Seoul's debt write-off fund rests on a Western precedent analysts say is not there

Analysts have gone after the premise of the Lee Jae-myung administration's debt write-off drive rather than its price tag, arguing that few major advanced economies set up separate funds that periodically cancel individual debts ^[1]. Their alternative is not austerity but a different lever: build policy incentives so financial firms manage bad loans with the borrower's position in mind, instead of having the state buy delinquent paper in order to forgive it ^[2].

The program in question is the New Leap Fund, created to buy individual claims of 50 million won ($36,000) or less that have been delinquent for seven years or more ^[5]. The rationale came from the president himself. At a Financial Services Commission policy briefing on the 15th of last month, Lee said, "Strangely, our country is harshly strict about forgiving debt," and that "clearing away long-term delinquent debt that is five or 10 years old is very basic in Western societies" ^[3][4]. Given the report date of August 15, 2026, that briefing falls on July 15 ^[19]. The stated logic is that long-term delinquents who cannot open a bank account or hold a credit card return as taxpayers and consumers, which is a net social gain ^[20].

The comparison cases do not sit where the speech puts them. The Obama administration's Home Affordable Modification Program, launched in 2010 after the financial crisis, worked through financial institutions offering lower interest rates or extended maturities, not through state purchase and cancellation ^[7]. A researcher who has studied microfinance systems told Seoul Economic Daily that the Biden administration's student loan forgiveness push had "a background in which the social issue was enormous," and that "it is hard to find a system abroad in which the government forgives debt across the board, as the New Leap Fund does" ^[8][9].

There is a structural argument for why Korea is not comparable in the other direction. After the 1997 foreign exchange crisis, collection functions passed to the consumer lending sector ^[10], and consumer lenders bought large volumes of non-performing loans from financial firms and earned profits on them, entrenching mechanical extension of statutes of limitations and long-term collection ^[11]. Han Jae-joon, a professor at Inha University, said that in the U.K. and the U.S. "there is a strong culture in which the original lender holds the claim to the end and collects on it," while in Korea "malicious handlers emerged" once consumer lenders took over collection ^[12].

The fiscal watchdog has made the repetition point. In a recent report on inclusive finance, the National Assembly Budget Office warned that "government-led debt cancellation or large-scale fund purchases repeated at every crisis can weaken the will to repay," and called for a debt-restructuring system that raises the effectiveness of financial firms' preemptive management of delinquent loans and of ongoing restructuring ^[13][14]. It named three such vehicles: the Happiness Fund, the Fresh Start Fund and the New Leap Fund ^[15], which makes the current fund the third round of the same instrument ^[21].

The lender-side model has a template. In the United States and the United Kingdom, when private institutions or nonprofits assess a vulnerable borrower's capacity to repay and open restructuring talks, creditors are highly receptive, according to accounts cited in the report ^[16]; a financial industry figure who has studied debt-restructuring systems pointed to the U.K. Financial Conduct Authority using guidelines under its consumer protection duty to regulate creditors ^[17].

Financial authorities are reviewing additional measures under the plan for long-term delinquent borrowers, according to financial industry sources ^[18]. The thing to watch is whether those measures buy more claims or write rules for the firms that hold them, and whether anything addresses the repayment-will concern the budget office raised ^[14][18].