S Koreans despair at debt crisis

BBC ^ | January 9 2004 | Charles Scanlon

[Tauzero]

S Koreans despair at debt crisis
By Charles Scanlon
BBC correspondent in Seoul

South Korea's largest credit card company has been bailed out at the last minute, but the near-collapse has put the country's giant debt problem into sharp focus.

The firm in question - LG Card - needed a $4bn bailout to cover its bad debts, and its acute difficulties are sadly indicative of a nation that over the past few years has been on the biggest credit-fuelled spending binge in its history.

With four million South Koreans now defaulting on their credit card bills to the tune of $6bn, the main shopping streets of Seoul today feel like the morning after the big party.

Even the New Year sales have not generated much enthusiasm.

Easy credit

It used to be difficult to get a credit card or even a bank loan in South Korea, as historically all available credit was channelled to industrial development.

But everything changed in 1999 when the government saw a boost in consumer spending as a quick economic fix after the Asian financial crisis.

This opened the floodgates and miniskirted girls appeared on street corners to sign up credit card customers.

Cards were handed out to all comers with generous credit limits.

But millions of South Koreans are now unable to meet their payments, struggling under a mountain of debt.

Temptation

Kim Kyong Wan, an analyst at Samsung, a conglomerate whose own credit card operation also got into difficulties, said South Koreans were seduced by what they thought were "jackpot opportunities".

"They were inexperienced, this is a new, new environment for them," he said.

"It seemed at the time, golden opportunities, almost a jackpot for them. So they responded to the jackpot opportunities."

Kyong Wan added: "Their only wrongdoing was that the risk accompanied with those kind of opportunities, they did not know those kinds of risks yet."

The card companies would like to pass on blame to the government for encouraging the credit boom and for lack of regulation.

Despair

At the time, South Korea's rapid economic recovery was held up as an example to other Asian countries, but now ordinary South Koreans are paying a heavy price.

Kim Jong Wan is one such person now struggling with a mountain of debt he cannot pay off.

He runs a fast food operation in the northern suburb of Soeul and used ten credit cards to build up debts of more than $100,000.

"I felt a sense of pride at the beginning, because I had never been eligible for a credit card before," said Mr Kim.

"It was like joining the middle class, and representatives of card companies were virtually begging me to take their cards."

Help

He added: "I can't exactly remember when things went wrong, and I couldn't believe how quickly the interest built up.

"I feel like death, I haven't had much will to carry on.

"I accept that it was my fault and I'll take the responsibility, but I need help if I am going to get back onto my feet."

But while intensive efforts are underway to try to arrange a bailout for the companies because of a perceived risk to the financial system, there is no relief for the individuals who got swept up in South Korea's desperate bout of credit card fever.

[Tauzero]

"It was like joining the middle class, and representatives of card companies were virtually begging me to take their cards."

South Korean credit card = American mortgage ?

[Tauzero]

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[Starwind]

... miniskirted girls appeared on street corners to sign up credit card customers.

Kim Kyong Wan, ... said South Koreans were seduced by what they thought were "jackpot opportunities".

Ahem!

These are your hormones. These are your hormones on credit. Questions?

[reed_inthe_wind]

This is a poor article because it doesn't tell you if the assets were funded by bank deposits insured by the government, or were funds raised through private debt offerings, or did the company issue stock - who is bearing the risk?

[q_an_a]

4 million failures would be the = of 30 million in America. I think the last I read our number was near 1.5-2 that are late but not in default.