Regional Cooperation in Regional Cooperation in Developing Asian Bond Developing Asian Bond

MarketMarketMr. Masato Miyachi, Senior Mr. Masato Miyachi, Senior

AdvisorAdvisorOffice of Regional Economic Integration Office of Regional Economic Integration

Asian Development BankAsian Development Bank

25 September 200725 September 2007

Shanghai, PRCShanghai, PRC

OutlineOutline

• Why Asian Bond Market DevelopmentWhy Asian Bond Market Development• Emerging RegionalismEmerging Regionalism• Regional Cooperation Initiatives in Regional Cooperation Initiatives in

Developing Asian Bond MarketDeveloping Asian Bond Market• EMEAPEMEAP• ABMIABMI• APECAPEC• ADCADC

• ADB’s role in regional bond market ADB’s role in regional bond market developmentdevelopment

33

Why 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

44

Emerging RegionalismEmerging Regionalism

ThenThen NowNowAsian savings Asian savings invested abroad and invested abroad and channeled back to channeled back to region region

Use savings for Use savings for productive investment productive investment within the regionwithin the region

Bank centered Bank centered financial financial intermediationintermediation

Capital market Capital market development part. development part. bond marketbond market

Financial sector dev. Financial sector dev. more focused on more focused on national effortsnational efforts

Enhance regional Enhance regional cooperationcooperation

55

Policy Initiatives for Efficient Policy Initiatives for Efficient Regional Bond MarketRegional Bond Market

Remove policy distortions that affect Remove policy distortions that affect efficient allocation of savingsefficient allocation of savings

Enhance market infrastructureEnhance market infrastructure Establish bench-mark yield curvesEstablish bench-mark yield curves Strengthen regulation and supervision Strengthen regulation and supervision

of financial sector – international of financial sector – international accounting & disclosure standardsaccounting & disclosure standards

66

Regional Initiatives Bond Regional Initiatives Bond Market DevelopmentMarket Development

Executives’ Meeting of East Asia-Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP)Pacific Central Banks (EMEAP)

• ASEAN+3 Asian Bond Market ASEAN+3 Asian Bond Market Initiative (ABMI)Initiative (ABMI)

• Asia Pacific Economic Asia Pacific Economic Cooperation (APEC)Cooperation (APEC)

• Asia-Cooperation DialogueAsia-Cooperation Dialogue

77

Regional Initiatives Bond Regional Initiatives Bond Market DevelopmentMarket Development

• Executives’ Meeting of East Asia-Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP)Pacific Central Banks (EMEAP)• Strengthen demand side of bond Strengthen demand side of bond

market developmentmarket development• Establish Asian Bond Fund (ABF1 Establish Asian Bond Fund (ABF1

and ABF2)and ABF2)

88

Regional Initiatives Bond Regional Initiatives Bond Market DevelopmentMarket Development

• ASEAN+3 Finance Ministers ASEAN+3 Finance Ministers MeetingMeeting• Strengthen supply side of bond Strengthen supply side of bond

market developmentmarket development• Asian Bond Market Initiative (ABMI)Asian Bond Market Initiative (ABMI)

99

Regional Initiatives Bond Regional Initiatives Bond Market DevelopmentMarket Development

• Asia Pacific Economic Cooperation Asia Pacific Economic Cooperation (APEC) Finance Ministers’ Meeting(APEC) Finance Ministers’ Meeting• Study measures to promote regional Study measures to promote regional

bond market developmentbond market development• Study securitization, credit Study securitization, credit

guarantee mechanisms and new guarantee mechanisms and new instrumentsinstruments

1010

Regional Initiatives Bond Regional Initiatives Bond Market DevelopmentMarket Development

• Asia-Cooperation DialogueAsia-Cooperation Dialogue• Improve public awareness of the Improve public awareness of the

various initiatives various initiatives • Secure political supportSecure political support

1111

ADB’s Regional Cooperation & ADB’s Regional Cooperation & Integration Strategy (RCI) 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.

1212

Rationale and Imperatives for Rationale and Imperatives for RCIRCI

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 ASEAN+3 countries.

1313

Logic of RCI Market-driven economic integration requires

cooperation

Regional cooperation can accelerate regional integration

RCI provides greater opportunities to unlock Asia-Pacific’s vast economic potentials, and significantly contributes to economic growth, development and poverty reduction.

1414

FOUR PILLARS OF RCI

ADB’s Mission and the Role of RCIADB’s Mission and the Role of RCI

Pro-Poor Sustainable Economic

Growth

InclusiveSocial

Development

Good Governance

Trade and Investment

Cooperation and Integration

Monetary & Financial

Cooperation & Integration

Regional Public Goods

Individual Country Programs

Regional & Subregional

Economic Cooperation

OVERACHING MISSION/ OBJECTIVE

POVERTY REDUCTION

CORE AREASOF

INTERVENTION

Regional Cooperation and Integration

1515

Regional and Regional and Sub-regional Sub-regional

EconomicEconomicCooperationCooperation

• Cross-borderInfrastructure

• Physical Connectivity

• Hardware andSoftware

Monetary and Monetary and Financial Financial

Cooperation andCooperation andIntegrationIntegration

• Financial marketdevelopment and

integration

• Regional macroeconomic

and financialstability

•Exchange Rates

Trade and Trade and InvestmentInvestment

Cooperation and Cooperation and IntegrationIntegration

• Trade andinvestment expansion

• Regional tradearrangements

• Regulatory coordination

Regional Regional Public GoodsPublic Goods

• Clean energy andenvironmental

protection

• Communicable disease control and

natural disaster response

•Good governancefor transnational

crime prevention (Human and drug trafficking;

money laundering, andcorruption)

The RCI strategy has four pillars:

1616

Pillar 3: Monetary and Financial Pillar 3: Monetary and Financial Cooperation and IntegrationCooperation 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

1717

RCI Strategy Promote “open regionalism”

ADB approach to RCI will be a multi-track, ADB approach to RCI will be a multi-track, multi-speed approach.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.

1818

Office of Regional Economic Office of Regional Economic Integration (OREI)Integration (OREI)

• Established in 2005

• Serves as ADB’s focal point for RCI activities

• Assists ADB in pursuing an open and outward-looking regionalism in Asia and the Pacific.

1919

OREI’s PrinciplesOREI’s Principles

• Client-orientation• Relevance, responsiveness and

result orientation.• Complementarity

2020

RCI ApproachRCI Approach

RCI adopts a multi-track, multi-speed RCI adopts a multi-track, multi-speed approach.approach.

• Different regions and sub-regions would Different regions and sub-regions would embrace RCI at different paces. embrace RCI at different paces.

• Even within a region or a sub-region, the pace Even within a region or a sub-region, the pace of progress would be different on different of progress would be different on different aspects of RCI and across countries. aspects of RCI and across countries.

2121

OREI’s Key FunctionsOREI’s 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

ADB’s 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

2323

ADB LCY BondsADB LCY Bonds

• ADB papers in local currencyADB papers in local currency• Samurai bonds in the 70sSamurai bonds in the 70s• Recently Recently issued local currency bonds in issued local currency bonds in

Malaysia (2006), Thailand (2005), PRC (2005) Malaysia (2006), Thailand (2005), PRC (2005) and the Philippines (2006and the Philippines (2006

• ADB medium term notes (MTN)ADB medium term notes (MTN)

ASEAN+3 Asian Bond Market Initiative (ABMI)

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

• ABMI aims to develop efficient and liquid bond markets in the ASEAN+3 Region.

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

2525

ABMI Focal AreasABMI Focal Areas1. Facilitate access to market via wider variety of

bond issues in Asia 2. Enhance market infrastructure for bonds

Issuers:

Asian GovernmentsGovernment Financial Inst.Multilateral Development BanksGovernment AgenciesPrivate Companies

Financial Products

BondsAsset Backed SecuritiesLocal Currency Denominated BondsPossibly Currency Basket Bonds

Investors

DomesticRegionalInternationalInstitutionalRetail

Market Infrastructure:

•Information Dissemination

•Settlements

•Policy Dialogues among members

•Guarantee Mechanism

•New Bond Products

•Credit Rating Systems

• Legal and Institutional

Infrastructure

ABMI Focal AreasABMI Focal Areas

1. Facilitate access to market via wider variety of bond issues in Asia

2. 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

2727

Working Group 1 – New Working Group 1 – New securitized debt instrumentssecuritized debt instruments

• Study on “The ASEAN+3 Regional Multi Currency Bond” Study on “The ASEAN+3 Regional Multi Currency Bond” (Phase I) was completed in September 2005. Regional (Phase I) was completed in September 2005. Regional governments need to encourage trading in regional currency governments need to encourage trading in regional currency bonds and derivatives to have more flexibility in managing bonds and derivatives to have more flexibility in managing their currency trends and interest rates The study their currency trends and interest rates The study recommends:recommends:

• Early but gradual lifting of holding and transfer regulations for Early but gradual lifting of holding and transfer regulations for both local and foreign currency securities;both local and foreign currency securities;

• Improvements in monitoring programs and shift to risk-based Improvements in monitoring programs and shift to risk-based rather than quantitative regulation of financial prudence for rather than quantitative regulation of financial prudence for institutional investors;institutional investors;

• More active development of risk-management tools;More active development of risk-management tools;• Complete liberalization of domestic links with global custodial Complete liberalization of domestic links with global custodial

systemssystems

2828

Working Group 1 – New Working Group 1 – New securitized debt instruments securitized debt instruments (2)(2)

• Phase 2 Study on “The ASEAN+3 Regional Basket Phase 2 Study on “The ASEAN+3 Regional Basket Currency Bonds (RBCB)” to be completed by the 3Currency Bonds (RBCB)” to be completed by the 3rdrd Quarter of 2007. Quarter of 2007.

• The study covers:The study covers:• Merits and impediments of RBCB including efficiency Merits and impediments of RBCB including efficiency

frontierfrontier• Market assessment and market view of RBCBMarket assessment and market view of RBCB• Scope and limitations of RBCB, potential issuers and Scope and limitations of RBCB, potential issuers and

investorsinvestors• Recommended RBCB productsRecommended RBCB products• Recommendations to ASEAN+3 governments for enabling Recommendations to ASEAN+3 governments for enabling

environment for RBCB productsenvironment for RBCB products

2929

Working Group 1 – New Working Group 1 – New securitized debt instruments securitized debt instruments (3)(3)

• New Study on New Study on • (i) Exploring New Debt Instruments for (i) Exploring New Debt Instruments for

Infrastructure FinancingInfrastructure Financing• (ii) Promotion of Securitization of Loan Credits (ii) Promotion of Securitization of Loan Credits

and Receivables and Receivables • (iii) Promotion of Asian Medium Term Note (iii) Promotion of Asian Medium Term Note

Programme will start from 3Programme will start from 3rdrd quarter 2007. quarter 2007.• Next step: Next step: • ““Investing in Asian Bonds Conference 2007”Investing in Asian Bonds Conference 2007”

• Co-hosts: Co-hosts: MOF, Thailand, MOF, JapanMOF, Thailand, MOF, Japan• Date/Venue: 2Date/Venue: 2ndnd November 2007, in Tokyo November 2007, in Tokyo• Language: Language: English and Japanese (with simultaneous English and Japanese (with simultaneous

interpretation)interpretation)• Audience: Audience: maximum 500 paxmaximum 500 pax

3030

Working Group 2 – Regional Working Group 2 – Regional Guarantee MechanismGuarantee Mechanism

• Study on “ASEAN+3 Guarantee and Investment Study on “ASEAN+3 Guarantee and Investment Mechanisms” (Phase 1) commenced in December Mechanisms” (Phase 1) commenced in December 2003 and draft completed in February 2006.2003 and draft completed in February 2006.

• A Phase 2 study was started in January 2007 A Phase 2 study was started in January 2007 and and draft interim report to be completed by draft interim report to be completed by September 2007. The 3 options of Credit September 2007. The 3 options of Credit Guarantee and Investment Mechanisms will be Guarantee and Investment Mechanisms will be narrowed down to 1 by the Deputy’s Meeting in narrowed down to 1 by the Deputy’s Meeting in November 2007November 2007

3131

Working Group 2 – Regional Working Group 2 – Regional Guarantee MechanismGuarantee Mechanism

• Phase 2 study will be done in two parts Phase 2 study will be done in two parts (Part A and Part B):(Part A and Part B):• Phase 2-A will thoroughly assess the three Phase 2-A will thoroughly assess the three

options identified in the previous study, Phase options identified in the previous study, Phase 11

• Phase 2-B will create a business model and Phase 2-B will create a business model and plan that will include operational and plan that will include operational and investment policy, product mix, demand investment policy, product mix, demand prospects, financial projections and analysis, prospects, financial projections and analysis, capital structure, and draft implementation capital structure, and draft implementation plan.plan.

3232

Working Group 3 – Foreign Exchange Transactions and

Settlement Issues Completed Phase 1 : “Bond Market Settlement and

Emerging Linkages in Selected ASEAN+3 Countries” June 2005.

Phase 2 Study on “Minimizing Foreign Exchange Settlement Risk in the ASEAN+3 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.

3333

Working Group 3 – Foreign Exchange Transactions and

Settlement Issues

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

• 20 speakers and 150 participants from 16 20 speakers and 150 participants from 16 countries of the region, Europe and US countries of the region, Europe and US

• Discussed the future direction for bond clearing Discussed the future direction for bond clearing and settlement in the region and setting up a and settlement in the region and setting up a group of experts to move this initiative furthergroup of experts to move this initiative further

3434

Working Group 4 – Rating Working Group 4 – Rating AgenciesAgencies

• Facilitation of policy discussion and provision of Facilitation of policy discussion and provision of technical expertise for enhancing credibility and technical expertise for enhancing credibility and visibility of domestic credit rating agencies (DCRAs)visibility of domestic credit rating agencies (DCRAs)

• New technical assistance to start January 2007 will:New technical assistance to start January 2007 will:• Enhance technical competency and institutional capacity Enhance technical competency and institutional capacity

of selected DCRAs in Asiaof selected DCRAs in Asia• Monitor and report on status of regulatory frameworks for Monitor and report on status of regulatory frameworks for

DCRA operations in selected countriesDCRA operations in selected countries• Enhance comparability and harmonization of credit rating Enhance comparability and harmonization of credit rating

standards among DCRAs in the regionstandards among DCRAs in the region

3535

Ad Hoc Support Team for Ad Hoc Support Team for Focal Group (ASTFG)Focal Group (ASTFG)

• Study on European experience on Eurobond Study on European experience on Eurobond market development to identify the issues market development to identify the issues and basic requisites for the establishment of and basic requisites for the establishment of the “Asian Bond Norms and Standards”. the “Asian Bond Norms and Standards”. Draft was completed in March 2006. Draft was completed in March 2006.

• New Study on “New Study on “ASEAN+3 Harmonizing and ASEAN+3 Harmonizing and Standardizing Asian Bond Conventions and Standardizing Asian Bond Conventions and Norms” has been approved for funding. Norms” has been approved for funding. Study to start 1Study to start 1stst quarter of 2007.quarter of 2007.

Improving transparency/

information dissemination

–Asian Bonds Online Website

(http://asianbondsonline.adb.org)

•Launched on May 15, 2004, a one-stop information site on ASEAN+3 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

Asian Bonds Online

What makes Asian Bonds Online unique?What makes Asian Bonds Online unique?Free AccessFree Access

•offers free access to leading bond market indicators comparable across the offers free access to leading bond market indicators comparable across the ASEAN+3 economies.ASEAN+3 economies.

Updated Government Policies and RegulationsUpdated Government Policies and Regulations•provides information on current market activities, the legal and regulatory provides information on current market activities, the legal and regulatory frameworks of each market and monitors government policies and initiatives frameworks of each market and monitors government policies and initiatives affecting the industry. The flow and structure of the information are provided affecting the industry. The flow and structure of the information are provided uniformly for each market.  uniformly for each market.  

How to Buy BondsHow to Buy Bonds•is the is the onlyonly website providing investors the step-by-step mechanics of website providing investors the step-by-step mechanics of buying and trading government and corporate debt securities covering the buying and trading government and corporate debt securities covering the entire ASEAN+3 economies.entire ASEAN+3 economies.

Asian Bond GlossaryAsian Bond Glossary•provides the Asian Bonds Glossary  as a tool to understand terms and provides the Asian Bonds Glossary  as a tool to understand terms and acronyms unique to the region, or to specific East Asian bond markets. acronyms unique to the region, or to specific East Asian bond markets. Definitions of Islamic sharia principles are included for Brunei Darussalam, Definitions of Islamic sharia principles are included for Brunei Darussalam, Indonesia, and Malaysia.Indonesia, and Malaysia.

Thank youThank you

For More InformationFor More Information

Mr. Masato Miyachi, Senior AdvisorMr. Masato Miyachi, Senior AdvisorOffice of Regional Economic Integration (OREI)Office of Regional Economic Integration (OREI)

Mmiyachi@adb.orgMmiyachi@adb.org+63-2-632-6832+63-2-632-6832