Overview: National Happiness Fund

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Hi, readers!

The Financial Service Commission (FSC) finally launched “National happiness fund” in the line with President Park Geun-hye’s key economy policy to ease concerns over Korea’s increasing household debts.  This time, I am going to talk about the background of introduction of “National happiness fund and compare with other countries’ similar policies. Before we go through the overview of the policy, let me begin with explaining the meaning of logo. You can see three tetragonal figures official logo of National Happiness Fund below. Guess what these figures illustrate. These three figures illustrate the stairs that could uplift the debtors suffering from heavy debt. In other words, it is stairs for debtors to get reach to the happiness.

fund_logo

Why the government launch “National happiness fund”?

I guess most of you can find the term “household debt” in the economy section of the newspaper. Yes, as you somehow noticed, household debt has been repeatedly cited as the main drag on Asia’s Korea’s economy because households increasing indebtedness is feared to curb domestic demand and thus hinder economic growth. Household debt totaled a record 959.4 trillion won as of end-2012.  Households borrowed from banks and non-banking institutions for buying houses in 2005 and 2006 when housing market was booming.

Dealing with this situation, pursing quality of support such as easing burden of repaying and improving capability of repaying is in more need than quantity support is. In detail, the National happiness fund will ease the people struggling from overdue debt with multiple institutions and provide them credit recovery chances. Additionally, it will establish supporting system by relating welfare service and financial support.  The National happiness fund is aiming for the virtuous cycle where easing credit burden improves debt repayment ability and thus enhance soundness of financial institutions.  Fundamentally, this fund is expected to bear win-win effect between financial institutions and debtors.

Comparison with other countries’ system

After 2008 financial crisis, the United States and Iceland implemented debt relief program for mortgage loan, the cause of the crisis. The United States has run Home Affordable Refinance Program (HARP). Under HARP, the object people have been benefitted through lower interest rates, extension of period, grace period for principal and especially Principal Reduction Alternative (PRA). Also, Mortgage Debt Relief Act” where the amount of reduction of mortgage debt is not considered return has been enforced.

Let’s move on to Iceland. Iceland gave households options that they can receive support through Ombudsman or directly and negotiate with creditors on reduction of principal. Iceland implement debt relief planning that principal of mortgage loan that LTV is above 110 % will be cut to 110% of debtor’s housing and other assets’ value. Moreover, Iceland raised fund by levying tax on financial market, which allows most of households receive loan interest repayment for 2years.

These two countries’ case indicates that even advanced countries putting priority on market economy have conducted debt rescheduling program for vulnerable social group actively. Especially, those two countries’ program have stronger program in that those cover mortgage loan, while only credit loan is covered by National happiness fund.

As it is named “National happiness fund”, we hope this program would give happiness to households, financial institutions and eventually Korea’s economy.

By Soojeong Park (adorablesj@hanmail.net)

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