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Strategies & Market Trends : Asia Forum
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To: Stitch who wrote (694)1/18/1998 3:03:00 PM
From: Rational   of 9980
 
Hi Stitch:

I am very late to get to your message.

I just made a post on Indonesia as to what I see could/should be done by parties (Japanese/Korean/German banks) who expect to lose their loans to Indonesian corporations.

The real problem (as I visualize) can be illustrated as follows:

* A Singapore bank (SB) lends US$3 to an Indonesian corporation and immediately shorts Rp7500 in July 1997 at the exchange rate of Rp 2500 per US$.

* When the Rp plummets to Rp7500/US$, the SB covers his short using 1 US$; posting a profit of 2 US$ plus the interest on the loan of US$ 3 minus the interest on Rp.

* The SB looks very smart on paper and its stock value balloons.

* The negative sentiment about the socio-political situation in Indonesia (with constant rumors spread by short-sellers) make Rp fall on thin trade.

Unfortunately, however, the SB is not likely to get back US$3 from the Indonesian corporation. This is why the stock prices in HK and Singapore (especially of banking companies) have fallen more rapidly than expected; all their loans to SE Asia have gone bust due to a crisis they participated in creating by heavily short-selling the SE Asian currencies. This is now a prisoners' dilemma. These banks will have to do the reverse process (by buying SE Asian currencies) and take losses. Indonesia has taken a very smart stand to not guarantee or assume the corporate debt.

Sankar
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