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.
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

EU Court Fines Poland for Hosting CIA 'Black Sites'

Ruling is first time a court has acknowledged suspects were held and tortured at the sites, under US program launched following the 9/11 terrorist attacks More

Migrant Issues Close to Home Spur Groups to Take Action

Groups placing water, food in the desert, or aiding detainees after release, have one common goal: no more deaths of migrants crossing illegally into the US More

Video At AIDS Conference, Prevention Pill Stirs Excitement

Truveda shows promise, spurring debate over access and other approaches 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.
Treatment for Childhood Epilepsy Heats up Medical Marijuana Debatei
X
Shelley Schlender
July 24, 2014 6:43 PM
In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Treatment for Childhood Epilepsy Heats up Medical Marijuana Debate

In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Airbus Adds Metal 3D Printed Parts to New Jets

By the end of this year, European aircraft manufacturing consortium Airbus plans to deliver the first of its new, extra-wide-body passenger jets, the A350-XWB. Among other technological innovations, the new plane will also incorporate metal parts made in a 3-D printer. VOA's George Putic has more.
Video

Video Death Toll From Israel-Gaza Conflict Surpasses 700

Gaza officials say a shelling hit a compound housing a United Nations-run school in the Gaza Strip, killing more than a dozen people, during an Israeli offensive in the area. Heavy fighting between the Israeli military and Hamas militants continued on Thursday, pushing up the death toll. So far, more than 730 Palestinians and 35 Israelis have been killed in the conflict. VOA's Scott Bobb has the latest from Jerusalem.
Video

Video AIDS Conference Welcomes Exciting Developments in HIV Treatment, Prevention

Significant strides have been made in recent years toward the treatment and prevention of HIV, the virus that causes AIDS. This year, at the International AIDS Conference, the AIDS community welcomed progress on a new pill that may prevent transmission of the deadly virus. VOA’s Anita Powell reports from Melbourne, Australia.
Video

Video Israel Targets Gaza Supply Tunnels

The Israeli military has launched a ground operation in Gaza to destroy the myriad tunnels that may have been used to smuggle weapons to Hamas. VOA's Zlatica Hoke reports that could mean more hardship for the people of Gaza, who obtain some of their essential supplies through these underground passages
Video

Video Researchers Target Low-Cost Avatar Technology

Scientists at the University of Southern California Institute for Creative Technologies say 3-dimensional representations could revolutionize social media. Elizabeth Lee has more from Los Angeles.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.
Video

Video In Cambodia, HIV Diagnosis Brings Deadly Shame

Although HIV/AIDS is now a treatable condition, a positive diagnosis is still a life altering experience. In Cambodia, people living with HIV are often disowned by friends, family and the community. This humiliation can be unbearable. We bring you one Cambodian woman’s struggle to overcome a life tragedy and her own HIV positive diagnosis.

AppleAndroid