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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (1844)	2/1/1998 6:49:00 PM
From: Rational	Read Replies (1) \| Respond to of 9980

Zeev: This will shift the onus of taking currency devaluation risks to the creditors from the borrowers, and guess what, credit for borrowers in developing countries (where such currency risks are higher) will dry overnoight, precipitating a world wide drying of lending. This will be far better than the current crisis, IMO. The SE Asian corporations have the leverage and so they should force the lenders accept whatever the companies can pay. [The option to default is a valuable put option that equityholders have in effect bought from lenders at the time of taking the loan; equityholders can now exercise that option as per law.] In the wake of the Great Depression, the US enacted a law (upheld by the Supreme Court) to force banks (lenders) to accept from US borrowers devalued US$ for loans that were made in terms of the gold standard -- that requirement was the beginning of a recovery of the US economy. This law did not dry up fresh lending in the US. Lenders are basically crooks when they advocate for a free-market economy as long as they can squeeze the borrowers for profits and lobby for government intervention when the borrowers cannot pay. Lenders were proposing that Korean and Indonesian governments takeover the corporate debt. What a joke! Could they say the same thing in the US and the developed world? Even the US Congress would not want to fund the IMF if the lenders were to be bailed out. Eventually, lenders of SE Asian companies will get (rightly so) a lot less than lent -- the reduction is the price for exiting en masse and for not monitoring before lending. I think the lenders will learn from their corporate lending mistakes and mass exit from SE Asia. It is a classic example of market failure. The corporate loans should be left to borrowers and lenders to negotiate. But, given the pressure on the local currencies, a starting point could be to restructure re-normalized debt at a rate, say, 5000 Rp agreed upon between IMF and Indonesia. I am eagerly waiting for the outcome. An Ex-Director from the Bank of England is helping Indonesia. Sankar