High interest rates may threaten firms
High interest rates may threaten firms
JAKARTA (JP): High domestic interest rates and tight liquidity
caused by the currency crisis may seriously threaten the credit
quality to Indonesian companies, Standard and Poor's rating
agency says.
Its corporate ratings director Chris Legge said in a statement
that the most serious threat to Indonesian firms was not their
inflated currency borrowings but two other factors.
"Probably the most serious threat to credit quality for most
companies is likely to come from either high domestic interest
rates or scarce liquidity," Legge said in the October edition of
Standard and Poor's monthly Asia Focus.
Some borrowers in the corporate sector have been exposed to
the devaluation effect because of their foreign currency
borrowings, although most firms with offshore loans had adequate
foreign exchange revenue to lessen the devaluation effect, he
said.
He said the key factor for Indonesian firms at the moment was
to be in a strong enough position to cope with the recent rupiah
devaluation.
The rupiah and other Southeast Asian currencies dropped
sharply against the U.S. dollar, following the de facto
devaluation of the Thai baht on July 2.
The rupiah suffered most in the region, collapsing about 35
percent against the greenback, followed by the Philippine Peso,
26 percent, and the Malaysian ringgit, 21 percent.
Standard and Poor's corporate ratings director for the Asia
Pacific, Robert Richards, said the outlook for many corporations
in the crisis-plagued Southeast Asian economies was generally
positive, despite the currency depreciation and bankruptcies of
some highly leveraged companies.
"The outlook for many corporates is still generally a stable
one, and the prospects still seem good that they will be able to
increasingly access the international capital markets," Richards
said.
He said the current economic volatility in the region
reflected the normal peaks and troughs that most economies
experience, but was also symptomatic of the need to improve some
of the physical and legal infrastructures in many markets to be
more efficient in the use of capital.
This included eliminating bottlenecks that existed in some
Asian economies because of inefficient or unreliable
infrastructure services, such as transport or utilities, he said.
Governments must also improve the financial, legal and
regulatory frameworks that are important to making sound
commercial and credit decisions, he said.
This meant introducing better lending practices, information
disclosure and more available objective company analyses, he
said. (das)