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.
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.
"Once equity has fallen below a certain threshold for a significant period of time, it triggers a suspension of debt payments and distorts incentives for equity holds and managers. But what is a significant period of time? You or I could pay a $10 million annual mortgage payment for a day or two but not two or three months. Similarly, owners and managers can withstand short periods of illiquidity or negative equity but not longer ones. At some point in time, the inability to meet obligations and perception of continued difficulties creates a system-wide breakdown in debt payments." The relationship between the corporate sector and a country's macroeconomy is receiving increased attention from policymakers and investors, especially those affected by the Asian crisis. Recent crises have pointed out the importance of improving our understanding of the links between the corporate sector, the financial sector, and the macroeconomy in a world of volatile capital flows. Assessing the vulnerability of the corporate sector and its links to financial and exchange rate crisis is important for both improved surveillance and in the design of policies in crisis countries. However, the analytical and operational tools available to policymakers and investors to analyze this problem have been limited. This Technical Paper was prepared as part of an initiative to develop new frameworks which can integrate state-of-the art corporate finance principles, macroeconomic, and financial sector analysis. An innovative yet practical framework is provided which has numerous applications for assessing corporate sector vulnerability, design of corporate restructuring strategies, as well as financial sector and macroeconomic policies. It will be of interest to bankers, economic policymakers, corporate finance specialists, and macroeconomists.
This paper focuses on the selected issues of the Indonesian economy: (1) banking sector condition in India, (2) corporate vulnerabilities, (3) analysis of macrofinancial linkages in Indonesia, and (4) infrastructure development in Indonesia. Overall, the banking sector appears well capitalized and profitable. However, rising vulnerabilities from corporate foreign currency leverage and challenging financial market conditions have raised concerns. The risk from the corporate sector remains manageable, and the authorities have strengthened the monitoring framework. Macrofinancial linkages are analyzed using two complementary approaches: sector-level balance sheet analysis and a panel vector autoregressive approach. This paper addresses macrofiscal issues surrounding infrastructure development in Indonesia.
Analytical work on Indonesian macroeconomic and financial issues, with an overarching theme on building institutions and policies for prosperity and inclusive growth. The book begins with a 20-year economic overview by former Finance Minister Chatib Basri, with subsequent chapters covering diverse sectors of the economy as well as Indonesia’s place in the global economy.
Indonesia recovered quickly after being hit hard by contagion from the global financial crisis. Banking fundamentals have improved, with most Indonesian banks reporting high capital, comfortable levels of liquidity, and solid profitability. Banks exhibit rising credit exposures to retail and SMEs. The Crisis Management Protocol functioned well during the crisis, but it has lapsed. A viable capital market will diversify the sources of funding and provide long-term investment opportunities. The small insurance industry should be restructured and gradually expanded to broaden the institutional investor base.
Until recently, considerably more attention was paid to using forests to mitigate climate change, through the absorption of carbon dioxide (CO2) from the atmosphere, than there was on considering the need to adapt forests to avoid the worst effects that climate change could have on them. The switch from a mitigation-heavy approach to one that considers adaptation in a more balanced manner underscores the need to have approaches to assess the vulnerability of forests to climate change. One reason for this more balanced focus may be due to the realization by the broader public, governmental organizations and the forest science community that the climate change that has already occurred is permanent in human terms, because it takes centuries for much of the CO2 emitted from fossil fuel sources to be removed from the atmosphere. There are already substantial impacts that are being seen in the world’s forests. These impacts are certain to continue increasing until CO2 emissions drop to lower levels. For that reason, adaptation of the world’s forests requires attention. The approaches to assessing vulnerability can be categorized according to the focus they each provide. Contextual vulnerability addresses current issues of climate and is usually evaluated using participatory techniques with people who live in, or work with, forests. Outcome vulnerability looks at the biophysical vulnerability of forests; it is often used to assess the cause-and-effect of climate change on a biological system. Vulnerability assessments can be highly technical and quantitative, using advanced computer programs and geographic information systems, or they can be based on social science approaches to obtaining qualitative information from people.
Nowadays, the whole world faces frequent natural and anthropogenic hazards-from drought to flood to deforestation which impends a large number of people into catastrophic destruction and damage. Since natural hazards cannot be eliminated, quantifying these events and creating reliable forecasts can alleviate their detrimental effects which can help build a more resilient and safe society. This Research Topic will comply with the available knowledge of the multi-hazards in response to monitoring and management and intends to fulfil the gap between science, policy and the community concerned. It also focuses on the use of precision techniques, remote sensing, and GIS technologies for the quantification of various natural and environmental hazards along with the capacity and sustainable mitigation strategies for resilient societies.
This paper assesses the stability of Indonesia’s financial system. Since the 2010 Financial Sector Assessment Program, Indonesia’s macroeconomic performance has been robust and the financial system has been stable. Systemic risk is low and the banking system appears generally resilient to severe shocks. Market-based indicators point to relatively low levels of systemic risk. Under severe stress-test scenarios, banks experience sizable credit losses, particularly from corporate exposures, but high capital levels and strong profitability help absorb most of these losses. Many banks face relatively small shortfalls in liquidity stress tests, including in foreign currency, and these appear manageable for Bank Indonesia.
This document is designed to help researchers, practioners and all those interested in assessing the extent and scope of local people vulnerability to climate change, the responses they currently oppose and how efficient they are. Vulnerability has been studied through the lenses of different dimensions: system and exposure units, dynamic processes, multiple threats, differential exposure, and social capital and collective action. The purpose of this framework is to grasp the social (and ecological) dynamics in the system over the past decades, in order to identify future actions for reducing vulnerability and to enhance adaptive capacity. In addition, research approaches proposed in this document can serve as a platform for dialogue as such approaches give opportunities to communities to collectively discuss their common problems related to climate change and to initiate common responses necessary to building their social capital.
