Asian Bond Markets Initiative Asian Bond Markets Initiative (ABMI) of ASEAN+3 and (ABMI) of ASEAN+3 and ADBADB’’ss

ContributionContribution

Woo Chull Chung, Resident Director General Asian Development Bank

1 June 2007, TokyoVersion 9.1 10/May/2007 ©

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Asia: Special FeaturesAsia: Special Features

• Most Dynamic & Growing Economies- The Center of World Economy- The Golden Era of Asia• Open & Market Economy Orientation• Very Diverse Cultures & Economies• Asymmetric Development of Real Sector

and Financial Sector/ Capital Markets

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Asia: ParadoxesAsia: Paradoxes• High Growth Economies: Yet, Home to half

of world absolute poor (2003)• Most Dynamic Economies with Top

Manufacturing and IT Service Hubs: Yet Vast Pools of the Unemployed

• Large net saving-lending Countries to Developed Countries: Yet Large Unmet Investment Needs, particularly in Infrastructure

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Asian Economic Integration: 4 Asian Economic Integration: 4 PillarsPillars

• Sub-regional Economic Cooperation: Physical Connectivity in GMS, CARs etc

• Monetary & Financial Integration: CMI, ASEAN+3, ABMI

• Trade & Investment Integration: FTAs, FDIs, Global Trade Issues

• Regional Public Goods: Environment, HIV/AIDS/Avian Flu, etc.

Why Asian Bond Market Why Asian Bond Market Development?Development?

• Lack of a well developed bond market exacerbated the 1997 Asian Financial Crisis.

• Over-dependence on bank borrowing, without adequate market governance structures, led to a situation where short term foreign-currency funds were used to finance long term, local currency generating projects.

• Absence of long term local currency funding will continue to be a source of financial vulnerability in the region.

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ASEAN+3 Asian Bond Markets ASEAN+3 Asian Bond Markets Initiative (ABMI)Initiative (ABMI)

• Need of efficient and liquid bond markets in the Region gained political support in the wake of the Asian Financial Crisis.

• ABMI was endorsed by the ASEAN+3 Finance Ministers Meeting in August 2003 in Manila, Philippines.

• Participation of countries in the ABMI is on a voluntary basis.

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ABMI Member CountriesABMI Member CountriesABMI Member Countries include the 10 members of the Association of Southeast Asian (ASEAN) countries plus 3 countries.

ASEAN ASEAN Brunei DarussalamBrunei Darussalam

CambodiaCambodia

IndonesiaIndonesia

Lao PDRLao PDR

MalaysiaMalaysia

MyanmarMyanmar

PhilippinesPhilippines

SingaporeSingapore

ThailandThailand

VietnamVietnam

+ 3 + 3 PeoplePeople’’s Republic of s Republic of ChinaChina

JapanJapan

Republic of KoreaRepublic of Korea

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ABMI ObjectivesABMI Objectives

• ASEAN+3 ABMI aims to help member countries develop robust bond markets to:– Avoid the double mismatch of maturity and

currency of Financing (an important cause of the Asian Financial Crisis in 1997)

– Re-channel more Asian Savings into Asian Investments

– Promote development of balanced capital markets

– Promote Regional Financial Integration8

ABMI Focal AreasABMI Focal AreasTwo main areas being addressed by ABMI:1) Facilitate access to market via wider variety of bond issuers in

Asia 2) Enhance market infrastructure for bond markets

Market Infrastructure:

•Information Dissemination•Settlement•Policy Dialogues among members

•Guarantee Mechanism •New Bond Products in Asia •Credit Rating Systems

• Legal and RegulatoryFramework

IssuersAsian GovernmentsGovernment Financial InstitutionMultilateral Development BanksGovernment AgenciesCorporationsSpecial Purpose Vehicles

Bond ProductsLocal Currency Denominated BondsStructured BondsAsset Backed Securities

InvestorsDomesticRegionalInternational

InstitutionalRetail 9

ABMI FrameworkABMI Framework

Focal Group

Creating NewSecuritized Debt Instruments-Induce more issuanceof structured debts in localcurrency.-Study Securitization andnew structured financeinstruments

WG1 Chair: Thailand

WG2 Chair: Korea P.R.China

WG3 Chair: Malaysia

WG4Chair: Singapore

Japan

Old WG4 Chair: P.R.China

Credit Guarantee and Investment Mechanisms-Regional Guarantee Instruments.

Foreign Exchange Transactions and Settlement Issues -Research on Regional Clearing and SettlementMechanisms.

Rating System-Collaborate with localCredit Rating Agencies.-Accommodate newregulatory framework(Basel II and IOSCO code)for rating agencies.-Research on comparabilityand harmonization of ratingmethodology.

Issuance of Bonds by MDBs, Foreign Govt. andAsian Multinationals-Completed in 2005.

ASTFG* TACT

-Gather, share and disseminate info.-Complement and fortify functions of the Focal Group.-Compile and update progress reports.

-Closely collaborate with FG and ASTFG

WORKING GROUPS (See next slide for details)

ASEAN+3 Finance Ministers

-Monitor progress and coordinate future plans

ASEAN+3 Deputy Finance Ministers

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Ad Hoc Support Team for Focal Group TA Coordination Team for FG

Meet annually

Meet semi-annually

ABMI Working GroupsABMI Working Groups• Initially, 6 voluntary Working Groups (WGs) on the ABMI were

formed.• These were later reorganized to 4 WGs with Adhoc Support Team for

the Focal Group (ASTFG) and a Technical Assistance Coordination Team (TACT) in May 2005.

Asian Bond Markets Initiative Working Groups OLD NEWat inception Chair after May 4, 2005 Chair

WG1 New Securitized Debt Instruments Thailand WG1 New Securitized Debt Instruments Thailand

WG2 Credit Guarantee and Investment Korea, WG2 Credit Guarantee and Investment Korea,Mechanisms China Mechanisms China

WG3 Foreign Exchange Transactions Malaysia WG3 Foreign Exchange Transactions Malaysiaand Settlement Issues and Settlement Issues

WG4 Issuance of Bonds denominated China WG4 Rating Systems Singapore,in Local Currency by MDB's Japan

WG5 Rating Systems and Information Singapore, ASTFG Ad Hoc Support Team for Current ChairDissemination on Asian Bond Markets Japan Focal Group (ASTFG) for ABMI

WG6 Technical Assistance Coordination Indonesia, TACT TA Coordination Team for FG IndonesiaPhilippines, Philippines,Malaysia Malaysia

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Other Fora for Asian Bond Other Fora for Asian Bond Market DevelopmentMarket Development

• Executives’ Meeting of East Asia Pacific Central Banks (EMEAP)– Develops demand side by establishing the Asian Bond

Fund I and II to purchase bonds issued by Governments or State Enterprises in the region.

• APEC Finance Ministers Meeting (APEC FMM)– Focuses on developing both supply and demand side

by promoting diversity of bonds, increasing quantity and liquidity and establishing necessary market infrastructures.

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Market OverviewMarket OverviewSize of outstanding ASEAN+3 Local Currency Bond (in $ billions)Size of outstanding ASEAN+3 Local Currency Bond (in $ billions)

Source: Reuters

In many ASEAN+3 countries, bond markets are constantly growing after the Asian Financial Crisis.

Size and C

Size and C

People's Republic of China

0

100

200

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600

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800

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1000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Hong Kong, China

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Indonesia

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Republic of Korea

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Malaysia

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Philippines

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Singapore

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60

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Thailand

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60

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1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Viet Nam

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0.5

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1.5

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2.5

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3.5

4

4.5

5

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Japan

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1000

2000

3000

4000

5000

6000

7000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

GovernmentCorporate

Sources:Outstanding Local Currency Bonds:People's Republic of China (ChinaBond); Hong Kong, China (Hong Kong Monetary Authority);Indonesia (Surabaya Stock Exchange); Republic of Korea (KoreaBondWeb); Malaysia (Bank Negara Malaysia); Philippines (Bureauof Treasury and Bank for International Settlements); Singapore (Monetary Authority of Singapore); Thailand (Bank of Thailand); VietNam (VietComBank Securities); and Japan (Japan Securities Dealers Association). Nominal GDP:World Economic Outlook of theInternational Monetary Fund and exchange rates:Bloomberg.

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Market Overview Market Overview Outstanding Balance of crossOutstanding Balance of cross--border longborder long--term bond investment in term bond investment in AAsia, UK & USsia, UK & US

Source: IMF, Coordinated Portfolio Investment Survey (2005)

(end of 2005： in millions of U.S. dollars)

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Brunei Darussalam -- -- -- -- -- -- -- -- -- -- --

Cambodia -- -- -- -- -- -- -- -- -- -- --

China, P.R. 2,535 102 425 86 5 -- 786 -- -- 1,544 3,938

Hong Kong SAR of China -- -- 727 437 26 53 2,680 36 -- 1,731 3,958

Indonesia 140 -- 355 6 17 -- 1,197 -- -- 1,874 1,715

Japan 2,917 16 -- 584 30 18 1,684 16 48,475 25,630 5,265

Korea, Republic of 7,603 1 5,321 -- 39 -- 3,806 84 -- 8,243 16,854

Lao People's Democratic Republic -- -- -- -- -- -- -- -- -- -- --

Malaysia 3,490 -- 1,065 179 -- -- 3,359 10 -- 4,348 8,103

Myanmar -- -- -- -- -- -- -- -- -- -- --

Philippines 617 5 1,339 20 4 -- 590 -- -- 4,111 2,574

Singapore 3,875 4 1,985 258 77 17 -- 54 3,530 6,938 6,269

Thailand 734 -- 200 31 58 17 1,003 -- 677 1,400 2,042

United Kingdom 19,259 57 72,654 1,949 432 649 5,352 333 -- 184,958 100,684

United States 43,595 89 545,848 18,019 407 961 19,988 234 298,989 -- 629,141

Vietnam -- -- 12 -- -- -- -- -- -- 306 12

Total value of investment into Asia (a) 21,910 127 11,429 1,599 256 106 15,104 199 52,682 56,125 50,730

Total value of investment (b) 175,103 508 1,681,112 29,580 2,157 2,666 80,101 1,197 1,193,058 1,011,555 1,972,426

Ratio (a)/(b) 12.5% 25.0% 0.7% 5.4% 11.9% 4.0% 18.9% 16.7% 4.4% 5.5% 2.6%

Investment from:

Investment in:

ADBADB’’ss Role in ABMIRole in ABMI

• ADB is the only Multilateral Development Bank (MDB) set up exclusively for the Region

• Having knowledge and financial resources, ADB provides expert advice and support to ABMI through Technical Assistances (TAs) and Researches

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ADBADB’’ss Contribution to ABMI (1)Contribution to ABMI (1)Working Group 1 - New Securitized Debt Instruments

• Study on “The ASEAN+3 Regional Multi Currency Bond” (Phase I) 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.

• Phase 2 Study on “The ASEAN+3 Regional Basket Currency Bonds (RBCB)” is underway, to be completed by 2nd quarter 2007.

• 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 Program will start from 3rd quarter 2007.

• Next step: (i) Host a conference to promote Asian local currency bonds, (ii) study on possible infrastructure assets that could be securitized.

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ADBADB’’ss Contribution to ABMI (2)Contribution to ABMI (2)

• Study on “ASEAN+3 Guarantee and Investment Mechanisms” (Phase 1) commenced in December 2003 and draft completed in February 2006.– Study presented 5 options on creation of credit guarantee

and investment mechanism; narrowed down to 3 options.• Phase 2 study started in January 2007, and draft

interim report to be completed by August 2007. The 3 options of Credit Guarantee and Investment Mechanisms will be narrowed down to 1 by the Deputy’s Meeting in November 2007.

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Working Group 2 – Credit Guarantee and Investment Mechanisms

ADBADB’’ss Contribution to ABMI (3)Contribution to ABMI (3)

• Completed study on: “Bond Market Settlement and Emerging Linkages in Selected ASEAN+3 Countries” (Phase 1) in June 2005. The study provided recommendations to:- Increase transparency- Comply with international standards- Advance regional cooperation and- Study Risk Reduction further → Phase 2 study

• Phase 2 Study on “Minimizing Foreign Exchange Settlement Risk in the ASEAN+3 Region” is underway. The report will be completed in 2nd quarter 2007. The Study:– Reviews various risks especially Forex settlement risks in cross border clearing and

settlement systems.– Identifies options and assess each option to reduce Forex settlement risks arising from

bond transactions.• ADB organized the “Asia Bond Clearing and Settlement Conference 2007” in April

2007 in Singapore. – 20 speakers and 150 participants from 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.– Conference materials can be currently downloaded at http://asianbondsonline.adb.org/.

Working Group 3 – Foreign Exchange Transactions and Settlement Issues

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ADBADB’’ss Contribution to ABMI (4)Contribution to ABMI (4)Working Group 4 – Rating Systems

• Continued efforts toward enhancing the credibility and visibility of the local Credit Rating Agencies (CRAs) in the region.

• Ad-hoc forum “Advancing Further the Credit Rating System in the Region” held in November 2006, and discussed:

− measures to promote further utilization of local CRAs in the region

− demands and efforts for ratings harmonization− preparation for Basel II

• Study on enhancing comparability and harmonization among the local CRAs in the region would be completed by May 2007.

• 3 options on next step: (i) continue to focus on rating system issues, (ii) expand its scope, (iii) abolish WG4 and establish a new WG for new theme.

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ADBADB’’ss Contribution to ABMI (5)Contribution to ABMI (5)Ad Hoc Support Team for Focal Group (ASTFG)

• Focusing on improving information transparency, e.g.:– Asian Bond Online Website– Self-assessment report

• Completed draft 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” in March 2006.

• New Study on “ASEAN+3 Harmonizing and Standardizing Asian Bond Conventions and Norms” is currently proposed. Study to start 2nd quarter 2007. This study will focus on: – the private placement market– government bond issuance and market– achieving harmonization and standardization of bond markets

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ADBADB’’ss Contribution to ABMI (6)Contribution to ABMI (6)• Asian Bonds Online Website

(http://asianbondsonline.adb.org)– Launched on May 15, 2004, developed a one-stop information

site for all to disseminate information on ASEAN+3 bond markets.– Completed studies of working groups can be downloaded at this

site. – Viewed by more than 2,000 visitor sessions per day (April 2007).

• Asian Bond Monitor– A Bi-annual (April and November) publication (6 issues published)– Reviews the development of ASEAN+3 local currency bond

markets. – Latest issue: April 2007 – Downloadable at http://asianbondsonline.adb.org

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ADBADB’’ss Contribution to ABMI (7)Contribution to ABMI (7)What makes asianbondsonline.adb.org unique?

• Free Access– offers free access to leading bond market indicators comparable across the ASEAN+3

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 ASEAN+3 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.

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ADBADB’’ss ABMI TeamABMI TeamOffice of Regional Economic Integration (OREI)

Masato Miyachi – Senior Advisor mmiyachi@adb.org +63-2-632-6832

Assistant +63-2-632-6832asiackhachanh@adb.org +63-2-632-6285

Assistant +63-2-632-6285ckaneko@adb.org +63-2-632-6432

Dixie Bautista – Administrative Assistant mfbautista@adb.org +63-2-632-6432Richard Supangan - Economics Officer rsupangan@adb.org +63-2-632-4101Daishi Samuro - ADB Consultant dsamuro@adb.org +63-2-632-4444 ext. 70184

Lillibeth Ortiz - ADB Consultant lortiz@adb.org +63-2-632-4444 ext. 70095

Marite Damsani -ADB Consultant mdamsani@adb.org +63-2-632-4444 ext. 7830

Chiemi Kaneko - Senior Financial Market Specialist

Noy Siackhachanh – Advisor

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Thank you!Thank you!

• For more information on Asian Bond Markets, Visit: http://asianbondsonline.adb.org

• For more on ADB, Visit: www.adb.org