Asian turmoil hits HK conglomerate
Thursday 08 January 1998
There was speculation in Hong Kong that Zurich might walk away from the $200m (pounds 122m) deal which could leave Peregrine in serious difficulty. The Hong Kong company has admitted to heavy losses as a result of the sharp downturn in Asian markets. It has recently been embroiled in well publicised difficulties in Indonesia, Vietnam and Burma. Peregrine is trying to sell one-third of its equity to outside investors, including Zurich.
The company promises to make an announcement on the situation today, but yesterday said only that the renegotiation with Zurich was related to ``the continuing decline in South-east Asian currency markets and the recent downgrading of the credit ratings of Indonesia and South Korea''.
The Asian currency meltdown gathered pace yesterday, led by a plunge in the Indonesian rupiah. The Indonesia currency crashed 15 per cent at one point in yesterday's trading before ending the day with an 11 per cent fall. There is now a consensus in the region that Indonesia will emerge as the most affected of a group of economically troubled Asian nations.
This feeling gathered strength in the wake of Tuesday's budget, dubbed by analysts as the "denial budget" because it contained astonishingly unrealistic assumptions, including a projection of 4 per cent economic growth and an exchange rate against the US dollar of 4,000 rupiah. The rupiah stood at 8,100 to the dollar yesterday.
The fear now is that the Indonesian government will simply declare a debt moratorium, turning its back on loan repayments with the same disregard it has shown for adherence to the terms of the International Monetary Fund (IMF) rescue package. The IMF, in turn, is reported to be looking again at the release of further funds to Indonesia.
The close connections between President Suharto's family and many of the private Indonesian companies most likely to default, adds to the complications of achieving the kind of sweeping reforms necessary to revive the economy.
On the other hand, the IMF's remedies effectively call for mass unemployment and corporate closures which could trigger social unrest, symptoms already bubbling to the surface with an outbreak of rioting in Bandung, one of the countries big cities.
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