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

Jorge Chan-Lau, Weimin Miao, Ken Miyajima and Jongsoon Shin

No 2017/097, IMF Working Papers from International Monetary Fund

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: WP; interest rate; Corporate sector; bottom-up default analysis; default risk; scenario analysis; simulation; Indonesia; hazard rate models; rollover Needs; FX debt; corporates manage currency risk; BuDA framework; default probability; heightened debt risk; Hedging; Currencies; Global (search for similar items in EconPapers)
Pages: 22
Date: 2017-04-26
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Citations: View citations in EconPapers (2)

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