During her presidential campaign, President-elect Park Geun-hye promised to write down the debts of some 3.2 million people by setting up an 18-trillion-won fund, dubbed the National Happiness Fund.

At the center of her scheme lay the Korea Asset Management Corp., a state-run agency specializing in resolution of non-performing loans acquired from financial institutions. KAMCO was supposed to secure 1.8 trillion won in seed money and issue bonds, as allowed by law, 10 times the amount of that seed money.

Park’s campaign team said the scheme could be implemented without any funding from the central government as KAMCO would be able to secure the seed money on its own.

According to the team, KAMCO had 870 billion won available in the Credit Recovery Fund and another 300 billion won in the NPL Resolution Fund, and would be able borrow the remaining 700 billion won from financial institutions.

But the team seems to have miscalculated. According to reports, the Financial Supervisory Commission told the presidential transition team during its briefing on Tuesday that KAMCO would need an injection of state funds amounting to 700 billion won to raise the required seed money.

The FSC pointed out, for instance, that the Credit Recovery Fund, which was launched in 2008 with 700 billion won in assets, had only 550 billion won left as KAMCO tapped into it to write off the debts of the beneficiaries of the government’s livelihood security program.

The FSC must have been aware of the big hole in Park’s funding scheme earlier. In a yearend press conference, FSC Chairman Kim Seok-dong expressed his opposition to the use of public funds to bail out indebted people, saying that the household debt problem was not in a bad enough situation as to justify a large-scale government bailout program.

Now, the transition team is in a bind. To keep Park’s campaign promise, the government will have to provide 700 billion won in state funds to KAMCO. But if it does so, it will face criticism for using state funds to salvage indebted households.

From the beginning, Park’s debt write-down scheme caused concern as it could encourage moral hazard among people in debt over their heads. One of its justifications was that it would not rely on state coffers.

To avoid reliance on the government budget, Park will have to scale back the size of the proposed fund. The FSC reportedly recommended this option to the transition team, but this will be hard to swallow for Park as she values promises above all else.

Given the magnitude of household debt ― estimated at about 940 trillion won as of last September ― the government needs to make serious efforts to tackle the problem. But it should be cautious in using public funds because it involves many problems.

In addition to the problem of moral hazard, there is an issue of fairness. Any bailout attempt for indebted households would cause backlash from people who have been faithfully servicing their debts.

This point should be kept in mind when the next government seeks to address the financial difficulties facing the “house poor,” another side of the household debt conundrum.