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19-03-2020, 11:02 PM
I happen to come across an article that the Rupiah depreciated 8% against the USD recently, and is the worst performing currency in Asia. I asked myself, why is this so. Then, I recalled that Geo Energy issued bonds in USD.
Without any numbers to back it up, if my guess is not wrong, a lot of Indonesian companies have issued debt in USD, to take advantage of the cheap rates compared to if the debt were to be priced in Rupiah. The issue would come when the USD were to surge in value relative to the Rupiah, then there might be a vicious cycle of decreasing IDR/USD, leading to defaults and bankruptcies.
What I am trying to say is, investing in developing countries has to take into account of macro aspects as well. It is not only about political stability.
If I didn't recall wrong, there was a similar incident whereby tons of companies in a developing country issued debt in USD, eventually leading to mass default and substantial currency depreciation when the USD rose. Can't recall if that was during the Asian Financial Crisis. Would be great if someone could point it out.
Without any numbers to back it up, if my guess is not wrong, a lot of Indonesian companies have issued debt in USD, to take advantage of the cheap rates compared to if the debt were to be priced in Rupiah. The issue would come when the USD were to surge in value relative to the Rupiah, then there might be a vicious cycle of decreasing IDR/USD, leading to defaults and bankruptcies.
What I am trying to say is, investing in developing countries has to take into account of macro aspects as well. It is not only about political stability.
If I didn't recall wrong, there was a similar incident whereby tons of companies in a developing country issued debt in USD, eventually leading to mass default and substantial currency depreciation when the USD rose. Can't recall if that was during the Asian Financial Crisis. Would be great if someone could point it out.