In my view the authorities will succeed in stabilizing the rupiah, at least for a little while. The likelihood of instability has risen. Korea's situation is the virtually the same. A huge overhang of external debt is pressuring the currency. Thailand, Indonesia, Korea and now Malaysia must deal with bad banks and finance companies.
Closure is politically difficult.
But if insolvent institutions cannot be closed, taxpayers are likely to replace shareholders when losses are allocated. The specter of a socialization of private external debt looms. If it comes to that, the pressure on the currency will continue, and the GDP forecasts will need to be revised downward, again. This memorandum is based on information generally available to the public from sources believed to be reliable. No representation is made that it is accurate or complete.