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.