RI firms vulnerable to debt meltdown: Foreign analyst<\/p>\n
HONG KONG (Reuter): Concern is mounting that Indonesian
\ncorporations will soon hit a debt wall despite Thursday's rate
\ncut, worsening the outlook for the nation once credited with
\nSoutheast Asia's most credible currency policy.<\/p>\n
\"It's hard to get good information but I think there is a
\ngeneralized expectation that there is going to be a fair amount
\nof pain in the corporate sector in Indonesia,\" said Lynn Exton,
\nfixed income analyst at Merrill Lynch.<\/p>\n
Indonesia is grabbing more and more attention as a potential
\ndebt crisis candidate from among the victims of Southeast Asia's
\nfinancial markets meltdown.<\/p>\n
And, following in Thailand's footsteps, Indonesia's debt
\ncrisis was seen as being private, not public, in nature.<\/p>\n
Indonesia's vulnerability to Southeast Asia's economic
\nmeltdown is ironic given its initial immunity from currency
\ncontagion ignited by sudden devaluations in Thailand and the
\nPhilippines in early July.<\/p>\n
For days, the Indonesian rupiah remained steady, with the
\ncentral bank widening its trading band and carefully avoiding the
\nhavoc spreading through the region. But soon rates were rising
\nand the rupiah falling as the crisis spread throughout Southeast
\nAsia and beyond.<\/p>\n
High interest rates to support the rupiah caught Indonesian
\ncorporates by surprise, forcing them to hedge foreign denominated
\nliabilities after years of inaction thanks to the government's
\npolicy of steady rupiah depreciation.<\/p>\n
Indonesia won further recognition for sound economic
\nmanagement on Thursday, when it lifted restrictions on foreign
\ninvestment in its stock market and cut interest rates to counter
\npersistent market uncertainty.<\/p>\n
But the country still remains among the region's most
\nvulnerable to an economic meltdown because its unhedged, foreign
\ndenominated debt position is so huge.<\/p>\n
Specific information is hard to come by in a region renowned
\nfor poor disclosure, but the Indonesian corporates are believed
\nto have borrowed far more in foreign denominated currency than
\nthose in the Philippines and Malaysia.<\/p>\n
In an odd twist of events, foreign investors appear to feel
\nreasonably confident about the Philippines, once the sick man of
\nAsia but now something of a safe haven thanks to its experience
\nwith debt restructuring.<\/p>\n
Malaysia does not seem to have that much foreign denominated
\ndebt outstanding, said Exton.<\/p>\n
And the situation in Thailand, recognized as the most
\nvulnerable Southeast Asian economy and the catalyst for the
\ncurrency havoc now roiling the entire region, has become much
\nclearer after the International Monetary Fund's involvement.<\/p>\n
\"I would say Indonesia is in much worse shape because the
\ncorporate sector there has probably been generally unhedged in
\nterms of FX (foreign exchange) exposure, and probably has been
\nquite hit by the combination of the devaluation of the currency
\nand very tight liquidity in the financial sector,\" said Exton.<\/p>\n
Timing has now become the issue, with some foreign analysts
\nworrying about another external shock that could send corporates
\nwaiting for rates to drop helter-skelter into bankruptcy.<\/p>\n
\"I think it'll happen soon,\" said Eric Nickerson, currency
\nanalyst at Bank of America. \"The worrying thing is the extent to
\nwhich markets remain volatile, people will not hedge...which
\nmeans it'll linger. Any other shock to the system, maybe an
\nexternal one (such as a U.S. rate increase), and they'll get
\nwhammoed again.\"<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/ri-firms-vulnerable-to-debt-meltdown-foreign-analyst-1447893297",
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"sponsor": "Okusi Associates",
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