Developing the Asian Bond Market

Pages 16-31

16 Olarn Chaipravat its own position, and proposed in April 1998 in Manila the establishment of an Asian Monetary Fund. This proposal was naturally rejected by the major powers outside of the region. The Chiang Mai Initiative was thus a result of the ASEAN+3 countries’ realization that there was a need for an organized effort within the region to help one another if a crisis were to erupt again. It is the short-term liquidity support which is the fundamental rationale behind the Chiang Mai Initiative. The Asian bond market development is also a parallel effort to facilitate longer-term financial cooperation among the Asian countries. The usage here of the term “Asian” is deliberately intended to infer a meaning beyond the ASEAN+3 group of countries. Some non-ASEAN+3 countries have also made enquiries and are now actively involved in the whole Asian bond market development effort. Participation has expanded beyond ASEAN+3 to include at least India, Pakistan, and some Middle-Eastern countries. Such is the current state of development of the Asian bond market initiative among countries in Asia. Whereas participation in the Asian bond market development had previously been restricted to the central banks and ministries of finance of the Asian countries, it has now 17 Developing the Asian Bond Market been expanded beyond the public sector to include also private sector participants in the capital markets. These participants now join in the deliberation and discussion of proposals on the Asian bond market development. What is the plan for Thailand to issue Thai baht Asian bonds? Let me digress for a moment in order for us to share information and define what is now being accepted as Asian bond. Two years ago, when Prime Minister Thaksin made a speech in Kuala Lumpur, it was still unclear as to what he meant by Asian bond. I was in Beijing in the year 2002, two months after the Prime Minister made the speech in Kuala Lumpur. I was asked by my Chinese colleagues, “Your Prime Minister proposed an Asian bond market development initiative in Kuala Lumpur recently. Can you tell us what an Asian bond is?” I have to tell you that I was caught completely off guard, because I had not had the opportunity to talk to the Prime Minister about what he had meant by Asian bond between October and November. I was thus forced by the situation to come up with a definition for Asian bond on the spot right there and then. My answer was something like this: “An Asian bond is a long-term obligation issued by an Asian entity, meaning 18 Olarn Chaipravat government, state-owned enterprises, private companies, or even multinational organizations like the Asian Development Bank (ADB), which is located in Asia. It is a longterm obligation which is denominated in an Asian currency and traded actively among Asian countries and with the rest of the world.” In this sense, there are three major characteristics contained in the definition of Asian bond that is now widely accepted. First, a long-term obligation issued by an Asian entity; second, denomination in a local Asian currency, including the yen, Singapore dollar, Thai baht, Malaysian ringgit, and so on; and third, active trade across countries in Asia and with the rest of the world. These are the three characteristics of an Asian bond. Turning now to what does not constitute an Asian bond, Yankee bonds obviously are not Asian bonds by the above definition. Even though they are issued by Asian entities, they are denominated in the US dollar, a condition that disqualifies them from being Asian bonds. Euro-denominated bonds issued by Asian entities are not Asian bonds by this definition either. But Samurai bonds, which are yendenominated and issued by non-Japanese Asian governments or Asian corporations, are by definition Asian bonds, because the yen is 19 Developing the Asian Bond Market an Asian currency. Therefore, through a process of elimination, a working definition of the Asian bond is arrived at. Asian bonds are normally thought of in terms of these three characteristics. Although some may have all the three characteristics, others may have only up to 95 per cent or 98 per cent. A Samurai bond is not a 100 per cent Asian bond as it fails the last test, which requires an Asian bond to be traded actively across countries in Asia and in the...