Aside from providing stable and long-term financing alternatives for businesses and public sector agencies in the region, this would also help strengthen the financial system in the region by making available a diverse choice of alternatives for investment, as well as support economic growth through more stable financial systems in the region. 2  BIS Review 24/2003  The necessity to develop a regional bond market While many countries in the region have begun the process of developing bond markets – or where they exist already, deepen and widen those markets – countries are also looking to promote the development of the regional bond markets in parallel with development of their own markets. Given the problems of economies of scale as mentioned earlier, development of the regional bond markets would offer a more efficient and viable option in neighboring countries until these countries’ financial systems are more developed and have a more sophisticated market structure in place. Roadmap for the development of Asian bond markets Over the past year, the development of Asian bond markets has been discussed in various international fora, such as ASEAN Finance Ministers Meeting, the Executives Meeting of East Asia-Pacific Central Banks (EMEAP), Asian Cooperation Dialogue (ACD), and the Asia-Pacific Economic Cooperation (APEC). Development of the demand side, involves promoting the pooling of investor base or the pooling of reserves under the Asian Bond Fund initiative, which has had a good start under the cooperation of central banks.

Thirachai Phuvanatnaranubala: The strengthening and development of regional bond markets Speech by Mr Thirachai Phuvanatnaranubala, Deputy Governor of the Bank of Thailand, at the APEC Business Advisory Council Meeting, Tokyo, 16 May 2003. *  *  *  Lessons from the Asian crisis – a local perspective Thailand’s experience The crisis of 1997 brought to light weaknesses in the country’s financial sector development and the sequencing of liberalization policies. Prior to 1997, the function of financial intermediation fell almost entirely on commercial banks. They mobilized funds mainly through deposits, which accounted for roughly 80 percent of domestic banking liabilities. At the same time, they held almost 70 percent of total financial sector assets, most of which were in the form of credits to the household and corporate sectors. Direct financing through the domestic bond market – through both public and corporate bonds – was relatively small and not well developed. Nine consecutive years of fiscal surplus between 1988 and 1996 provided no incentive for the government to issue regular and substantial amount of government bonds. The resultant limited supply of government bonds inhibited the development of a risk-free benchmark against which to price corporate issues and mark to market daily trading. The crisis brought to the fore an imbalance in the structure and operation of the Thai financial markets. With financing channels limited to bank loans, Thai businesses faced severe liquidity crunch as the banking sector sharply curtailed their credit operations amidst high non-performing loans and massive recapitalization needs.