Debt-ridden Asian corporates fight to cut losses

Debt-ridden Asian corporates fight to cut losses

SINGAPORE (AFP): Asian corporates buried under a mountain of
U.S. dollar-denominated debt are unwittingly pulling down their
own currencies as they race to repay their ballooning loans by
year-end, analysts said Tuesday.

Most Southeast Asian currencies have weakened rapidly over the
last few weeks against the U.S. dollar, attributed largely to
buying of the greenback by debt-ridden corporates servicing their
foreign loans, the analysts said.

"The currencies have weakened partly due to the U.S. dollar
demand which is caused by the year-end phenomenon of repatriation
of funds back home," said Vincent Low, fixed income strategist at
Merrill Lynch in Singapore.

He said that amid a very thin foreign exchange market at
present, "this seasonal demand for dollars at the end of the year
will exaggerate foreign exchange movements, giving a snowball
effect to the debt and currency problem. "

"The debt situation in the region is really a big worry. With
lack of liquidity in the foreign exchange market, a scramble by
corporates for dollars now is only aggravating the situation,"
said Jimmy Koh, regional economist with British financial house
IDEA.

The Indonesia rupiah, the Philippine peso and the Thai baht
dived to yet another series of record lows against the U.S.
dollar Tuesday while other Asian currencies remained under
pressure.

Southeast Asia has been hit by a currency contagion since the
de facto devaluation of the Thai currency on July 2.

Since then, the U.S. dollar has appreciated 137 percent
against the rupiah, while gaining 92 percent on the baht, 54
percent on the peso and the Malaysian ringgit, and 19 percent on
the Singapore dollar.

The South Korean won has lost some 50 percent of its value
against the dollar in the past month, dropping to a low of
1,891.40, but recovered over the past two days.

There are no indications of a halt to the Asian currency
mayhem, and the foreign debts incurred by Asian corporates would
soar to levels that could force a debt moratorium like that
imposed in Latin America in the 1980's, analysts said.

Under the moratorium imposed in Latin America, the central
banks coordinated all key foreign exchange related activities of
the respective economies and sat down with major creditors and
worked out loan repayments, they said.

Although many in the past had ruled out a Latin American
scenario for Asia, developments of late indicate that the region
could suffer a similar fate.

The 137 percent gain of the U.S. dollar on the rupiah was
nearing the greenback's 160 percent rise to the Mexican peso in
1995, analysts said.

"If it means continued pressure on the Asian currencies and
for instance the rupiah falls beyond 6,000 (against the U.S.
dollar), it calls for more urgent measures as it will be a
tremendous cost to pay (in terms of corporate debt)," Low said.

He quoted a report by the Bank for International Settlements
(BIS) which listed short-term private sector debt in Thailand,
Indonesia and Malaysia at $42 billion, 3$7 billion and $14
billion respectively at the end of 1996.

The amounts were owed to banks reporting to BIS, which is
basically the central bank of the world's central banks, from the
non-banking private sector in these countries, he said.

South Korea is the largest debtor in Asia, with an estimated
$120 billion in public and private debt due next year, analysts
said.

"The pressure is definitely there for a debt moratorium (in
Asia). While countries do not have much U.S. dollars around, the
high interest rates that are prevailing in the region is also
causing a squeeze on domestic currency," Koh of I.D.E.A. said.

The BIS said in a report earlier this month that the structure
of international lending to Southeast Asia in the 1990's had been
markedly different from lending to Latin America and this
explained why the repercussions have a broader potential than
Mexico's peso crisis in 1995.

Southeast Asian economies have predominantly borrowed from
banks to finance growth, but Latim America had raised money by
issuing securities, such as bonds.