South Koreans struggle against a tide of debt
SEOUL - Lee Sang-Kuk delivers meat during the day and drives drunk businessmen home at night, but even with two jobs he and millions of other South Koreans are struggling against a tide of household debt.
Lee's situation is increasingly common in South Korea where total household borrowing hit a record 937.5 trillion won ($882.7 billion) in September last year, equivalent to more than 70 percent of the country's 2011 GDP.
Laid off from his job in a media company in 2000, Lee opened a restaurant with a bank loan using his home as collateral. Within two years the business had collapsed forcing him to apply for personal bankruptcy.
Lee sold his house to clear the bank loan but then took out a high-interest loan from private lenders to fund the education of his son and daughter.
"Since then, life has been miserable," said the 59-year-old who confessed to contemplating suicide at one point.
"Everything I earn goes on debt repayment, and my wife works as a housemaid to meet our living expenses," he told AFP.
Lee's evening job is for an agency which provides emergency drivers, mostly for businessmen who have had too much to drink and need someone to drive them, and their cars, home.
South Korea's household debt mountain has its origins in financial reforms introduced after the 1997 Asian financial crisis that led the country's banks to turn to consumers for asset growth.
A resulting surge in mortgage lending was fuelled by a long streak of low interest rates and a general belief that real estate was a guaranteed investment.
"While US households deleveraged, especially after the subprime mortgage crisis, loan demand for mortgages increased here thanks to rising property prices," Hyundai Economic Research Institute analyst Lee Jun-Hyup said.
"There's no serious threat to the banking system, but obviously it hurts domestic consumer demand," Lee said.
Once an economic juggernaut that grew nearly 7.0 percent a year on average since the end of the Korean War in 1953, South Korea has, in recent years, entered a phase of more measured growth.
The property market has slumped and a slowing economy has resulted in job losses that have left single wage-earner families struggling to stay afloat.
Some government estimates have put the number of those at high default risk at more than 6.0 million -- or more than 10 percent of the population.
Those with children of school age have the added burden of the crippling costs of extra-curricular education which is considered a pre-requisite of college entry in a hyper-competitive system.
According to Korea University professor Lee Phil-Sang, the quality of household debt is deteriorating due to an increase in the debt servicing burden of self-employed people, who make up almost a third of the workforce.
At the same time, there has been a steady rise in low-income families who are borrowing just to meet living expenses.
"Household debt is like a cancer in our body," Lee said.
"If unchecked, it's going to become a serious drag on the economy because loan repayments will worsen rapidly during a time of economic stress," Lee said.
The lack of disposable income among highly indebted households is hampering government efforts to spur domestic demand and wean the national economy off its over-reliance on exports.
Like Lee Sang-Kuk, many middle-aged South Koreans laid off by corporations take out personal and mortgage loans to start a new business.
But commercial banks favour high-income retail consumers, pushing poorer borrowers to lenders such as savings banks and credit card firms that charge punitively high interest rates.
Lee is among an estimated group of three million people who have been blacklisted by banks or cannot get extra loans because of low credit ratings.
As part of her election pledge to expand social welfare spending, president-elect Park Geun-Hye proposed a 18 trillion won ($16.9 billion) public fund to help low-income earners like Lee reduce debts.
Opposition politicians and some experts say such a fund would be little more that a stop-gap policy and have urged Park to look at a longer-term solution.
Others like Financial Services Commission chief Kim Seok-Dong, have voiced reluctance at the message that would be sent by using taxpayers money to rescue indebted households.