RI firms vulnerable to debt meltdown: Foreign analyst

RI firms vulnerable to debt meltdown: Foreign analyst

HONG KONG (Reuter): Concern is mounting that Indonesian
corporations will soon hit a debt wall despite Thursday's rate
cut, worsening the outlook for the nation once credited with
Southeast Asia's most credible currency policy.

"It's hard to get good information but I think there is a
generalized expectation that there is going to be a fair amount
of pain in the corporate sector in Indonesia," said Lynn Exton,
fixed income analyst at Merrill Lynch.

Indonesia is grabbing more and more attention as a potential
debt crisis candidate from among the victims of Southeast Asia's
financial markets meltdown.

And, following in Thailand's footsteps, Indonesia's debt
crisis was seen as being private, not public, in nature.

Indonesia's vulnerability to Southeast Asia's economic
meltdown is ironic given its initial immunity from currency
contagion ignited by sudden devaluations in Thailand and the
Philippines in early July.

For days, the Indonesian rupiah remained steady, with the
central bank widening its trading band and carefully avoiding the
havoc spreading through the region. But soon rates were rising
and the rupiah falling as the crisis spread throughout Southeast
Asia and beyond.

High interest rates to support the rupiah caught Indonesian
corporates by surprise, forcing them to hedge foreign denominated
liabilities after years of inaction thanks to the government's
policy of steady rupiah depreciation.

Indonesia won further recognition for sound economic
management on Thursday, when it lifted restrictions on foreign
investment in its stock market and cut interest rates to counter
persistent market uncertainty.

But the country still remains among the region's most
vulnerable to an economic meltdown because its unhedged, foreign
denominated debt position is so huge.

Specific information is hard to come by in a region renowned
for poor disclosure, but the Indonesian corporates are believed
to have borrowed far more in foreign denominated currency than
those in the Philippines and Malaysia.

In an odd twist of events, foreign investors appear to feel
reasonably confident about the Philippines, once the sick man of
Asia but now something of a safe haven thanks to its experience
with debt restructuring.

Malaysia does not seem to have that much foreign denominated
debt outstanding, said Exton.

And the situation in Thailand, recognized as the most
vulnerable Southeast Asian economy and the catalyst for the
currency havoc now roiling the entire region, has become much
clearer after the International Monetary Fund's involvement.

"I would say Indonesia is in much worse shape because the
corporate sector there has probably been generally unhedged in
terms of FX (foreign exchange) exposure, and probably has been
quite hit by the combination of the devaluation of the currency
and very tight liquidity in the financial sector," said Exton.

Timing has now become the issue, with some foreign analysts
worrying about another external shock that could send corporates
waiting for rates to drop helter-skelter into bankruptcy.

"I think it'll happen soon," said Eric Nickerson, currency
analyst at Bank of America. "The worrying thing is the extent to
which markets remain volatile, people will not hedge...which
means it'll linger. Any other shock to the system, maybe an
external one (such as a U.S. rate increase), and they'll get
whammoed again."