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Regional Cooperation in Developing Asian Bond Market

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Title: Regional Cooperation in Developing Asian Bond Market


1
Regional Cooperation in Developing Asian Bond
Market
  • Mr. Masato Miyachi, Senior Advisor
  • Office of Regional Economic Integration
  • Asian Development Bank
  • 25 September 2007
  • Shanghai, PRC

2
Outline
  • Why Asian Bond Market Development
  • Emerging Regionalism
  • Regional Cooperation Initiatives in Developing
    Asian Bond Market
  • EMEAP
  • ABMI
  • APEC
  • ADC
  • ADBs role in regional bond market development

3
Why Asian Bond Market Development?
  • Asian bond markets can
  • Reduce the double mismatch problem (currency and
    maturity)
  • Reduce over-dependence on bank borrowing and
    diversifying financial risks
  • Provide alternative sources of financing private
    and public investment.
  • Provide alternative mode of wealth holdings for
    Asian households

4
Emerging Regionalism
Then Now
Asian savings invested abroad and channeled back to region Use savings for productive investment within the region
Bank centered financial intermediation Capital market development part. bond market
Financial sector dev. more focused on national efforts Enhance regional cooperation
5
Policy Initiatives for Efficient Regional Bond
Market
  • Remove policy distortions that affect efficient
    allocation of savings
  • Enhance market infrastructure
  • Establish bench-mark yield curves
  • Strengthen regulation and supervision of
    financial sector international accounting
    disclosure standards

6
Regional Initiatives Bond Market Development
  • Executives Meeting of East Asia-Pacific Central
    Banks (EMEAP)
  • ASEAN3 Asian Bond Market Initiative (ABMI)
  • Asia Pacific Economic Cooperation (APEC)
  • Asia-Cooperation Dialogue

7
Regional Initiatives Bond Market Development
  • Executives Meeting of East Asia-Pacific Central
    Banks (EMEAP)
  • Strengthen demand side of bond market development
  • Establish Asian Bond Fund (ABF1 and ABF2)

8
Regional Initiatives Bond Market Development
  • ASEAN3 Finance Ministers Meeting
  • Strengthen supply side of bond market development
  • Asian Bond Market Initiative (ABMI)

9
Regional Initiatives Bond Market Development
  • Asia Pacific Economic Cooperation (APEC) Finance
    Ministers Meeting
  • Study measures to promote regional bond market
    development
  • Study securitization, credit guarantee mechanisms
    and new instruments

10
Regional Initiatives Bond Market Development
  • Asia-Cooperation Dialogue
  • Improve public awareness of the various
    initiatives
  • Secure political support

11
ADBs Regional Cooperation Integration Strategy
(RCI)
  • ADB charter mandates the bank to play an active
    role in regional cooperation in the
    Asia-Pacific.
  • ADB Regional Cooperation Policy adopted in 1994
  • Regional cooperation is a relevant means for
    economic and social development
  • Support to regional cooperation is a longstanding
    responsibility of the Bank
  • RCI strategy established in July 2006.

12
Rationale and Imperatives for RCI
  • Emerging Trends in Regional Economic Integration
  • Globalization and interconnectivity
  • The Asian financial crisis revealed the high
    degree of financial integration in East Asia and
    created initial conditions for greater monetary
    and financial cooperation among the ASEAN and
    ASEAN3 countries.

13
Logic of RCI
  • Market-driven economic integration requires
    cooperation
  • Regional cooperation can accelerate regional
    integration
  • RCI provides greater opportunities to unlock
    Asia-Pacifics vast economic potentials, and
    significantly contributes to economic growth,
    development and poverty reduction.

14
ADBs Mission and the Role of RCI
FOUR PILLARS OF RCI

Regional Subregional Economic Cooperation
OVERACHING MISSION/ OBJECTIVE POVERTY REDUCTION
Trade and Investment Cooperation and
Integration
Regional Cooperation and Integration
Individual Country Programs
Monetary Financial Cooperation Integration
Pro-Poor Sustainable Economic Growth
Inclusive Social Development
Good Governance
Regional Public Goods
CORE AREAS OF INTERVENTION
15
The RCI strategy has four pillars
  • Regional and
  • Sub-regional
  • Economic
  • Cooperation
  • Cross-border
  • Infrastructure
  • Physical Connectivity
  • Hardware and
  • Software
  • Monetary and
  • Financial
  • Cooperation and
  • Integration
  • Financial market
  • development and
  • integration
  • Regional
  • macroeconomic
  • and financial
  • stability
  • Exchange Rates
  • Trade and
  • Investment
  • Cooperation and
  • Integration
  • Trade and
  • investment expansion
  • Regional trade
  • arrangements
  • Regulatory coordination
  • Regional
  • Public Goods
  • Clean energy and
  • environmental
  • protection
  • Communicable
  • disease control and
  • natural disaster response
  • Good governance
  • for transnational
  • crime prevention (Human
  • and drug trafficking
  • money laundering, and
  • corruption)

16
  • Pillar 3 Monetary and Financial Cooperation and
    Integration
  • Interdependence of financial markets
  • Regional financial stability is key to global
    financial stability
  • Advanced initiatives on policy dialogue, reserve
    pooling (Chiang Mai Initiative) and regional bond
    market development (Asian Bond Market Initiative)
  • Importance of exchange rate stability

17
  • RCI Strategy Promote open regionalism
  • ADB approach to RCI will be a multi-track,
    multi-speed approach.
  • Different regions and subregions would embrace
    RCI at different paces.
  • Even within a region or a subregion, the pace of
    progress would be different on different
    aspects of RCI and across countries.

18
Office of Regional Economic Integration (OREI)
  • Established in 2005
  • Serves as ADBs focal point for RCI activities
  • Assists ADB in pursuing an open and
    outward-looking regionalism in Asia and the
    Pacific.

19
OREIs Principles
  • Client-orientation
  • Relevance, responsiveness and result orientation.
  • Complementarity

20
RCI Approach
  • RCI adopts a multi-track, multi-speed approach.
  • Different regions and sub-regions would embrace
    RCI at different paces.
  • Even within a region or a sub-region, the pace of
    progress would be different on different
    aspects of RCI and across countries.

21
OREIs Key Functions
  • Promote regional economic policy dialogue
  • Support capacity building and institutional
  • strengthening
  • Conduct research on RCI
  • Serve as knowledge and information center on RCI
  • Develop partnerships with global stakeholders
  • Acts a focal point for regional bond market
    development for the bank
  • Support other ADB departments

22
ADBs Role in Regional Bond Market Development
  • Stimulating market activities by issuing prime
    name credit papers.
  • Providing technical and research assistance to
    the Working Groups (WG) and the Focal Group of
    the ABMI
  • Promoting transparency/information disseminaion


23
ADB LCY Bonds
  • ADB papers in local currency
  • Samurai bonds in the 70s
  • Recently issued local currency bonds in Malaysia
    (2006), Thailand (2005), PRC (2005) and the
    Philippines (2006
  • ADB medium term notes (MTN)

24
ASEAN3 Asian Bond Market Initiative (ABMI)
  • Initiative endorsed by the ASEAN3 Finance
    Ministers Meeting in August 2003 in Manila,
    Philippines.
  • ABMI aims to develop efficient and liquid bond
    markets in the ASEAN3 Region.
  • Participation of countries in the initiatives is
    on a voluntary basis.


25
ABMI Focal Areas
  • Facilitate access to market via wider variety of
    bond issues in Asia
  • Enhance market infrastructure for bonds

Market Infrastructure
  • Information Dissemination
  • Settlements
  • Policy Dialogues among members
  • Guarantee Mechanism
  • New Bond Products
  • Credit Rating Systems
  • Legal and Institutional
  • Infrastructure

Investors Domestic Regional International Institu
tional Retail
Issuers Asian Governments Government Financial
Inst. Multilateral Development Banks Government
Agencies Private Companies
Financial Products Bonds Asset Backed
Securities Local Currency Denominated
Bonds Possibly Currency Basket Bonds
26
ABMI Focal Areas
  • Facilitate access to market via wider variety of
    bond issues in Asia
  • Enhance market infrastructure for bonds


Working Group 1 New Securitized Debt Instruments Working Group 2 Credit Guarantee and Investment Mechanisms Working Group 3 FOREX Transactions Settlement Issues Working Group 4 Rating Systems
27
Working Group 1 New securitized debt instruments
  • Study on The ASEAN3 Regional Multi Currency
    Bond (Phase I) was completed in September 2005.
    Regional governments need to encourage trading in
    regional currency bonds and derivatives to have
    more flexibility in managing their currency
    trends and interest rates The study recommends
  • Early but gradual lifting of holding and transfer
    regulations for both local and foreign currency
    securities
  • Improvements in monitoring programs and shift to
    risk-based rather than quantitative regulation of
    financial prudence for institutional investors
  • More active development of risk-management tools
  • Complete liberalization of domestic links with
    global custodial systems

28
Working Group 1 New securitized debt
instruments (2)
  • Phase 2 Study on The ASEAN3 Regional Basket
    Currency Bonds (RBCB) to be completed by the 3rd
    Quarter of 2007.
  • The study covers
  • Merits and impediments of RBCB including
    efficiency frontier
  • Market assessment and market view of RBCB
  • Scope and limitations of RBCB, potential issuers
    and investors
  • Recommended RBCB products
  • Recommendations to ASEAN3 governments for
    enabling environment for RBCB products

29
Working Group 1 New securitized debt
instruments (3)
  • New Study on
  • (i) Exploring New Debt Instruments for
    Infrastructure Financing
  • (ii) Promotion of Securitization of Loan Credits
    and Receivables
  • (iii) Promotion of Asian Medium Term Note
    Programme will start from 3rd quarter 2007.
  • Next step
  • Investing in Asian Bonds Conference 2007
  • Co-hosts MOF, Thailand, MOF, Japan
  • Date/Venue 2nd November 2007, in Tokyo
  • Language English and Japanese (with
    simultaneous interpretation)
  • Audience maximum 500 pax

30
Working Group 2 Regional Guarantee Mechanism
  • Study on ASEAN3 Guarantee and Investment
    Mechanisms (Phase 1) commenced in December 2003
    and draft completed in February 2006.
  • A Phase 2 study was started in January 2007 and
    draft interim report to be completed by September
    2007. The 3 options of Credit Guarantee and
    Investment Mechanisms will be narrowed down to 1
    by the Deputys Meeting in November 2007

31
Working Group 2 Regional Guarantee Mechanism
  • Phase 2 study will be done in two parts (Part A
    and Part B)
  • Phase 2-A will thoroughly assess the three
    options identified in the previous study, Phase 1
  • Phase 2-B will create a business model and plan
    that will include operational and investment
    policy, product mix, demand prospects, financial
    projections and analysis, capital structure, and
    draft implementation plan.

32
Working Group 3 Foreign Exchange Transactions
and Settlement Issues
  • Completed Phase 1 Bond Market Settlement and
    Emerging Linkages in Selected ASEAN3 Countries
    June 2005.
  • Phase 2 Study on Minimizing Foreign Exchange
    Settlement Risk in the ASEAN3 Region is being
    finalized and expected to be completed in 3rd
    quarter 2007.
  • The Study
  • - Reviews various risks especially FX settlement
    risks in cross border clearing and settlement
    systems.
  • - Presents options including assessment of each
    option to reduce FX settlement risks arising from
    cross-border bond transactions.

33
Working Group 3 Foreign Exchange Transactions
and Settlement Issues
  • ADB organized the Asia Bond Clearing and
    Settlement Conference 2007 in April 2007 in
    Singapore.
  • 20 speakers and 150 participants from 16
    countries of the region, Europe and US
  • Discussed the future direction for bond clearing
    and settlement in the region and setting up a
    group of experts to move this initiative further

34
Working Group 4 Rating Agencies
  • Facilitation of policy discussion and provision
    of technical expertise for enhancing credibility
    and visibility of domestic credit rating agencies
    (DCRAs)
  • New technical assistance to start January 2007
    will
  • Enhance technical competency and institutional
    capacity of selected DCRAs in Asia
  • Monitor and report on status of regulatory
    frameworks for DCRA operations in selected
    countries
  • Enhance comparability and harmonization of credit
    rating standards among DCRAs in the region

35
Ad Hoc Support Team for Focal Group (ASTFG)
  • Study on European experience on Eurobond market
    development to identify the issues and basic
    requisites for the establishment of the Asian
    Bond Norms and Standards. Draft was completed in
    March 2006.
  • New Study on ASEAN3 Harmonizing and
    Standardizing Asian Bond Conventions and Norms
    has been approved for funding. Study to start 1st
    quarter of 2007.

36
Improving transparency/information
dissemination
  • Asian Bonds Online Website
  • (http//asianbondsonline.adb.org)
  • Launched on May 15, 2004, a one-stop information
    site on ASEAN3 bond markets.
  • Completed studies of working groups can be
    downloaded from this site.
  • 2,000 visitor sessions per day (average Q1 2007).
  • Asian Bond Monitor
  • A Bi-annual (April and November) publication (5
    issues published).
  • Latest publication April 2007 issue downloadable
    at ABO


37
Asian Bonds Online
  • What makes Asian Bonds Online unique?
  • Free Access
  • offers free access to leading bond market
    indicators comparable across the ASEAN3
    economies.
  • Updated Government Policies and Regulations
  • provides information on current market
    activities, the legal and regulatory frameworks
    of each market and monitors government policies
    and initiatives affecting the industry. The flow
    and structure of the information are provided
    uniformly for each market.  
  • How to Buy Bonds
  • is the only website providing investors the
    step-by-step mechanics of buying and trading
    government and corporate debt securities covering
    the entire ASEAN3 economies.
  • Asian Bond Glossary
  • provides the Asian Bonds Glossary  as a tool to
    understand terms and acronyms unique to the
    region, or to specific East Asian bond markets.
    Definitions of Islamic sharia principles are
    included for Brunei Darussalam, Indonesia, and
    Malaysia.


38
Thank you
  • For More Information
  • Mr. Masato Miyachi, Senior Advisor
  • Office of Regional Economic Integration (OREI)
  • Mmiyachi_at_adb.org
  • 63-2-632-6832
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