i am sure there will be more central banks both in asia and outside looking at asian bonds at the international level because of this initiative. but in the nest step, the asian bond fund will extend the investment into the various local bond markets in local currencies. the fund will be calling on asian countries. it will be ready to invest, but only if the market builds up the right conditions, and removes all the impediments. and you know that until the last impediment is removed, the market will not be attractive to foreign investors. and since these impediments often extend across many government departments and functions, as well as the judicial system, so only the strongest political commitment can remove all of them. so will the political commitment come forward? with money waiting at the door, and with peer pressure and available assistance within asia, i think there is a good chance that it will. someone asked me earlier how much of the asian international reserves will have to go into these asian bond funds. well, i hope not a lot. it is not the job of the authorities to replace the market. what the authorities try to do is simply to act as a catalyst. in the long run, private money in asia should find its own way to invest in asia, whether it is savings from insurance companies in japan, mutual funds in hong kong or pension funds in singapore investing in corporate bonds all over asia. will there be enough opportunity for investing in asia? certainly! many asian countries still have very young populations. half of thais are under the age of 30. demand for construction, household products and infrastructure will be strong for many decades. there is ample opportunity for asian savings to find asian investments.

. in such a situation, the central bank had no way to act as lender of last resort. it could buy in government bonds, but the banks with bonds to sell are not the ones with liquidity need. money did not go round. in such a situation, if instead the market for corporate bonds had existed, financial institutions would have had some corporate bonds in hand - instead of just boxes of loan contracts. they could have sold the bonds. they might incur some losses. but at least they can look after themselves in the midst of crisis - regardless of the perception about their credit. the local bond markets in emerging asia, therefore, is an important safeguard that can help prevent a crisis. and since we want the asian countries to become more and more closely linked, lack of crisis is certainly good news. the bond market is a much better channel for capital flow than the bank channel. if capital comes in through the banks, foreign lenders may lend too much. they may bet on the eventual government bail out. on the other hand, if it comes through the bond market and if it is transparent and well - managed, resource allocation could be improved. however, for the local bond markets to be attractive to foreign investors, one has to accomplish many things. harmonization of standards and codes to international best practice must be done. hedging markets must be available for both currency risk and interest rate risk, and this may mean a rethink on capital controls. perhaps a gradual step - by - step relaxation in needed. transparency is also required both in price discovery and the management of both the macroeconomy and the individual corporates. the legal system must respect creditors ’ rights, and for investment products to be available for sale across asian countries, a uniform single passport of consumer production by the sec ’ s must be made. now comes the final question. what is the purpose of the asian bond fund? you may recall that the asian bond fund was announced on 2 june 2003 at us $ 1 billion by 11 central banks in east asia and pacific countries. initially it will invest in sovereign and quasi - sovereign bonds issued by asian governments in the international markets. this by itself already sparked a keen interest in asian bonds. i know of at least one asian central bank that had not invested in asian bonds before, other than in jgb ’ s, but has now started buying directly in addition to investment in the asian bond fund. thailand is now looking at doing this also.