Corporate Distress in East Asia: The Effect of Currency and Interest Rate Shocks
Author: Stijn Claessens, Simeon Djankov, and Giovanni Ferri Date: 1/1/1999 (PDF, 200KB)
A study of the five countries most affected by the East Asian financial crisis shows that more than 60 percent of firms are illiquid and 30 percent are technically insolvent. Among solvent firms, about half are at risk of insolvency unless their liquidity constraints are relieved. Worst affected is Indonesia, with 77 percent of firms illiquid and 65 percent insolvent, followed by Korea and Thailand. Extrapolations using these findings suggest that nonperforming loans in the five countries could amount to 7 to 30 percent of GDP-and nonperforming assets to more than a third of their combined GDP.