This was published in the New Straits Times (Business Times) on 31 October 2003 on page B8

ADB approves assistance grant of US$500,000

THE Asian Development Bank (ADB) has approved a technical assistance grant of US$500,000 (US$1 = RM3.80) to support the development of domestic and regional bond markets in the countries belonging to the Association of South-East Asian Nations (Asean) and its three partners namely China, Japan and South Korea.

In an article posted on ADB?s website, the bank said the grant would enable it to identify and explore better utilisation of guarantee mechanisms to support the bond market initiatives.

According to ADB, the technical assistance grant will review and compare existing and past mechanisms, as well as regional and international best practices, and consider the most effective guarantee mechanism that could foster bond market development, particularly in Indonesia, Malaysia, the Philippines and Thailand.

The assistance will support the work of the voluntary working group created under the Forum of Finance Ministers of the Asean+3 on Guarantee Mechanism for the Asian Bond Market Initiative (ABMI).

The working group is one of six set up under the ABMI to examine the conditions necessary for bond market development. The groups are expected to provide valuable input to the decision-making by the finance ministers of Asean+3.

The ABMI, endorsed at the Asean+3 deputies meeting in Chiang Mai, Thailand, in December 2002, emphasises the promotion of greater access to the market by a wide variety of issuers and the creation of an environment conducive to domestic and regional bond market development.

The mismatch of debt maturity and currency and Asia?s financing needs was were identified as a major factor underlying the regional financial crisis that began in 1997.

Although Asia has since made a remarkable recovery, mismatches remain a major source of financial vulnerability.

The Asean+3 and other forums have been trying to address the issue through the development of domestic and regional bond markets.

?This is ADB?s first concrete support for the Asean+3?s bond initiative,? ADB senior adviser Masato Miyachi was quoted as saying in the article.

According to Miyachi, the technical assistance will help the working group fulfil its key mandate of developing a model that may be used as a benchmark, examine existing facilities and suggest areas for improvement.

?If we will be able to develop strong bond markets in Asean+3 countries, such efforts will provide a good model for other countries in the region to follow,? he said.

ADB has been a member of the voluntary working group on guarantee mechanisms for the Asean+3 since its inception in February 2003.

The working group has identified several domestic guarantee agencies, as well as bilateral and multilateral institutions that provide local currency guarantees.

However, there are few guaranteed local currency bond transactions in the market. The reasons vary, from lack of market acceptance for the guarantee to structural hurdles caused by processing lead-time.

?There is no best practice model for guarantee facilities that can be readily applied to improve the effectiveness of domestic or regional agencies,? Miyachi said.

He added that the potential and limitations of facilities need to be critically examined in order to establish effective domestic and regional mechanisms for bond market development.

The technical assistance is due to be completed by the end of April 2004.

  

Posted on October 31st, 2003 by jl
Filed under: Regional Financial Concerns: Asia