Media Center

News Release

Email this   printer friendly format

ADB Study of Guarantee Mechanisms to Support Asian Bond Market Initiative

MANILA, PHILIPPINES (30 October 2003) - The Asian Development Bank (ADB) will help identify and explore better utilization of guarantee mechanisms that can support development of domestic and regional bond markets in the ASEAN+3 countries through a technical assistance (TA) grant just approved for US$500,000.

The TA 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, 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, which comprises the 10 Association of Southeast Asian Nations (ASEAN) members, plus People's Republic of China, Japan, and Republic of Korea.

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

The mismatch of debt maturity and currency and Asia's financing needs was 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," says Masato Miyachi, an ADB Senior Advisor.

"The TA will help the working group fulfill 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 would provide a good model for other countries in the region to follow."

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," says Mr. Miyachi.

"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 TA is due to be completed by the end of April 2004.

More at adb.org/media

Contacts