Economic and financial context
From the Selected Issues document, chapter 2:
While overall corporate sector risks in Indonesia appear manageable, some corporates are facing higher risks including exchange rate, refinancing, or default, with possible spillovers to the banking system. With a slowing economy and a weakened rupiah, corporate balance sheets are expected to provide smaller buffers against negative macroeconomic shocks going forward. This paper assesses corporate sector vulnerabilities. It first describes the current situation in the corporate sector, and then projects corporate default probabilities under different macroeconomic scenarios. Results from the scenario analyses suggest that if economic growth slows sharply and recovers only slowly, the default probabilities of domestic firms could rise to levels comparable to those during the Global Financial Crisis. While this is a low-probability scenario, policy makers should continue to closely monitor vulnerabilities and step up effort to strengthen contingency plans.
An extended version of the Selected Issues Paper was published in the Nov. 2017 issues of Asia-Pacific Financial Markets
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