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Kwang-Yeol Yoo

Director General / Ph. D

Ministry of Strategy and Finance, Korea

Developing Asian Bond Markets Initiative(ABMI)- Bonding Asia -

May 7, 2013

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1. Establishment of ABMI and Progress Up to Date

2. Evaluating Performances during a Decade

3. Future Direction and Implications

1. Establishment of ABMI and Progress Up to Date

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Lessons from the 1997/98 Asian Financial Crisis

Local Currency Long-term Lending

Foreign CurrencyShort-term Borrowing

Asian Financial Crisis

Double Mismatch

Absence of well-functioning bond market in the region

ABMI (proposed by Korea to ASEAN+3) in 2003

1. Establishment of ABMI and Progress Up to Date

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① Avoid the double mismatch of maturity and currency

② Recycle more Asian savings into Asian economies

③ Promote financial harmonization and integration in the region

ABMI aims to :

1. Establishment of ABMI and Progress Up to Date

China

ASEANJapan

Korea

LCY Bond Markets in Each Country Cross-Border Bond Markets

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Korea China

Japan ASEAN

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- Launching ABMI as per Korea’s proposal- Asian Bonds Online (2004)- Asian Bond Monitor (2004)

- ABMI New Roadmap with 4 TFs* (2008)* Supply, Demand, Regulation, Infrastructure

- Credit Guarantee & Investment Facility (2010)- ASEAN+3 Bond Market Forum (2010)

ABMI Roadmap

ABMI New Roadmap

ABMI New Roadmap+

Cognitive Level

Policy Level

Implementation Level

Sub-prime Mortgage Crisis

Asian Financial Crisis

European Fiscal Crisis

(2003~2008)

(2008~2012)

( 2012~ )

ABMI : Progress Up to Date

1. Establishment of ABMI and Progress Up to Date

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- Revised New Roadmap+ (2012)· 3 Basic Directions· 9 Priorities

- ABMI ACMI

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Directions and Priorities of ABMI New Roadmap+, 2012

1. Establishment of ABMI and Progress Up to Date

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Direction 1

Tangible Outcomes

Direction 2

Strengthening Momentum

Direction 3

Global Change

Launching Credit Guarantee and Investment Facility Programs

Developing infrastructure-financing

Fostering an investment-friendly environment for institutional investors

Enhancing ASEAN+3 Bond Market Forum

Facilitating the establishmentof the Regional Settlement Intermediary

Further developing the government bond markets

Enhancing financial access to consumers and SMEs

Strengthening the foundation for a regional credit rating system

Raising financial awareness, etc.

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1. Establishment of ABMI and Progress Up to Date

2. Evaluating Performances during a Decade

3. Future Direction and Implications

2. Evaluating Performances during a Decade

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LCY Bond Outstanding- Total outstanding : USD 5.7 trillion (2011)

- Annual Increase Rate : 16.5% (average)

0

1000

2000

3000

4000

5000

6000

1995 1997 1999 2001 2003 2005 2007 2009 2011

Corp Govt

5671

1349

415126

2. Evaluating Performances during a Decade

LCY Bond Outstanding in ASEAN+3 (Ex. Japan, USD Billion)

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0

5

10

15

20

25

30

35

40

45

US Japan Germany UK Emerging EastAisa

8.4 (2011)

2.1(1996)

LCY Bond Outstanding in Major Markets ( % of World Share)- ASEAN+3 (Ex. Japan) Share : 2.1% (1996) 8.4% (2011)

2. Evaluating Performances during a Decade

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Asia

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22,80 28,26

31,56

0

10

20

30

40

50

60

Domestic Credit Bonds Equity

Domestic Financing Profile Diversification- Bond Market “Spare Tire”

2. Evaluating Performances during a Decade

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ASEAN+3, Share of Total Financing

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Foreign Participation in Bond Markets

Foreign holding of LCY government bonds (% of total)

2. Evaluating Performances during a Decade

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Evaluation items Evaluation Progress

Developing robustbond markets

- Contributed to a financial stabilization in the midst of the global financial crisis (IMF, G20, and BIS)

Diversifying financing channels - Increased financing through the Asian bond markets

Addressing maturitymismatch - Generated of yield curve at various terms to maturity

Addressing currency mismatch

- Issue of an original sin remains due to lack of using local currency at the international trade and strict regulations on cross-border trade

Mobilizing more Asian savings into the region

- Investment concentration in the US and Europe than that of Asia- Legal/ regulatory barriers to cross-border bond investment

- Higher costs of regional securities exchanges

Harmonizing withregional financial

integration

- Suggested Asian Bond Standard(2005)- Undergoing discussion on the harmonization of bond standards at

the ASEAN+3 Bond Market Forum(2010)

Overall Evaluation

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However, Still a Long Way to Go ...

• Bond Issuance in 2011 (% of World Share): Japan 18.7%, China 5.0%, Korea 1.8%, ASEAN 1.3%

• Intra-Regional Bond Investments in 2010 (% of Total Investment): 7.3% *Trade 55.5%, Stock Investment 23.7%

The extent to which ABMI contributes to LCBM development isnot clearly identified

Obstacles and Challenges

① High Ambition and Expectation

② Lack of Concern and Risk-averse Behavior by Regulators

③ NATO (No Action Talk Only)?

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1. Establishment of ABMI and Progress Up to Date

2. Evaluating Performances during a Decade

3. Future Direction and Implications3. Future Direction and Implications

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Towards a Cross-border Bond Market in Asia

3. Future Direction and Implications

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Regional Market Infrastructure

Regional Settlement Intermediary (RSI)

Regional Guarantee System (CGIF)

New Regional Credit Rating Agency (NRCRA)

Asian Bond Standards(ASEAN+3 Bond Market Forum)

Information Exchange

Harmonization of heterogeneousrules and regulations

Asian Regulator

Asian SRO

Domestic SROs(Exchanges, Industry & Trade Association etc.)

Domestic Regulatory/Supervisor

Authorities

ASEAN+3 BondMarket Forum(ABMF)

Domesticmarkets

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Future of Bond Markets Development in Asia

Local Bond Markets(Domestic Bond Market)

Cross-Border Bond Markets (Foreign Bond Markets)

Part of a Domestic Market

Cross-BorderIntra-Regional

Professional Bond Marketin Asia

Intra-RegionalHomogeneity

DomesticHeterogeneity

Asian Capital Markets Initiative (ACMI)

1st phase of ABMI

2nd phase of ABMI

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3. Future Direction and Implications

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1) Start with a Pilot Project

2) Involve Regulators

3) Prepare Medium-Term Action Plan

4) Technical Assistance(TA) for Underdeveloped Countries

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- Deliver Concrete Output (Infrastructure, Institution)

- Cross-Recognition or Harmonization

3. Future Direction and Implications

Implications to LCBM Development

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Thank You !