![President Lee Jae Myung listens to participants during a ministry briefing held at Cheong Wa Dae's Yeongbingwan on Tuesday. [Yonhap]](https://wimg.heraldcorp.com/news/cms/2026/08/05/rcv.YNA.20260804.PYH2026080417710001300_P1.jpg)
Gov't funneled loans instead of direct aid during COVID, leaving debt burden on individuals
Fund head says about 100 trillion won in debt was shifted onto individuals; calls for bolder action
New Start Fund has processed 32.55 trillion won in claims; extension and principal relief in focus
President Lee Jae Myung said Tuesday that the government, rather than providing direct fiscal support to small business owners and the self-employed during the COVID-19 pandemic, responded by flooding them with loans — effectively shifting the debt burden onto individuals. With estimates of roughly 100 trillion won ($70 billion) in transferred debt raised during a ministry briefing, attention is now turning to whether next year's budget will include additional debt-relief measures.
According to government and financial industry sources, Lee raised the issue of self-employed debt at a Ministry of SMEs and Startups briefing held Tuesday at Cheong Wa Dae's Yeongbingwan, pressing Korea Small Business and Market Service President In Tae-yeon on the repayment and maturity-extension status of COVID-19 policy loans.
"The credit standing of the self-employed deteriorated sharply during COVID-19," Lee said. "Aren't policy loans from that period still being rolled over?"
In said the agency had operated an installment repayment program for small business owners struggling to repay — extending repayment periods by two years and cutting interest rates by 1 percentage point — and that demand was so strong that about 95 percent of the funds prepared had been disbursed.
Lee then took aim at how the government had responded during the pandemic. "The government didn't actually provide support back then — it responded by extending loans," he said. "Other countries had their governments provide direct support and bear the burden at the national level, but we handled it through loans and, in that sense, placed the responsibility on individuals."
He then asked In whether anyone had ever estimated the scale of debt left on individuals — the amount that should have been provided as direct support, as other countries did, but was instead converted into loans.
"At the time, there was talk that if the government had provided about 100 trillion won in direct support, it could have stabilized the situation to some degree," In said. "It's a shame we weren't bolder with support back then."
Lee also addressed the current situation facing the self-employed. "Small business owners are struggling terribly under their debt burden, and neighborhood commercial districts keep deteriorating," he said. "We need to think seriously about whether this debt should continue to be left entirely as the individual's responsibility."
The remarks are expected to prompt discussions among related ministries over how much responsibility the government should bear for debt incurred by the self-employed during COVID-19. The key question is whether the government will go beyond maturity extensions and interest rate cuts to include additional measures — such as principal reductions or expanded long-term installment repayment plans — in next year's budget.
At the center of current debt-relief efforts for small business owners and the self-employed is the New Start Fund, a Financial Services Commission initiative. The program extends repayment periods and lowers interest rates for those struggling to repay COVID-era loans, and offers partial principal reductions for borrowers in default.
"The New Start Fund — the government's debt-restructuring program for small business owners and the self-employed, which extends repayment periods and adjusts principal — is currently in operation," In said. "However, the program is set to end this year, and I don't think it should."
According to Korea Asset Management Corp. and the Credit Counseling and Recovery Service, cumulative applications to the New Start Fund stood at 206,152 as of the end of June, with total claimed debt of 32.55 trillion won. Of those applicants, 141,821 had signed debt-restructuring agreements covering 12.88 trillion won.
Given that the president directly raised the issue of self-employed debt at a ministry briefing, follow-up discussions among related ministries appear inevitable. Attention is also focused on whether the Ministry of SMEs and Startups, the FSC and the Ministry of Economy and Finance will recalculate the outstanding balance of COVID-19 policy loans and commercial bank debt, and factor the necessary funding into next year's budget.
"Simply rolling over maturities repeatedly may only delay the repayment date for borrowers," an official from the small and medium-sized enterprise sector said. "There is a need to differentiate — providing long-term installment repayment support for viable businesses, while pairing that with principal adjustments for vulnerable borrowers who have lost the ability to repay."
hong@heraldcorp.com
