Financial Implications of the Asian Bond Market Initiative (ABMI)

The APEC Finance Ministers’ meeting from time to time highlights the importance of regional bond market development. APEC ministers have wholeheartedly endorsed the idea of the ABMI and APEC’s role in promoting it. ABMI was originally proposed by Japan under the framework of ASEAN plus 3 in 2002 and since then significant progress has been made. The basic thrust of ABMI is to develop efficient and liquid bond markets in Asia in order to meet the needs for indigenous medium and long-term financial resources and enable further economic development in the region. There are several points worth noting about this initiative, which is also receiving ADB technical assistance.

First, in many countries in the region although savings rates are relatively high, quite a large amount of savings remain underutilized. This in turn means that although many Asian countries still suffer from poverty, the cause of poverty is not necessarily a shortage of money. The core issue, therefore, is how to mobilize unused financial resources for various productive investments which contribute to development.

The underlying message of ABMI appears to be Asian countries have relied too heavily on banking channels in the past and now they have come to realize they need to develop more sound, diversified and liquid capital markets. Our research fully supports this proposition. We also believe a comprehensive approach on how to mobilize unused resources will become even more critical in the future, taking into account the budget constraints many donor countries now face.

Second, we realize money flows have become undeniably more crossborder and volatile, which while worrying should contribute to the better usage of finance within the region, as savings from one country might quickly end up being transferred to more attractive investment opportunities in others. But many Asian developing countries have not fully deregulated their capital account transactions and governance or market infrastructure is still weak. Enhancing market infrastructure properly is one of the key priorities of ABMI.

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1. Bala Bhaskaran
   (posted 21 April 2008 / 11:12:39 AM)
   
   The brief paper offers insight into the dynamics of currency apreciation and its impact on the economy. Can it not give references of research papers and case studies on the same subject? That will be a lot more useful to the researcher.