Asean+3 to create infra bond markets

Members of the Association of Southeast Asian Nations, plus Japan, China and South Korea (Asean+3) are looking into ways of developing a local currency bond market that would use the countries’ “large pool” of savings to help finance the infrastructure requirements in the region.

At the Asean+3 20th meeting held recently in Japan the group sought to address the risks that led to the 1997-1998 Asian financial crisis and avoid such risks by strengthening their financial systems’ resilience against volatile global capital flows and external shocks.

In a statement issued in Manila over the weekend, the Philippine Department of Finance (DoF) said the group believes that increased issuances of local currency bonds will promote financial stability in the region and aid the development of Asean’s bond markets.

“We note that the development of local currency bond markets can help mobilize the large pool of savings in the region, and in financing the region’s infrastructure requirements,” Dominguez was quoted in the statement as saying in a news conference on Friday at the end of the two-day meeting in Yokohama.

No estimated figures were immediately available for the amount of savings and the infrastructure funding requirements by Asean members, but the Asian Development Bank (ADB) said in a recent report the entire Asia-Pacific region will require about $1.7 trillion of investment per year in power, transport, telecommunications and water through 2030.

The Philippines alone has set a spending target of P8.4 trillion (about $168 billion) on infrastructure development for the duration of the Duterte administration until 2022.

Credit guarantee
The Credit Guarantee and Investment Facility (CGIF), which was established by Asean+3 and the Asian Development Bank (ADB) in 2010 to promote financial stability and boost long-term investment in the region, will provide the necessary guarantees for local currency denominated bonds issued by investment grade corporations in the region, the statement said.

“Our meeting also looked into expanding the guarantee capacity of the Credit Guarantee and Investment Facility [CGIF] to support the development of local currency bond markets,” said Dominguez, who co-chaired the 20th Asean+3 Summit with Japan’s Deputy Prime Minister and Finance Minister Taro Aso.

With a total capital contribution of $700 million from Asean+3 and the ADB, the CGIF will provide guarantees on local currency denominated bonds issued by corporations in the region. Such guarantees will make it easier for corporations to issue local currency bonds with longer maturities, the DoF said.

The CGIF is expected to help companies that otherwise would have difficulty tapping the local bond markets to secure longer-term financing, reduce their dependency on short-term foreign currency borrowing to mitigate currency and maturity mismatches.

The move will “help reduce the currency and maturity mismatches that caused the 1997-1998 Asian financial crisis and make the region’s financial system more resilient to volatile global capital flows and external shocks,” the DoF added.

Dominguez described the two-day meeting as productive and should prepare the region for the current global challenges, perceived by the group as policy uncertainty, increased protectionism and sharper-than-expected financial tightening.

“Our time spent here has been worthwhile as we have further advanced our financial cooperation initiatives between Asean, China, Japan and Korea,” he said.

Yokohama Vision: resiliency, integration
Citing the other important highlights of the gathering, Dominguez said participating countries have drawn up the Yokohama Vision that set out goals for the Asean+3 bloc’s greater resiliency and financial integration.

They have also strengthened the Chiang Mai Initiative Multilateralization (CMIM) as a regional safety net.

“This strengthening comes in two ways: through the revision of the CMIM Operational Guidelines and our collective efforts in working towards increasing the IMF De-linked portion from 30 percent to 40 percent,” Dominguez said.

The members have also finalized the Asean+3 Macroeconomic Research Office’s (AMRO) Strategic Direction and Medium-term Implementation Plan (SD&MTIP), which is meant to boost the region’s macroeconomic and financial stability.

“We also encouraged AMRO in enhancing cooperation with other global and regional financial institutions to further increase its institutional capacity,” he said.

In addition, they also advanced their financial cooperation for Disaster Risk Financing and Insurance.

The event was part of the just concluded 50th Annual Meeting of the ADB Board of Governors and other related meetings held in Yokohama, Japan.