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					                         Fostering Asian Bond Markets

                                    4 September, 2003
                           at Conference organized by KERI




     Gyutaeg Oh         Jae-Ha Park       Changyong Rhee

 Korea Fixed Income Korea Institute of   Korea Fixed Income
  Research Institute     Finance         Research Institute
/Chung-Ang University jhpark@kif.re.kr     /Seoul National
    gtoh@kfiri.co.kr                         University
                                           rhee5@kfiri.co.kr
                    Background

•   Resurrection of interest in “Asian Bond Market”
    after the Asian Financial Crisis

1. 1990s: Talks but no action
    * Third time zone argument by ADB, APEC, HKMA
      - insufficient Demand
      - regulation, capital control
      - no common currency
      - insufficient infrastructure
      - most importantly, political conflicts

2. Changing environment after the financial crisis
       - need for regional financial cooperation
       - liquidity in the region (CA surplus)
       - need to develop capital market
       - political will (eg. ABF by EMEAP)
       - action oriented
                                1
Changing Environment for Asian Bond Market

       Need for Prevention of Crisis
    Asian Crisis
        BANK-Dependent
        Financial Structure       Double Mismatch Problem           Risks of
        Foreign borrowing          (Maturity + Currency)        Financial Crisis
          without hedge



       Recent Pattern of Capital Flows in Asia
    •       Huge current account surplus => From capital importer to exporter
    •       Rapid increase in foreign reserves($1.2 trillion)
    •       Import safe assets and export risky assets

=> Asia’s savings are NOT being recycled into Asia`

                                         2
Capital Accumulation in Asia after the Crisis

    Accumulated current account surplus including Japan
     since 1997 amounts to $930 billion                                                   (US$ billion)

         300.00
         250.00
         200.00
         150.00
         100.00
          50.00
           0.00
                  1991    1992   1993    1994   1995       1996   1997   1998   1999   2000    2001
         -50.00
        -100.00

                                                CA              ncl ng
                                                           C A (i udi Japan)

     Source: International Monetary Fund, International Financial Statistics and data files.

     Foreign Reserves owned by Asian Countries:
     US$1.2 trillion (56% of the total reserves of the world)
                                                       3
Pattern of Capital Flow after the Crisis


  Asian countries are exporting safe capital while importing risky capital
                     (importing safe assets, exporting risky assets)


  Asian Country                                               Asian Issuer

 Foreign Reserve                                                  A

                                Hub:USA,
                        Other Developed Markets


  Asian Country                                              Asian Issuer

 Foreign Reserve                                                  B

                                     4
Investment Pattern of East Asia in the U.S Markets

  Most of the Asian investment in the U.S. are concentrated on T-bond
   and government agency bond
                                                                                (US$ billion)
                Total    Common      Other       U.S.       U.S.     Corporate (B+C)/A*100
                 (A)      stock      equity    Treasury     govt.       and
                                               bond (B)    agency    municipal
                                                          bond (C)     bond
  China             92         0.9      0.49         71       19.6        0.15          98%
  Indonesia         10        0.27      0.24         8.9      0.13        0.27          90%
  Korea             39        0.37       0.2       23.7       14.6        0.09          98%
  Malaysia         3.0        0.32      0.18         2.3      0.02          0.1         77%
  Philippines     5.62        0.64      0.27         3.0      1.53        0.13          80%
  Singapore       82.2        33.8       3.4      34.19       4.59          6.0         47%
  Thailand        11.4        0.25      0.17      10.97       0.09       0.014          97%
  Hong            76.2        16.1       2.1       38.1       17.6        2.11          73%
  Kong
  Japan          430.5      128.1       16.3      221.2       42.6        22.2          61%
  Source: U.S. Department of Treasury, Report on Foreign Holdings of U.S. Long-term Securities
  2002


                                               5
Asian countries are exporting risky assets

    • Equity inflows into East Asia reached $77 billion in 1999, $59
      billion in 2000, $11 billion in 2001

                      Capital Inflows in East Asia              (US$ billion)

           100
            50
             0
           - 50
               76

               78

                       80

                       82

                               84

                               86

                                       88

                                       90

                                               92

                                               94

                                                        96

                                                                98

                                                                00
            19

            19

                    19

                    19

                            19

                            19

                                    19

                                    19

                                            19

                                            19

                                                     19

                                                             19

                                                             20
         - 100
         - 150
         - 200

                       FDI Inflow            FDI Inflow(ex.C hina)
                       Equity Inflow         Bond Inflow
                       Bank Loan Inflow      Govt Inflow
Source: IMF, IFS
                                      6
Asian Bond Markets(USD) are not well-developed
                                                                       (End-October 2002)
    Index Provider             HSBC                  JP Morgan           Merrill Lynch
     Index Name        Asian Dollar Bond       JPMorgan Asia         Asian Dollar Index
                       Index (ADBI)            Credit Index (JACI)   (ADOL)
Currency / Coupon type                                               USD/Fixed-rate
      (sovereign,      USD/Fixed-rate          USD/Fixed-rate        (floating rate Brady
   quasi-sovereign,                                                  bonds are included)
      corporate)
                                               US$300mm
 Minimum Issue Size    US$ 250mm               (for India :          US$150mm
                                               US$150mm)
Market Capitalization US$ 58,447mm             US$ 68,680mm          US$ 77,893mm
                                                                           China: 8.7%
                            China:10.3%       China: 9.8%                     HK:20.2%
                                                 HK:19.0%
                               HK:17.8% South Korea:22.2%            South Korea:24.4%
                      South Korea:23.3%                                 Malaysia:15.4%
                                           Malaysia:17.5%
                         Malaysia:23.6% Philiphines: 4.8%            Philiphines:14.7%
 Country Weightings   Philiphines:16.0%                                Singapore:10.5%
                        Singapore: 6.0%   Singapore: 2.1%               Thailand: 2.8%
                         Thailand: 2.0%    Thailand: 2.1%              Indonesia: 1.1%
                        Indonesia: 1.0%   Indonesia: 0.6%                  India: 1.4%
                                              India: 1.9%               Pakistan: 0.8%
                                                                            Cash: 0.04%


                                           7
Potential losses due to lack of proper recycling

   Loss of opportunities for East Asian investors to earn
    higher returns
   Loss of opportunities for East Asian financial market to
    grow in size
   Loss of opportunities for East Asian financial institutions
    to develop
   Exposure to sudden reversal of capital flows and currency
    crisis
   Loss from possibility of Dollar weakness




                                 8
Impediment to recycling: Double Mismatch
                             Maturity and Credit Quality
                              Gap



                                       Asian
                            Asian                   Asian
                                       Bond
                            Issuers                Savings
                                      Markets



                            Long-Term       Short-Term

                            Low Credit      High Credit
                            Quality             Quality

                        9
Currency Mismatch Problem

 Foreign currency swap markets are not well developed in Asia


                                                Savings
          Asian                                    in
                           Asian Bond
         Issuers                                 Capital
                             Markets
                                                Abundant
                                                Countries
    Issue bonds                           Currency risk
    denominated in                         Country risk
    local currency

                              10
Other Structural Impediments to Recycling

    Limited Supply Base: Low Issuing Volume (because credit
     ratings of Asian corporations are usually low)
    Limited Demand Base: Lack of Institutional Investors
    Poor Infrastructure
    Lack of Risk-Taking
    Capital Control and Regulation




                              11
 Benefits of Recycling Asian Savings into the region: An Example


Country I
   SMEs

                       Capital Market                    Capital-
Country II                    or           Portfolio
                                                        Abundant
                          Financial       Investment
   SMEs                                                Countries in
                       Intermediation                     Asia
                           in Asia
Country III
   SMEs


                                           • Diversification
• Economic Development
                                           • More Choices
• Crisis Prevention                        • Better Return/Risk


                                12
Recent Actions to develop Asian Bond Markets


 ASEAN+3:
  - FMM adopted Asian Bond Market Initiatives (02.11)
  - Informal session of ASEAN+3 Finance Ministries and Central
   Bank Deputies meeting on Fostering Bond Markets in Asia held on
   28 Feb, 2003 in Tokyo (established six working groups of
   volunteers) : [Korean Proposal for fostering ABM using
   securitization and credit guarantee was submitted.]
 - the first meeting of both groups of volunteers were held on April 4,
   2003 in Seoul, Korea
 - the second meeting was held on June 16 in Tokyo, Japan
 - the third meeting was held on July 10 in Hua Hin, Thailand
                                  13
Recent Actions to develop Asian Bond Markets


       Informal Working Group                     Chaired by

 I     New Scheme of Securitized Debt Instruments Thailand

 II    Regional Credit Guarantee Facility         Korea

 III   Exchange Control and Settlement            Malaysia

       Issuing Local Currency Bonds by Foreign
 IV                                               China
       Entities
                                                  Singapore and
 V     Credit Rating Agency
                                                  Japan
                                                  ADB, Asian
 VI    Technical Assistance
                                                  Secretariat, etc

                                    14
Recent Actions to develop Asian Bond Markets


 APEC:
  - FMM adopted Securitization Issues in September, 2002 (Co-
  chaired by Hong Kong, Korea, and Thailand)
 - High-Level Policy Dialogue was held on April 4, 2003 in
  Seoul, Korea
 - TWG meeting was held on July 10 in Hua Hin, Thailand


 EMEAP:
 - Established Asian Bond Funds (1 billion U.S. $)(June, 2003)

                              15
      Short-Term Objective:
  Korean Proposals for fostering
    Asian Bond Market using
Securitization and Credit Gurantee




               16
Objectives of Korean Proposal


 Establish a process that facilitates Asian savings to be
   smoothly invested back in the region
  - Mobilize savings from capital-abundant countries to
    promote financing of both SME and government of
    developing countries


 Issue bonds denominated in local currency to mitigate the
  currency risks assumed by issuers




                                17
 Korean Proposal: How to Increase the Supply


 Asian Bond Fund by EMEAP boosts demand side

 How to solve supply side problems?

  - Credit quality gap between the low credit ratings of issuers
  and minimum credit requirement of investors
  ⇒    Credit guarantee coupled with securitization could play
       significant role in promoting sound and deep bond
       markets
  - Risk should be assumed by key players who have keen
    interest in recycling issues (or through international
    cooperation in the region)

                               18
Proposal 1 : SME Financing

     Goal:
        Promote SME financing of developing countries in
        local currencies by mobilizing savings from capital-
        abundant countries


     Means:
        Adopt securitization with proper risk sharing and
        minimal moral hazard problems


     Countries participate on a voluntary basis

                               19
Example 1-1: Scheme for Proposal 1
  Issued in Local Currency                              Issued in A currency
  Country I
                Senior
                                   SPC                          Senior
     SME
    Loans/      Junior
    Bonds                            in
                                                                Junior
  Country II
                               Country A
                Senior
    SME                                   Credit guarantee
    Loan/       Junior
    Bonds                      Government
                               Agency (GA)
  Country III
                Senior                         Risk to Investors
    SME
                                   Credit     Currency     Liquidity   Interest
    Loan/       Junior
    Bonds                            GA        basket        Yes         Yes


                              20
Major Points of Example 1-1

  Two-Tier Securitization: one in developing countries and
     the other in capital-abundant countries
  Capital importing countries
     • Government FI/agency securitize SME loans/bonds
     • Junior tranches: assumed by local institutions which
      are in charge of selecting the firms included in the pool
      => minimize moral hazard problems
     • Senior tranches: guaranteed by local credit guarantee
      agencies; some are sold in the local bond markets, the
      remainder transferred to capital abundant countries

                               21
Major Points for Example 1-1 : continued
  Establish SPC in capital abundant countries
     • Underlying assets are senior tranches (denominated
       in local currency) transferred from developing
       countries
     • Well-known government agencies (eg. KCGF, JBIC)
      will guarantee the senior tranches issued in those
      countries
  SPC will issue currency-basket-linked bonds
     (denominated in capital abundant country’s currency)
     and sell to the investors
      Currency risks are assumed by investors
                                 22
Major Points for Example 1-1 : continued

   Cooperation among institutions which assume junior
      tranches is critical for a successful implementation of
      this scheme




                               23
Example 1-2: Another Scheme for Proposal 1-1
  Issued in Local Currency                          Issued in A currency
  Country I      SWAP

                 Senior                                      Senior
    SME                            SPC
    Loans/
    Bonds        Junior             In
                                                             Junior
  Country II
                 SWAP          Country A
                 Senior
    SME
    Loans/                               Credit guarantee/swap
                 Junior
    Bonds                      Government
                 SWAP
                               Agency (GA)
  Country III
                 Senior                       Risk to Investors
    SME
    Loans/                         Credit    Currency   Liquidity   Interest
                 Junior
    Bonds                           GA         NO         Yes         Yes


                              24
Major Points for Example 1-2

   Investors do not assume currency risk
   Currency risk is assumed by swap providers
   GA in country A provides the SPC with currency swaps
   Then GA hedges currency risk using back-to-back swaps
      with
     • swap dealers when developing countries have
       currency swap markets
     • central banks of developing countries in case swap
       markets are not available
   Other points are the same as those of example 1-1

                               25
Example 2: NPL Disposal and Infrastructure Financing
  Issued in Local Currency                          Issued in A currency
                 SWAP
  Country I
                 Senior                                      Senior
   NPLs or
                                   SPC
  Infra Loan     Junior             In
                                                             Junior
                 SWAP          Country A
  Country II
                 Senior
   NPLs or                               Credit guarantee/swap
  Infra Loan     Junior
                               Government
                 SWAP
                               Agency (GA)
  Country III
                 Senior                       Risk to Investors
   NPLs or                         Credit    Currency   Liquidity   Interest
  Infra Loan     Junior
                                    GA         NO         Yes         Yes


                              26
Major Points of Example 2
    The two-tier securitization scheme is similar to that of
     SME financing
     • Underlying assets are NPLs or infrastructure loans
  Each country has different financial and legal systems
     • Korea, Japan: Well established ABS law and ABS
                      market volume
     • China: Trust law is set up
     • Thailand, Malaysia,Philippines:
         ABS law and market volume developing



                               27
Major Points of Example 2
  Therefore, establishment and harmonization of legal,
     accounting, loan collection systems among participating
     countries is necessary for the first tier securitization




                                 28
More explanation for Credit Guarantee Mechanism


 Credit guarantee mechanism should be used in minimum.
  - use of existing credit guarantee schemes in 1st stage
  - financial credit guarantee, not


 Credit guarantee markets in Asia is largely underdeveloped.


 Regional credit guarantee mechanism does not exist.




                                29
Asia Credit Supplementation Institution Confederation (ACSIC)
   Founded in 1986 at the 14th Internationl Small Business
    Conference
   13 institutions in 10 Asian-Pacific countries




                                 30
Local Credit Guarantee Facilities (13 in 10 countries)

                                                    # of        Outstanding
 Country        Name          Founded      Type
                                                    employees   Guarantee

           Korea Credit                   Public                  USD 27
                               ’76.6.1                2,270
           Guarantee Fund                 Fund                    billion
 Korea
           Korea Technology               Public                  USD 12
           Credit Guarantee    ’89.4.1                1,171
                                          Fund                    billion
           Fund

           Small Industry                 GSE
                                                                  USD 94
Thailand   Credit Guarantee   ’91.12.30   (MoF         115
                                                                  million
           Corporation                    93.18%)
                                          GSE
           Credit Guarantee                                      USD 1.3
Malaysia   Corporation         ’72.7.5    (Bank       223
           Malaysia Berhad                Negara                 billion
                                          79%)



                                   31
Local Credit Guarantee Facilities (13 in 10 countries)
                                                       # of        Outstanding
 Country           Name          Founded     Type
                                                       employees   Guarantee
              National
              Federation of                 Federati                USD 281
                                 ’51.1.24                5,200
              Credit Guarantee              on                      billion
              Corporation
                                            Special
              Credit Guarantee                                       USD 54
                                            Govern
  Japan       Corporation of     ’37.8.31                704
                                            ment                     billion
              Tokyo
                                            Entity
              Japan Small and
              Medium                        Public                  USD 422
                                 ’99.7.1                 931
              Enterprises                   Fund                    billion
              Corporation
               Small Business
               Guarantee and                                         USD 14
Philippines                      ’92.7.16    GSE          74
               Finance                                               million
               Corporation
                                      32
Local Credit Guarantee Facilities (13 in 10 countries)

                                                         # of        Outstanding
 Country          Name            Founded      Type
                                                         employers   Guarantee
                                              Public                  USD 132
             P.T. ASKRINDO         ’71.4.6    Corpora       518
                                              tion                    million
Indonesia
                                              Public                  USD 433
              Perum Sarana        ’81.12.23   corporat      205
                                              ion                     million


 Chinese     Small & Medium                                           USD 4.8
             Business Credit       ’74.7.9     GSE          246
 Taipei      Guarantee Fund                                           billion

            Deposit Insurance &                                        USD 54
  Nepal     Credit Guarantee      ’74.9.24     GSE          50
            Corporation Pvt.Ltd                                        million




                                       33
Local Credit Guarantee Facilities (13 in 10 countries)

                                Founding             # of        Outstanding
Country         Name                        Type
                                in                   employees   Guarantee

 Sri      Central Bank of Sri              Central                 USD 36
                                ’50.8.28                23
 Lanka    Lanka                            Bank                    million

 Papua      Small Business                 Govern                 USD 0.8
 New        Development           ’92.     ment         23
            Corporation                    body                   million
 Guinea




                                     34
Current Situations
 Current Situations
     Ownership:       Mostly public entities
     Business Scope: Loan Guarantees
     Size:            Small except for Japan and Korea


 Necessary measures to be taken


     Business Scope should be broadened to cover credit enhancement to
      securitization
     Proper personnel and skill for credit analysis, pooling, and
      structuring should be developed
     International cooperation should be strengthened
                                     35
How to Provide Credit Guarantee in Asia

 Use of Credit Guarantee Mechanisms


   • 1st Stage: Utilization of Existing Credit Guarantee
               Institution of Each Country


   • 2nd Stage: Establishment of “Regional Credit Guarantee
                Facility”




                              36
ASIA Ltd Experience
   Asian Securitization & Infrastructure Assuarance Ltd (ASIA
    Ltd)
     •   Asia’s first and only financial guarantee company
     •   Organized by ADB and CapMAC in 1996
     •   Incorporated and regulated in Singapore
     •   US$250 million in total claims paying resources
     •   shareholders include: MBIA (formerly CapMAC), ADB,
         Government of Singapore Investment Corporation, AIG,
         Employees Provident Fund of Malaysia, DEG, FMO, Korea
         Long Term Credit Bank


   Arranged, guaranteed, reinsured $2.5 billion in Asian
    financing over a two-year period
   Asian debt crisis led to downgrade of its claims-paying
    ability rating in 1998
   Company in a “run-off” mode

                               37
Lessons Learned from the ASIA Ltd Experience

 ASIA Limited could not follow local market situations;
  Limited amount of business deal flows caused too risky
  underwriting
  → Cooperation between regional and local credit guarantee
    facilities is essential;
    Cooperation will produce continuous deal flows

 Risk exposure relating to country coverage and first-cut loss
  position was big
  → Geographical diversification and reinsurance model is
     adopted; first cut loss is assumed by local facilities,
     second cut loss is assumed by regional facility



                              38
Lessons Learned from the ASIA Ltd Experience
 Initial capital size was small and additional callable capital
    was not injected from participating shareholders during
    stress periods
    → Proper ownership structure and sufficient capital size is
       important (multilateral agency rather than private
       company is desirable)

 Underwriting was conducted in US dollar
  → Need to encourage local-currency based businesses;
     Part of capital can be contributed in local currencies

 Credit rating (A) was too low
  → AAA or AA rating is necessary
                                39
      Long-Term Objective:
Development of Asia Bond Markets




              40
Recent Developments - 2003

   Japan
      • Reform Off-Shore Markets Regulations
      • Facilitates overseas firms to issue bonds in Tokyo markets


                                             Expanded Part

                                        Foreign
            FIs                          Firms                         Foreign
                                                                      Investors
    Loan          Deposit              Bond             Bond
                                                                     Bond
                       Bond           Securities          Bond
           Bank                                                       Insurance
                                        Firms
                       Bond                         Bond
                                 Off-Shore markets In
                                       Japan




                                            41
Recent Developments - 2003

   Thailand
     • Relax capital account rules for domestic investors seeking to put money outside the
         country
     • Domestic investors are allowed to buy as much as $500 million of bonds issued by
         foreign government and other issuers provided they are rated investment grade
     • (need approval from the Bank of Thailand)
     • Will issue baht-denominated bonds in the (Japanese) off-shore markets

                                 Proposed Term Sheet
             Issuer :             The Government of Thailand through the Ministry of Finance
             Place of Issue :     Tax neutral, offshore center with full registration, transfer,
                                  and settlement facilities
             Currency :           Thai baht (THB) Denomination
             Amount :             THB 20,000 million
             Tenor :              10 Years
             Coupon Interest Rate : 3% p.a. (approx. ) fixed with semi-annual interest
                                      payment, no withholding tax levied on the interest
                                      payments made by the issuer
             Principal Repayment :     one lump-sum (bullet) principal repayment at maturity

             Underwriting and Legal Fees : not more than 10 basis points of the issue size


                                                      42
Characteristics of Eurobonds
   Characteristics
     • They are fully negotiable and mostly interest bearing securities
     • They are issued in bearer form
     • Interest is paid gross, and free from taxes
     • They are issued through an international syndicate of underwriters
     • They are free from regulation, although some markets such as the Swiss franc
        market are regulated
     • They are listed on one or more exchanges, although very few bonds are actively
        traded on those exchanges

   UK monetary authorities took measure in 1963
     • Issues of bearer securities was permitted
     • Tax on securities transfers or their sales was reduced
     • Facilities of London markets were open for the issue of foreign currency bonds

   Luxemburg, or Netherlands Antilles does not tax Eurobond interest paid to non-resident:
    issuing firm form a special finance subsidiary here (in 1987, US Treasury repealed)

   15% US Interest Equalization Tax (in 1963) and Regulation Q
   Lack of regulation
      • Little control over European investors’ purchase of foreign currency securities on
        foreign markets
                                             43
Brief History (by John Langton ISMA)
   US$ 5 million issue made by Petrofina, a Belgium company in 1957

   In 1961 SACOR (Portuguese company) issed bond in European Unit of account

   On July 1 in 1963 SG Warburg to float US$15million Autostrade

   The dollar value of outstanding debt in the international bond market was the equivalent
    of over USD 6 trillion in 2002, making it the largest market for raising international
    capital

   Its incredible diversity in terms of the issuers, currencies,credit quality, and features of the
    instruments

   The value of secondary market trading in 2002 was in excess of 40 trillion Euros;some
    50% or more being repo related; by way of comparison, the total turnover in equities on
    all exchanges in the EU was ver 10 trillion Euros

   ISMA member register indicates that 30,000 individuals are directly employed in the
    inernatinal securities markets, by the delaers and brokers; the number can be multiplied
    several times to reflect the numbers employed in investment management firms, clearing
    and settlement


                                               44
All international bonds - Last 5 years
      Yearly growth (US$bn)

                                         1,742

                                                 1,563



                        1,178    1,200



                829




               1998     1999     2000    2001    2002
     Source: JPMorgan




                                                         1
                                45
Comparative Characteristics of Bond Issues in the International
Bond Market

                            US Market: Domestic and        Non-US Market: Domestic        Eurobond Market
                            Foreign Bonds                  and Foreign Bonds
Regulatory Bodies           Securities and Exchange        Official agency approval       Minimum regulatory
                            Commission                                                    control
Disclosure requirements     More detailed                  Variable                       Determined by market
                            • High initial expense                                        practices
                            • High ongoing expense
                            • Onerous to non-US firms
Issuing costs               0.75-1.00%                     Variable to 4.0%               2.0-2.5%
Rating requirements         Yes                            Usually no.                    No, but commonly done
Exchange listing            Usually not listed             Listing is usual.              Listing is usual.
Queuing                     No queue                       Queuing is common              No queue
Currency of                 United States does not         Part of queuing                No restrictions on use of
denomination restrictions   restrict the use of US$        • Many foreign countries       US$ or C$
                                                           (Germany, Switzerland)
                                                           have in past or now restrict
                                                           use of currency
Speed of Issuance           Relatively slow until Rule     Variable.                      Usually fast-”bought
                            415 on “shelf registration”                                   deal” leads to fast
                                                                                          issuance

                                                          46
Comparative Characteristics of Bond Issues in the International
Bond Market

                  US Market: Domestic and        Non-US Market: Domestic      Eurobond Market
                  Foreign Bonds                  and Foreign Bonds
Borrower/Issuer   (+) Large market, great        (+) Local visibility,        (+) Lower annual
incentives        depth                          diversification of funding   interest expense, speed
                  (-) Disclosure is costly to    sources                      of placement
                  foreigners                     (-) Markets may be small,    (-) Cannot sell issue in
                                                 queuing may prevail          U.S. until seasoned.
Lender/Investor   (+) Great depth and            (+) Diversified currency     (+) Diversified currency
incentives        liquidity, appeal of           portfolio                    portfolio, bearer bonds,
                  standardized information       (-) Reporting to tax         no withholding tax on
                                                 authorities and              interest payments.
                                                 withholding taxed may        (-) Less liquidity and
                                                 apply                        information disclosures




                                                47
Currency of Denomination Restrictions in Eurobond Markets
   There are no rerstrictions on either the US$ or the C$ in acting as a unit of account

   In the past or still many countries (such as Japan and Germany) seek to control bond
    issues as part of money control. The Swiss do not permit Eurobond issues

   In principle, a central bank can block the transfer of their currency to the issuer. This is
    because all transactions are via national clearing systems.




                                               48
                               U.S. Dollar

                                    EURO
                                                                             699.6 670.2




     Source: JPMorgan
                             British Pound



                                                                     100.0
                            Japanese Yen




                                                              27.7
                              Swiss Franc




                                                             25.5
                           Canadian Dollar




                                                      12.5
                          Australian Dollar




                                                     11.9
                          Norwegian Krone


                                                5.6
                         Hong Kong Dollar
                                               2.4
                            Czech Koruna
                                              1.4
                                                                                           Currency Breakdown (US$bn)




                          Singapore Dollar
                                              1.4




49
                        New Zealand Dollar
                                              1.2




                              Polish Zloty
                                              0.9
                                                                                                                        All international bonds - 2002




                         Taiwanese Dollar
                                              0.8




                            Swedish Krona
                                              0.7




                         Hungarian Forint
                                              0.5




                        South African Rand
                                              0.4




                            Slovak Koruna
                                              0.3




                             Danish Krone
                                              0.2




                            Mexican Peso
                                              0.1




                          Colombian Peso
                                              0.1




                          Icelandic Kronur
                                              0.0




 2
All international bonds - 2002

    Maturity Breakdown (US$bn)
                        540


             446




                                  311




                                                           176


                                                  84


                                                                   6


           1 to 3       4 to 7   8 to 10        11 to 15   16+   Perpet.
     Source: JPMorgan




                                                                           3
                                           50
All international bonds - 2002
   Regional Breakdown (US$bn)
                845



                          654




                                          48
                                                     10         6

             Europe     Americas   Asia / Pacific   Japan   Africa / ME
     Source: JPMorgan




                                                                          4
                                     51
All international bonds - 2002
    Rating Breakdown (US$bn)

         514




                        295   294
                                                               278




                                    143



                                               23   16
                                                          0

         AAA            AA     A    BBB        BB   B    CCC   NR
     Source: JPMorgan




                                                                     5
                                          52
COUNTRY             RESTRICTIONS APPLICABLE TO CROSS-BORDER BOND TRANSACTIONS
Brunei Darussalam   None
Indonesia           Not regulated
Laos                All capital transactions require Bank of Laos (central bank) authorization
Malaysia            Sale or issue locally by nonresidents requires approval.
                    Purchase abroad by residents does not face controls for transactions valued at less than RM
                    10,000; but for those amounting to RM 10,000 or more, prior approval is required.
                    Sale or issue abroad by residents requires qpproval.
Myanmar             Not available
Philippines         Purchase locally by nonresidents: Registration with the Bangko Sentral ng Pilipinas is
                    necessary only if the foreign exchange needed for capital reputation and remittance of
                    dividends, profits, and earnings that accrue thereon is purchased from the banking system.
                    Sale or issue locally by nonresidents: These transactions are allowed only after the proper
                    license to do business in the country is secured from the appropriate government agency.
                    Purchase abroad by residents: For amounts above $6 million, for which the source is the
                    banking system, prior approval and registration by the Bangko Sentral ng Pilipinas is
                    required.
                    Sale or issue abroad by residents: These transactions are subject to prior approval by the
                    Bangko Sentral ng Pilipinas if principal and interest amortization are to be serviced using
                    foreign exchange purchased from the banking system or guaranteed by public sector
                    entities or local banks.

                                                     53
COUNTRY     RESTRICTIONS APPLICABLE TO CROSS-BORDER BOND TRANSACTIONS
Singapore   Sale or issue locally by nonresidents: Financial institutions may, without prior consultation
            with the Monetary Authority of Singapore, arrange Singapore dollar bond issues for
            nonresidents if the Singapore dollar proceeds from the issuance are used for preapproved
            economic purposes in Singapore. Financial institutions must consult the Monetary
            Authority of Singapore when the proceeds are to be used outside Singapore or for purposes
            not explicitly allowed. The proceeds from all such bond issues must be converted or
            swapped into foreign currency for the use outside Singapore. Effective November 26,
            1999, all rated and nonrated sovereigns and foreign corporations are allowed to issue
            Singapore dollar bonds. (Previously, only foreign entities of good standing were allowed to
            issue these bonds.) In the case of unrated corporations, the investor base is restricted to
            sophisticated investors.
Thailand    The sale or issue of securities is under the jurisdiction of the Securities Exchange
            Commission (SEC). Under the securities law, different rules and regulations apply to
            capital market securities (those with maturity of more than one year) and short-term money
            market securities (those debt securities with a maturity of not more than one year.) The
            regulations imposed on capital market securities are generally stricter than those imposed
            on short-term money market securities.Companies wishing to issue securities to the public
            need approval from the Bank of Thailand and the SEC.
            Sale or issue locally by nonresidents: These transactions require approval of the Ministry
            of Finance, the Bank of Thailand, and the SEC.
            Purchase abroad by residents: The potential issuer must submit an application for approval
            to the SEC, and permission will be granted if the issuer can prove that the security will be
            pooled exclusively on primary or secondary markets abroad.
                                             54
COUNTRY            RESTRICTIONS APPLICABLE TO CROSS-BORDER BOND TRANSACTIONS
Vietnam            There are controls on all transactions in capital and money market instruments and in
                   collective investment securities.
US                 None reported
Japan              None
Germany            None reported



* Source : International Monetary Fund, Annual Report on Exchange Restrictions, 2000




                                                    55
       Average Nominal Interest Rates, Inflation Rates, and Ex Post Real Interest Rates
                                             1980-2000


                     1980-2000                                         1994-2000
COUNTRY              Interest Rate   Inflation Rate        Real Rate   Interest Rate   Inflation Rate     Real Rate
PANEL A: GOVERNMENT BOND RATES
Thailand             9.82            4.70             5.12             9.05            4.28             4.77
Myanmar              -               -                -                11.08           18.53            -7.45
US                   8.14            3.90             4.24             6.01            2.53             3.48
Japan                4.73            1.60             3.13             2.09            0.28             1.80
Germany              6.66            2.47             4.18             5.25            1.60             3.66
PANEL B: TREASURY BILL INTEREST RATES
Malaysia             4.95            3.46             1.50             4.90            3.35             1.55
Philippines          14.38           10.31            4.07             11.40           7.16             4.24
Singapore            -               -                -                1.20            1.28             -0.08
US                   6.56            3.90             2.66             4.90            2.53             2.38



                                                          56
       Average Nominal Interest Rates, Inflation Rates, and Ex Post Real Interest Rates
                                             1980-2000


                     1980-2000                                      1994-2000
COUNTRY              Interest Rate   Inflation Rate     Real Rate   Interest Rate   Inflation Rate     Real Rate
PANEL B: TREASURY BILL INTEREST RATES
Germany              5.43            2.47             2.95          3.74            1.60             2.14
PANEL C: MONEY MARKET INTEREST RATES
Indonesia            15.39           10.55            4.84          19.92           14.36            5.56
Malaysia             5.73            3.46             2.27          5.47            3.35             2.12
Singapore            4.99            2.11             2.88          3.24            1.28             1.97
Thailand             9.70            4.70             5.00          7.97            4.28             3.69
US                   7.18            3.90             3.28          5.20            2.53             2.67
Japan                4.08            1.60             2.48          0.70            0.28             0.41
Germany              5.72            2.47             3.25          3.72            1.60             2.12


* Source : IMF, International Financial Statistics, compiled by the International Monetary Fund.

                                                      57
      Standard Deviations of Currencies and a GDP-Weighted Currency Basket
                 (Monthly Percentage Changes in Exchange Rates, 1990-2000)


COUNTRY              With respect to US$       With respect to DM         With respect to YEN
Combodia             9.10                      9.55                       9.75
Indonesia            10.11                     10.37                      10.25
Laos                 7.34                      7.72                       7.99
Malaysia             3.30                      4.18                       4.45
Myanmar              1.55                      2.00                       2.67
Philippines          3.27                      4.43                       4.64
Singapore-Brunei     1.72                      2.81                       3.04
Thailand             4.10                      4.60                       4.84
BASKET*              4.06                      4.64                       4.76

* The weights of the currencies in the basket are based on 1996 GDP: Cambodia, 0.4%;
Indonesia, 27.2%; Laos, 0.3%; Malaysia, 12.1%; Myanmar, 14.8%; Philippines, 10.2%;
Singapore-Brunei, 12.2%; Thailand, 22.8%. Vietnam is not included due to lack of data on
exchange rates. The Brunei dollar is pegged to the Singapore dollar at par and are therefore
taken together.

                                                 58
Government Bond Markets in Asia
                                   아시아 각국의 GDP 대비 국채발행잔액
         %

   100

    90

    80

    70

    60

    50

    40

    30

    20

    10

     0
             일본   말레이시아 싱가포르          필리핀   대만    한국   중국   태국   홍콩   미국


주 : 2001년 기준
자료 : BIS, FIS, World Federation Exchange


                                             59
Thank you very much !




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