US Gov’t Shutdown
The US federal government has been shut down due to the failure to deliberate on the budget bill for next year. It is expected to face its first sovereign default unless it adjusts its public debt ceiling upward by October 17 from the current amount of US$16.7 trillion.
Under the circumstances, experts are saying that Korea cannot be at ease with the combined liabilities of the household, corporate, and government sectors, approximately 3.800 quadrillion won (US$3.549 trillion) in total, amounting to three times the national GDP. Financial industry insiders forecast that the Korean economy cannot but be affected if the shutdown extends over a long period of time to cause a decrease in domestic consumption.
In addition, if the shutdown leads up to the debt ceiling negotiations scheduled for October 17, the impact could hit the entire global economy. In this case, Korea is predicted to take an especially serious hit due to its high dependence on exports to the US market. The fact that the amount of debts is skyrocketing is increasing the possibility of Korea being in the same boat as the United States, too.
According to the Bank of Korea, the total debts amount to 3.7394 quadrillion won (US$3.4926 trillion) as of the end of the second quarter, divided into 1.1822 quadrillion won (US$1.1042 trillion) in the household sector, 2.0393 quadrillion won (US$1.9047 trillion) in the corporate sector, and 517.9 trillion won (US$483.7 billion) on the government. The record-high amount is equivalent to 289.8% of the country’s GDP of 1.2906 quadrillion won (US$1.2054 trillion) between Q3 2012 and Q2 this year.
In particular, the debt-to-GDP ratio soared from 131.4% to 158.0% in the corporate sector between Q2 2003 and Q2 2013. The total liabilities of the 30 largest business groups in Korea are estimated at approximately 574.9 trillion won, which is 83.2% higher than the sum recorded in late 2007 before the Asian financial crisis in 2008. Likewise, the debt-to-GDP ratio jumped from 72.8% to 91.6% for households and from 18.2% to 40.1% for the government during the same period.
Economists are pointing out that the liabilities could trigger a new crisis to the point of a sovereign default as seen in the United States. “Although the figures are slightly different among agencies, there is no doubt that the debt problem is critical,” said one of them, adding, “The government has to come up with a solution immediately.”
However, the government’s official stance is that its debt-to-GDP ratio is still at an acceptable level. According to its data, the ratio of Korea’s sovereign debts to its GDP for this year is 36.2%, and much lower than the OECD average (108.8%), and that of the United States (106.3%), Japan (219.1%), Germany (89.2%), and Britain (103.9%).