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

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Assessing Corporate Vulnerabilities in Indonesia : A Bottom-Up Default Analysis
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Volume/Issue:
2017/97
Series:
IMF Working Papers
Author(s):
Jorge Chan-Lau, Weimin Miao, Ken Miyajima, and Jongsoon Shin
Publisher:
INTERNATIONAL MONETARY FUND
Published Date:
April 2017
DOI:
http://dx.doi.org/10.5089/9781475595130.001
ISBN:
9781475595130
ISSN:
1018-5941
Page:
22
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.
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