Title: Regional Cooperation in Developing Asian Bond Market
1Regional Cooperation in Developing Asian Bond
Market
- Mr. Masato Miyachi, Senior Advisor
- Office of Regional Economic Integration
- Asian Development Bank
- 25 September 2007
- Shanghai, PRC
2Outline
- 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
3Why 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
4Emerging 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
5Policy 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
6Regional 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
7Regional 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)
8Regional Initiatives Bond Market Development
- ASEAN3 Finance Ministers Meeting
- Strengthen supply side of bond market development
- Asian Bond Market Initiative (ABMI)
9Regional 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
10Regional Initiatives Bond Market Development
- Asia-Cooperation Dialogue
- Improve public awareness of the various
initiatives - Secure political support
11ADBs 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.
12Rationale 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.
13Logic 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
20RCI 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.
21OREIs 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
23ADB 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)
24ASEAN3 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.
25ABMI 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
27Working 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
28Working 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
29Working 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
30Working 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
31Working 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.
32Working 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.
33Working 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
34Working 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
35Ad 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.
38Thank you
- For More Information
- Mr. Masato Miyachi, Senior Advisor
- Office of Regional Economic Integration (OREI)
- Mmiyachi_at_adb.org
- 63-2-632-6832