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

Author

Listed:
  • Mr. Jorge A Chan-Lau
  • Weimin Miao
  • Mr. Ken Miyajima
  • Mr. Jongsoon Shin

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.

Suggested Citation

  • Mr. Jorge A Chan-Lau & Weimin Miao & Mr. Ken Miyajima & Mr. Jongsoon Shin, 2017. "Assessing Corporate Vulnerabilities in Indonesia: A Bottom-Up Default Analysis," IMF Working Papers 2017/097, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2017/097
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    Cited by:

    1. Humala, Alberto, 2019. "Corporate earnings sensitivity to FX volatility and currency exposure: evidence from Peru," Working Papers 2019-021, Banco Central de Reserva del Perú.
    2. International Monetary Fund, 2017. "Japan: Financial Sector Assessment Program-Technical Note-Systemic Risk Analysis and Stress Testing the Financial Sector," IMF Staff Country Reports 2017/285, International Monetary Fund.

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    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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