Asian Bond Market Development

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Asian Bond Market Development Dr. Kanit
Sangsubhan Director Fiscal Policy Research
Institute, Thailand
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Reasons Supporting Asian Financial Cooperation
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Shelf-Help Concept

• Capital account
• crisis in 1997-98
• ASEAN concerns
• on hedge fund Lacking
• of cooperation
• (Regional problems)

ASEAN3 Chiang Mai Initiative (CMI) Self-help
mechanism Swap Arrangement/ Surveillance
System/ Peer Review
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Shifting Paradigm
Growth potential of East Asia
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Saving-Investment Recycling via Financial Mkt.
Outside Asia
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Progress of Chiang Mai Initiative
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Progress Report of CMI
ASEAN Swap Arrangement (ASA) 1 BUS
Group 1 (6 countries) 150 US each Group 2 (4
countries) Cambodia 15/ Lao
PDR 5/Myanmar 20/Vietnam 60
Bilateral Swap Arrangement (BSA) 31.5 BUS

• Between 3 and ASEAN 4
• 9 of 12 arrangements completed
• Between 3 and 3
• Completed (5 out of 6 using local
  currencies)

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Progress Report on CMI
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Progress of Asian Bond Market
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Progress Report ASIAN BOND MARKET
Demand Side Supply side
Infrastructure Other Related
Forum

• EMEAP sets up Asian Bond Fund (ABF)

• AFMM3 New product and necessary support
  (securitization, credit enhancement,
  credit rating)

• AFMM3 APEC FMM Improving financial
  infrastructure (Securitization, Credit
  rating agency, Taxation,
  Accounting,Clearing and Settlement)

• ACD, ASEAM

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Asian Bond Fund (ABF)
EMEAP-ABF
Participants 11 Economies Announcement
2 June 2003 Amount 1 Billion
US Purposes 1. Initial investment
in existing
Asian Bond (US) and New
issued Asian Bond
2. Set standard for Asian Bond
Product Administration
Investment committee and BIS
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CMD (Chiang Mai Declaration)
ACD (Asian Cooperation Dialogue)
Participants 11 Economies Announcement
Chiang Mai Declaration Main Messages 1.
Acknowledge the
progress of ABM
development 2.
Commit to support
the ABM
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New Products
ASEAN3 (Group of Volunteer)
Concerned Details Currency Major
vs. Local vs. Multi local Underlined Assets
Sovereign/Quasi-S/Corporate/
Maturity 10 years or more
Rating Which Agency? What rate? Credit
Enhancement Who will do when needed ?
FX facility Possibility of FX forward
contract
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Proposed First Generation Bond
ASEAN3 (Group of Volunteer)
Tentative Outcomes Currency Local
and Multi local Underlined Assets
1.Sovereign/Quasi 2.Corporate
Maturity 10 years Rating
Rating Agency in Asia Credit Enhancement
ADB/JBIC/NEXI FX facility
Possible of long-dated FX
contract
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Proposed First Generation New Products Model 1
I N V E S T O R S
Underlying Assets
Rating/ Enhancement/ FX Forward contract
Tranche
Multiple Local Currency Sovereign/Quasi
SPV
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New Products Model 1
Senior Rating A of Higher Low interest
rate Long-dated FX contract
Securitized Asian Bond By SPV in Japan/HK
Singapore etc
THB TG Bond (Baht, 4, 10 year) RM MG Bond (RM
3.5 , 10 year) JYP JG Bond (Yen 0.7 , 10
year)
Subordinated Rating lower than A High interest
rate No FX contract
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Model 2
Underlying Assets
Rating/ Enhancement/ FX Forward contract
I N V E S T O R S
Tranche
Asian MNC Corporate bonds in local currency in
more than 2 countries
SPV
SME Loan/Bond
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ACD WGFC To take place on regular basis
EMEAP To undertake study on possibility to
invest in local currency denominated debt
instruments
APEC FMM To identify impediments draw action
plans to develop securitization credit
guarantee markets
AFMM3 To consider technical and operational
issues to structure new debt instruments
AFMM3 APEC FMM To consider appropriate
infrastructure to develop Asian Bond Markets
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