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

Ken Miyajima, Jorge Chan-Lau, Weimin Miao () and Jongsoon Shin ()
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Weimin Miao: National University of Singapore
Jongsoon Shin: International Monetary Fund

Asia-Pacific Financial Markets, 2017, vol. 24, issue 4, No 2, 269-289

Abstract: Abstract 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.

Keywords: Corporate sector; Bottom-up default analysis; Default risk; Scenario analysis; Simulation; Indonesia; Hazard rate models (search for similar items in EconPapers)
JEL-codes: C52 C63 G10 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10690-017-9233-2

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