Some Asian economies, faced with corporate debts which have more than doubled, may consider a moratorium on debt repayments, analysts said yesterday. A debt moratorium would be a last resort for the beleaguered Asian nations, as it could make the region a fiscal outcast for years. At the same time it might be the only device to save the industrial base of once buoyant Asian "tigers".
Speculation about a moratorium - with Indonesia the likely frontrunner - circulated among economists and investors as collapsing Asian currencies inflated the cost of overseas borrowing to levels with which governments and companies could not cope, Reuters in Singapore reported.
Currencies throughout Asia plunged to new lows for the fourth consecutive day. Analysts said the reason was heavy dollar demand from companies and investors amid poor liquidity. Some recovered in late trade as expectations of concerted central bank action halted the scramble for dollars.
Hong Kong shares were shaken by the renewed fall in currencies and a rise in inter-bank rates and closed sharply down. The blue chip Hang Seng Index ended 5.89 percent down at 9,538.61, well below the psychological 10,000 barrier. Last year's hot-selling China-related shares also hit new lows.
The Indonesian rupiah fell at one point to a record low of 8,450 to the US dollar after disappointment over its budget on Tuesday. The currency was also hit by comments in the Washington Post by International Monetary Fund (IMF) officials that Indonesia's economic crisis was "worrisome" and that Jakarta had failed to follow through on pledges to restructure the economy.
Chiang Yao Chye, Head of Asia Pacific Research at CIBC in Singapore, said: "The question is whether the (Indonesian) government is going to be assuming the corporate sector debt. If there is some form of bail-out programme or some form of a roll-over agreement where the government gives guarantees on corporate debt then, if the situation worsens, the chance of a moratorium becomes very real."
Analysts said the rupiah could well go beyond 10,000, making Indonesia's dollar debts too great for the government to follow Thailand and South Korea and guarantee corporate debt. A series of industrial failures would severely damage the economy and the prospect of growth. The $40 billion IMF rescue package for Indonesia may not now be enough to service the growing debt mountain.
"The risk of a moratorium is much higher the further the currency weakens," Mr Chiang told Reuters. Another broker said that "investors were unnerved by news reports that the IMF criticised Indonesia's restructuring, and towards the close, rumours that Indonesia would soon declare a moratorium began circulating."
The Thai baht recovered from below the 53.00 level to the dollar after Finance Minister Tarrin Nimmanahaeminda said the government would move to curb currency speculation tomorrow.
In South Korea, an appeal for people to hand over their gold to help buy dollars resulted in the collection of seven tonnes yesterday, bringing the total to 17 tonnes worth $170 million since the appeal began on Monday, according to the state-run Korea Broadcasting System.
The Housing and Commercial Bank, a key sponsor of the campaign, said gold items carrying an official appraisal stamp of at least 97 per cent purity would be accepted.
Since Monday, South Koreans have queued to sell rings bracelets, coins and other gold articles. World spot gold prices tumbled to new 18-year lows on fears of a flood of bullion from South Korea.