A big new trend in the U.S. toy industry has more consumers switching off their high-tech gadgets to play with classic toys, like board games. This is especially true among the so-called millenial generation - those born in the 1980's and 90's. Elizabeth Lee has more from an unusual café in Los Angeles, where the new trend is popular and business is booming.
Video

Video Google Buys Drone Company

In its latest purchase of high-tech companies, Google has acquired a manufacturer of solar-powered drones that can stay in the air almost indefinitely, relaying broadband Internet connection to remote areas. It is seen as yet another step in the U.S. based Web giant’s bid to bring Internet to the whole world. VOA’s George Putic reports.
AppleAndroid