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Corporate restructuring and reform : Lessons from East Asia

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Frame of Image implementation of policy responses and corporate distress resolution results for each country. Lastly, this overview draws some general lessons and makes specific recommendations for each of the four countries. Development of the Crisis In the years immediately preceding 1997, many corporations in Southeast Asia engaged in debt-fueled over-investment in low- or negative-return sectors, commercial and residential property being a particular culprit. As a result, returns on assets and investment declined, leverage increased, and interest coverage dwindled. By 1997-99, as illustrated in Figure I-1, 1 corporate liabilities/equity were about 4:1 in Korea, 3.8:1 in Indonesia, and 2.9:1 in Thailand. Average interest cover was about 1:1 in Korea and less than 3:1 in Indonesia and Thailand. Foreign or foreign-denominated borrowing – as high as 80 percent of corporate debt in the case of Indonesia – left local companies particularly vulnerable to interest or exchange rate shocks and contractions in demand. Malaysian companies were conservatively financed for the most part, but asset bubbles were apparent by 1997 in construction, diversified holdings, trade, and property.
The author is a senior specialist in the Private Sector Development unit of the World Bank’s East Asia and Pacific Region. The views expressed in this paper are those of the author and should not be attributed to the World Bank or other World Bank staff. 1 Figure I-1 shows average liabilities/equity ratios and interest


Full Text
Title Corporate restructuring and reform
Similar Titles
Sub Title

Lessons from East Asia

Material Type Reports
Author(English)

Mako, William P.

Publisher

[Seoul]:Korea Development Institute

Date 2001
Pages 36
Subject Country South Korea(Asia and Pacific)
Language English
File Type Documents
Original Format pdf
Subject Economy < Economic Administration
Holding Korea Development Institute

Abstract

After summarizing development of the crisis in Indonesia, Korea, Malaysia, and Thailand and noting key contextual factors, this overview focuses on crisis responses and structural reforms over which governments have some control. Cross-country comparisons of key policy responses are provided. This paper then summarizes the implementation of policy responses and corporate distress resolution results for each country. Lastly, this overview draws some general lessons and makes specific recommendations for each of the four countries.

User Note

26th Senior Policy Forum on Economic Crisis and Structural Adjustment in Korea