Assessing Corporate Vulnerabilities in Indonesia: A Bottom-Up Default Analysis

By Jorge A Chan-Lau, Weimin Miao, Ken Miyajima, Jongsoon Shin

April 26, 2017

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Jorge A Chan-Lau, Weimin Miao, Ken Miyajima, and Jongsoon Shin. Assessing Corporate Vulnerabilities in Indonesia: A Bottom-Up Default Analysis, (USA: International Monetary Fund, 2017) accessed December 3, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Under adverse macroeconomic conditions, the potential realization of corporate sector vulnerabilities could pose major risks to the economy. This paper assesses corporate vulnerabilities in Indonesia by using a Bottom-Up Default Analysis (BuDA) approach, which allows projecting corporate probabilities of default (PDs) under different macroeconomic scenarios. In particular, a protracted recession and the ensuing currency depreciation could erode buffers on corporate balance sheets, pushing up the probabilities of default (PDs) in the corporate sector to the high levels observed during the Global Financial Crisis. While this is a low-probability scenario, the results suggest the need to closely monitor vulnerabilities and strengthen contingency plans.

Subject: Corporate sector, Currencies, Economic sectors, External debt, Financial regulation and supervision, Foreign exchange, Hedging, Money

Keywords: Bottom-up default analysis, BuDA framework, Corporate sector, Corporates manage currency risk, Currencies, Default probability, Default risk, FX debt, Global, Hazard rate models, Hedging, Heightened debt risk, Indonesia, Interest rate, Rollover Needs, Scenario analysis, Simulation, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/097
Stock No:

WPIEA2017097
ISBN:

9781475595130
ISSN:

1018-5941

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