prasarn trairatvorakul : regional cooperation for improved financial resilience and liquidity support – a decade on and the challenges ahead keynote speech by dr prasarn trairatvorakul, governor of the bank of thailand, at the 10th anniversary commemoration of the launch of the asian bond market initiative ( abmi ), asian development bank, manila, 4 may. * * * ministers and central bank governors ; distinguished guests ; ladies and gentlemen, it is an honour to be part of the 10th anniversary commemoration of the launch of the asian bond market initiative ( abmi ). the abmi along with the cmim or the chiang mai initiative multilateralisation, have been at the centre of regional financial cooperation in the asean + 3 finance ministers process which have gathered momentum at this year ’ s meeting. since its inception, the abmi has been instrumental in spearheading bond market developments in our respective economies. the learning process from peer comparison and benchmarking, as well as the continued assistance from our + 3 members, has been key drivers for us to develop our own domestic bond market. over the years, the local currency bond market in asia has expanded about five folds 1 between 2001 and 2011. this growth performance exceeded that of the credit market which grew 4 times 2 during this same period. such is the success of regional cooperation which i would like to pay tribute to today. bond markets, like any development projects, have to start first at home as the base of development. today, many of the asean - 5 countries have fairly deep and liquid local bond markets. central banks, whose operation is contingent on a deep and liquid bond and foreign exchange markets, have been part of the development process for the government bond market. over the years, our financial markets have become more efficient, more sophisticated and more balanced. asean - 5 have moved from a predominantly bank - based or credit market to a growing capital market, both equity and bond. we have also strived to better manage the impact from volatile capital flows as we seek to balance between foreign inflows and capital outflow. here bond markets have been instrumental to help absorb the impact from the volatilities and sudden reversal of these flows. these developments have facilitated central banks in their conduct of monetary policy, manage market expectations, and guide the path of monetary policy. today, the abmi is taking this development further from a domestic orientation to a regional level. this is timely in view of the increasing

of regional conditions and a natural home bias, would also be a stabilizing factor during severe market stress. a stronger and broader regional institutional investor will also provide opportunities for diversification as well as alternative saving vehicle that would serve the changing demographic trends. throughout asia, we are seeing increasing demand for more sophisticated wealth management services. as regulators we also need to continue to collectively enhance our infrastructure and further harmonize regulatory regimes to support greater cross border activities. standardized market conventions help promote cross border issuance in our respective markets. but harmonization takes time as the devil is in the details. and harmonization may go beyond regulations on the trade or issuance of bonds. as cross border initiatives, they inevitably involve regulations over international capital flows which we need to also respect both host country and home country authorities. for instance, the home country may allow their savers to invest abroad, but the recipient countries still maintain controls on inflows. other regulators may permit non residents to make use of tools such as repo, as liquidity enhancing mechanism, but others may look at this measure as way to engage currency speculation. these are all delicate balancing acts which we would need to tackle as we strive to integrate our financial markets further. and while we pursue development and liberalization objectives we also need to strengthen our regional safety net. today our regional cooperation has multilayer safety net consisting of cross border collateral arrangement ( cbca ) for our banks to avail themselves of liquidity from the host central bank using collaterals at their home or head office, bilateral foreign exchange swap line, and the chiang mai initiative multilateralisation ( cmim ) serves as second line of defense and should continue to be enhanced to counter possible market turbulence. as you have heard from the minister of strategy and finance of korea, mr. bahk jaewan, the asean + 3 finance ministers and central bank governors have made progress on important features of the cmim. we have announced the doubling of the total size of the cmim from $ 120 billion to $ 240 billion. we have also lengthened the supporting period and increased the imf delinked portion, from 20 % to 30 % this year with a view to increasing it to 40 % in 2014, subject to review should conditions warrant. in serving as a regional safety net, such arrangements contribute to further development of the regional financial markets by providing a credible liquidity firewall, both for crisis resolution and crisis prevention, to anchor investors ’ confidence. it is only with bis