It appears banks and corporations were part of this decision. They decided to wipe the debt on their own, urged by the government.
We're talking about poor people who are very likely unable to pay off their debt. Why? It only applies to people whose monthly income is $138, try paying your rent, food etc on that, and then pay off a debt whose interest alone would already be a significant chunk of your monthly income.
Interest rates already account for these risks and banks have largely already written off these loans as money that won't be paid back. The notion that these were awesome loans that would get paid back and suddenly get cancelled just isn't true. Which is why interest rates aren't likely to skyrocket and why they don't constitute losses, they have already materialized even if the debt isn't cancelled.
Talks of the poor being burdened by taxes the hardest, come on. First, it's just 0.75% of debt. Second, the revenue on this is minimal. If you borrow $100 at a 10% interest rate that's $10 of interest revenue (the rest is principal paid back), and that $10 interest revenue is then taxed at say 20% capital gains tax. So if 0.75% of the debt is cancelled, that's only 0.015% lost tax revenue from debt, it's not going to cause any national tax disasters for the poor. Especially because, again, these loans weren't going to get paid off anyway, it doesn't change much in extra losses.
On the contrary, cancelling 0.75% of the debt makes 20% of the indebted debt-free. They become economic actors again, who previously had no access to their bank account and no room to make personal investments into education or small enterprise. Things you mentioned like sex slavery are more likely to drop because of this than anything else.
Lastly, your point on smart/stupid borrowing, we're talking about a country which was extremely hard-hit by the crisis, one which the PhDs and CEOs at the top financial institutions didn't see coming any better than the world's dumbest person. We mustn't assume 20% of the indebted people who will become economic actors again were borrowing for gambling, it seems like a lot of these people have been put into economic paralysis due to a crisis just like the large financial institutions, yet the large corporations and banks got bailed out and they weren't. And they're in no position to pull themselves out of this with a blocked off bank account and less than $138 in monthly income.
So what's the solution? Ask corporations to do the right and smart thing: write-off 1% of your debts that you had already written off anyway, turn 20% of your debtors into economic actors again who regain buying power, start businesses and participate in the economy, get good will from the public and government and get your country on the road again.
I fully appreciate that this isn't black and white and there are definite cons, but it seems to me to be a positive decision on aggregate.
I think it helps to see it as an investment. Imagine you take 0.75% of your debt, the bottom 0.75% that was extremely likely to ever get paid off, the part that was already part of your cashflow and solvency modelling and whose likely potential losses have already been accounted for.
Then take that amount, and go to the board and say, we can invest this amount, buy legal good-will from the government, buy good-will/marketing from our national customer base, and we get access to a new market increasing our long-term customers by a substantial percentage (20% of its debtors). The cost? Just forgo 0.75% of the debt that wasn't actually going to make us much money anyway.
That's why corporations chose this themselves, it's not a bad idea for them.
Or, keep bank accounts frozen for 20% of the indebted people who got hit by the financial crisis and make $138 a month, bail out financial institutions, and try to run a country where a significant portion of your population are so paralyzed by debts that they turn to sources of income which won't be taxed or absorbed immediately by debt-payback, the type of jobs paid in cash, the criminal kind, the exploitative kind, the kind that's not taxed, that doesn't create jobs or small to medium sized enterprises, the kind that increases costs of policing and regulations, the kind that increases the class divide and pits people against each other. And do exactly to the poorest (leave them to figure it out by themselves) what we weren't willing to do to our largest companies (who we bailed out because it made more sense than to let things crash and burn out of a fetish for non-interventionism market principles right after an economic crisis.