ERD Working Paper No. 63 - Asian Development BankA. Bond Markets, Policy and Infrastructure...

ERD Working Paper No. 63

Developing the Marketfor Local Currency Bonds

by Foreign Issuers:Lessons from Asia

TOBIAS C. HOSCHKA

February 2005

Tobias Hoschka is a Treasury Specialist in the Treasury Department, Asian Development Bank. The author would liketo thank Richard Werner, Patricia McKean, and Jonathan Batten on the country case studies, and Jim Turnbull foruseful comments and suggestions.

Asian Development BankP.O. Box 7890980 ManilaPhilippines

©2005 by Asian Development BankFebruary 2005ISSN 1655-5252

The views expressed in this paperare those of the author(s) and do notnecessarily reflect the views or policiesof the Asian Development Bank.

FOREWORD

The ERD Working Paper Series is a forum for ongoing and recentlycompleted research and policy studies undertaken in the Asian DevelopmentBank or on its behalf. The Series is a quick-disseminating, informal publicationmeant to stimulate discussion and elicit feedback. Papers published under thisSeries could subsequently be revised for publication as articles in professionaljournals or chapters in books.

CONTENTS

Abbreviations vii

Abstract ix

I. INTRODUCTION 1

II. THE RECORD: LOCAL CURRENCY BOND ISSUANCE BY FOREIGN ISSUERSIN SELECTED ASIA-PACIFIC ECONOMIES 4

A. Bond Markets, Policy and Infrastructure Environment at the Timeof LCBFI Launch 4

B. Scale and Type of Local Currency Bond Issuance since Launch 7C. Assessment of the Development Strategies Adopted 15

III. ASSESSMENT: BENEFITS AND POTENTIAL ISSUES OF LCBFI 22

A. Microeconomic Benefits 22B. Macroeconomic Benefits 24C. Potential Issues 25

IV. CONCLUSIONS 25

REFERENCES 26

ABBREVIATIONS

ADB Asian Development BankAFMA Australian Financial Markets AssociationCDs certificates of depositCMU Central Moneymarkets UnitEBRD European Bank for Reconstruction and DevelopmentEFN Exchange Fund NoteGDP gross domestic productHKD Hong Kong dollarIBRD International Bank for Reconstruction and DevelopmentLCBFI local currency bond issuance by foreign issuersMAS Monetary Authority of SingaporeMDB multilateral development bankMNC multinational companyMof Ministry of FinanceNIB Nordic Investment BankPRC People’s Republic of ChinaRTGS Real Time Gross SettlementSGS Singapore Government SecuritiesSIMEX Singapore International Monetary Exchange

ABSTRACT

This paper surveys the experience of countries in the East Asian region thathave introduced local currency bonds by foreign issuers. The countries that areexamined include Australia; Hong Kong, China; Japan; Republic of Korea; andSingapore. It is suggested that there are sound reasons for many countries to developthe market for foreign issuers. Benefits and potential issues are analyzed,development policies are reviewed, and concrete policy options are discussed forthose countries that are currently considering opening their domestic markets toforeign issuers.

1ERD WORKING PAPER SERIES NO. 63

I. INTRODUCTION

Since the Asian financial crisis, East Asian countries have taken important steps at both nationaland regional levels to develop local currency bond markets. The objectives of these effortsare (i) to reduce the risks associated with excessive reliance on short-term external financing;

(ii) to provide an alternative vehicle for channelling domestic savings into productive investmentand reduce dependence on bank lending; and (iii) to support economic and financial integrationin East Asia.

The results of these efforts have been impressive: Table 1 shows that total local currency bondsoutstanding in East Asia have tripled from $356 billion in 1997 to $1.2 trillion in 2003, an annualgrowth rate of 22.5 percent. Growth was particularly impressive in Thailand at 35 percent, 25 percentin People’s Republic of China (PRC), and 23 percent in Republic of Korea (Korea). Measured as apercentage of gross domestic product (GDP), East Asian local currency bond market growth was equallyimpressive. At the end of 1997, local currency bonds outstanding as a percentage of East Asia’s combinedGDP was 19 percent. This increased to 44 percent by the end of 2003. The rapid growth of bondmarkets was led by government bonds, which grew at an annual rate of 27 percent (see Table 2).Corporate and financial bond growth was slower at annual rates of 18 and 20 percent, respectively.1

While bond markets have developed quite rapidly across virtually all countries in East Asia, localcurrency bond issuance by foreign issuers (LCBFI) is concentrated in a small number of advancedcountries, namely the existing financial centers of Hong Kong, China; Singapore; as well as thedeveloped countries of Australia and Japan. While Korea allowed LCBFI in 1995, there has beenlittle issue activity since then. Table 2 illustrates that LCBFI is still very limited in most East Asianeconomies. This is in contrast to the more developed economies where foreign issuance has becomea regular feature of domestic bond markets.

Several issues arise in the context of LBCFI: What are the benefits of allowing foreign issuersto issue bonds locally both from a macro and microeconomic perspective? Are there macroeconomicconcerns that need to be addressed? What strategy should be pursued to target the developmentof the LCBFI market? This paper aims to address these key questions in the context of five countrycase studies in East Asia.

Section II looks at the track record of introducing LCBFI in five economies in the region: Australia;Hong Kong, China; Japan; Korea; and Singapore. It analyzes the economic situation at the time ofintroduction of LCBFI and the scale and type of LCBFI, and provides an assessment of the developmentstrategies adopted to encourage LCBFI development. Section III provides an assessment of thebenefits and potential issues of LCBFI in the context of the country case studies. Finally, SectionIV concludes.

1 See ADB’s Asian Bond Monitor (ADB 2004) for more details on Asian bond market development.

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DEVELOPING THE MARKET FOR LOCAL CURRENCY BONDS BY FOREIGN ISSUERS: LESSONS FROM ASIA

TOBIAS C. HOSCHKA

TABLE 1SIZE OF EAST ASIAN LOCAL CURRENCY BOND MARKETS, 1997 AND 2003

1997 2003

SIZE ($ BILLION) PERCENT OF GDP SIZE ($ BILLION) PERCENT OF GDP

PRC 116.4 12.9 440.4 31.3Indonesia 45.11 29.11 64.4 26.4Korea 130.3 25.1 445.7 73.6Malaysia 57.0 56.4 98.8 95.3Philippines 18.5 22.4 25.0 31.6Singapore 23.8 24.9 67.2 73.6Thailand 9.6 6.1 58.4 40.7Viet Nam2 — — 2.9 7.4East Asia 355.5 19.1 1,202.8 44.3

Japan 4,421.9 110.8 8,201.7 176.7Hong Kong, China 45.8 26.4 71.8 45.7US 11,997.5 144.5 17,644.8 160.3EU15 7,094.7 85.8 10,357.3 98.6

1Refers to 1999.2Refers to government bonds only.

Sources: All economies: Asian Bond Monitor (ADB 2004); for PRC, Korea, Malaysia, Philippines, Thailand: Bank for InternationalSettlements International Financial Statistics Table 16A and local currency portion of Table 11; for US and EU15: Bankfor International Settlements International Financial Statistics Table 16A; for Hong Kong, China: Hong Kong MonetaryAuthority; for Indonesia: Bank Indonesia and Surabaya Stock Exchange; for Singapore: Monetary Authority of Singapore;for Viet Nam: Ministry of Finance.


SECTION IINTRODUCTION

TABLE 2SIZE OF INDIVIDUAL EAST ASIAN LOCAL CURRENCY BOND MARKETS

ANNUAL GROWTH RATE AMOUNT IN 2003

1997–2003 $ BILLION PERCENTAGE OF GDP

PRC 24.8 440.4 31.3Government 27.3 287.4 20.4Corporate 11.6 12.2 0.9Financial Institutions 22.0 140.8 10.0LCBFI — — —

Indonesia1 9.3 64.4 26.4Government 8.1 58.9 24.2Corporate and Financial Institutions 28.8 5.5 2.3LCBFI — — —

Korea 22.7 445.7 73.6Government 30.3 124.3 20.5Corporate 19.8 157.3 26.0Financial Institutions 21.2 164.1 27.1LCBFI n.a. 0.3 0.05

Malaysia 9.6 98.8 95.3Government 13.0 40.4 38.9Corporate 13.7 44.9 43.3Financial Institutions -3.6 13.5 13.0LCBFI — — —

Philippines 5.2 25.0 31.6Government 4.5 24.0 30.3Corporate 50.6 1.0 1.3Financial Institutions — — —LCBFI — — —

Singapore 18.9 67.2 73.6Government 19.0 37.1 40.6Corporate and Financial Institutions 18.8 30.1 33.0LCBFI n.a. 1.2 1.3

Thailand 35.2 58.4 40.7Government 116.3 30.7 21.4Corporate 13.5 19.3 13.5Financial Institutions 83.0 8.4 5.8LCBFI — — —

Viet Nam — 2.9 7.4Government — 2.9 7.4Corporate — — —Financial Institutions — — —LCBFI — — —

1Earliest available data are for 1999. Growth rate is computed over 1999–2003.Sources: Asian Bond Monitor (ADB 2004); Bank for International Settlements International Financial Statistics Tables 16A, 16B, and

local currency portion of Table 11; Indonesia: Bank Indonesia and Surabaya Stock Exchange; Singapore: Monetary Authorityof Singapore; Viet Nam: Ministry of Finance.

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TOBIAS C. HOSCHKA

II. THE RECORD: LOCAL CURRENCY BOND ISSUANCE BY FOREIGN ISSUERSIN SELECTED ASIA-PACIFIC ECONOMIES

A. Bond Markets, Policy and Infrastructure Environment at the Timeof LCBFI Launch

(i) Japan

A brief chronological discussion of the introduction of local currency bonds by foreign issuersin the Asian region must begin with Japan. The first such bonds—quickly dubbed “Samurai bonds”—were issued in 1970 by the Asian Development Bank (ADB). At the time, the local bond market wasstill at a nascent stage: the government bond market was hardly in existence (total amount of bondsissued in the primary market amounted to only Y6,300 billion in fiscal year 1970) as the first Japanesegovernment bonds were issued only in November 1965. There was no complete benchmark yield curve.Exchange rates were fixed to the US dollar. Capital flows were restricted and remained tightly regulateduntil 1980. Under Ministry of Finance (MoF) auspices, the Kisaikai (Bond Notation Committee composedof major city banks) set the guidelines for Samurai bonds, governed the eligibility standards for bondissuers (Tekisai Kijun) and the capital adequacy requirements (Zaimu Seigen Joko) for nonsecuredcorporate bonds, as well as other related criteria.

The eligibility standards for issuing Samurai bonds were not relaxed until April 1985, at thesame time as those relating to Euroyen bonds issued by foreigners. In reviewing applications frompotential samurai issuers, the MoF took into consideration the trend of the Japanese capital accountbalance and the liquidity in the Japanese economy. For the actual issuance of Samurai bonds, theMoF set a quota per quarter year, and employed a queue system. Borrowers, if they agreed uponthe terms of underwriting, entered the quota by rotation from the top of the queue. The close regulatorycontrol of the MoF, including over market entry, was not abolished until 1998.

Until 1991, over 20 years after the first Samurai issuance, the Japanese economy and resourceallocation was tightly controlled through the Bank of Japan’s window guidance credit control andallocation mechanism. For years, banks remained key players in the bond markets, underwriting between60 and 90 percent of government, guaranteed, or local government bonds issuances. They also tendedto subscribe to about a quarter of Samurai bonds (and corporate bonds) because the Japanese marketlacked a sufficient investor base, although this practice was abandoned in 1992.2 The bond marketstructure was therefore one in which banks were both subscribers and underwriters. Nevertheless,banks were initially not allowed to trade in bonds. This was deregulated only in 1983, when theMoF also authorized them to sell government bonds over the counter. Until 1985, bond futures werenot traded. Foreign securities companies were not admitted as members of the Tokyo Stock Exchangeuntil 1985. Settlement rules proscribed liquidity severely: until 1987, only three settlement daysper month were scheduled.

It is thus clear that the introduction of local currency bonds issued by foreign issuers occurredat a relatively early stage in the evolution of Japan’s financial system, significantly in advanceof deeper structural reforms toward less government intervention.

2 The samurai market had its own selling system of block purchase by banking syndication. Banks would form syndicatesfor samurai bonds issued by sovereign entities and international organizations and absorb 25 percent of the issue amount.See Nikkei (1992).


SECTION IITHE RECORD: LOCAL CURRENCY BOND ISSUANCE BY FOREIGN ISSUERS IN SELECTED ASIA-PACIFIC ECONOMIES

(ii) Hong Kong, China

After Japan, the next domicile of local currency debt issuance by foreign issuers was Hong Kong,China, when in September 1977 Chase Manhattan Bank issued Negotiable Certificates of Deposit (CDs)amounting to HKD100 million with a 5-year maturity. This was the forerunner to the Hong Kongdollar (HKD) corporate debt market. During the 1980s, international banks issued increasing amountsof CDs in Hong Kong, China to secure medium term funding, both for corporate borrowers as wellas for project lending (short dated funding was available through the Commercial Paper market).3

The first multilateral development bank (MDB) foreign bond issue took place in 1989. This wasundertaken by the International Bank for Reconstruction and Development (IBRD), which launchedone issue each year from 1989 to 1992, after the administrative government granted tax exemptionon interest and capital gains for supranational bonds. The ADB became the second MDB issuer in1992, launching a 7-year bond.4

At that time, all trading was still over the counter (OTC), no formal market-making systemhad developed, and liquidity was modest. It was a dealers’ market. The corporate bond marketremained embryonic at the time, as bank financing dominated. There was a complete absence ofa risk-free benchmark yield curve. Indeed, there hardly was a government bond market, as theadministrative government was not a regular issuer in the market. Nor were there any computerizedclearing and settlements systems in the 1980s. Volumes were initially very low. The fees adoptedin the market were driven by existing practice elsewhere (the euromarkets). Furthermore, theregulations for debt issues, in particular prospectus requirements, were not supportive of the bondmarket’s development. Other obstacles included a poorly developed investor base for fixed incomeproducts and, as importantly, small and inefficient derivatives markets limiting hedgingopportunities.

The Hong Kong dollar bond market received a major boost with the introduction of theExchange Fund programme in 1990, which had the explicit aim to develop the bond markets. Centralto the development of the Exchange Fund program was the presence of an efficient centralizedclearing system, the Central Moneymarkets Unit (CMU), which was set up in March 1990, at thesame time that the Exchange Fund program was introduced with the aim of developing Hong Kong,China’s financial market infrastructure.

(iii) Australia

Given the state of its economic development, Australia should probably be considered alatecomer to LCBFI. The first foreign issuer of Australian dollar bonds, dubbed “Kangaroo” bonds,was Credit Local de France in 1991. At the time, the Australian economy resembled the continentalEuropean economies more than that of the United Kingdom or United States, in the sense thatbank finance was predominant. Relative to GDP, Australia’s domestic credit provided by the banking

3 In July 1980, Banque Paribas launched the first fixed-rate bond issue for HKD70 million with a maturity of 18 months.This was followed by Arab Banking Corporation, CITIC, and Toyo Communications in 1985; CITIC in 1986; BNP Paribasin 1987; and Bank of Communications and Qantas Airways in 1988.

4 ADB’s issue provided a major fillip to the market as it was the first issue with a maturity exceeding the date for thehandover of Hong Kong sovereignty from the British government to the PRC government. By demonstrating confidencepost handover, this transaction underpinned the development of the longer end of the curve.

6 FEBRUARY 2005


TOBIAS C. HOSCHKA

sector was over 90 percent, stock market capitalization about 100 percent, and domestic securitiesless than 50 percent. The introduction of LCBFI also occurred many years before the significantregulatory reforms that were implemented in Australia in the late 1990s. However, at the time ofthe introduction of the first Kangaroo bonds, a number of self-regulatory organizations were alreadyin place and the market infrastructure was relatively advanced. For instance, the Australian FinancialMarkets Association is the national industry body representing almost 200 organizations thatparticipate in the Australian OTC wholesale financial markets. It was formed in 1986 to streamlinemarket practices and establish trading standards in OTC markets, which included trading in foreignexchange, interest rate products, financial derivatives, repurchase agreements, commodities, equity,and electricity derivatives.

(iv) Korea

In Korea, the first local currency bonds by foreign residents called “Arirang” bonds were issuedby ADB, International Bank for Reconstruction and Development, and European Bank for Reconstructionand Development (EBRD) from 1995 to 1997. Total issuance, however, has remained limited. Since1999, foreign subsidiaries of chaebols have been entering the market. Bonds issued by Indonesianchaebol subsidiaries now account for the bulk of Arirang bonds. Such issuance appears to minimizetheir cost of funding for Indonesian ventures. This way they seem to be able to capitalize oninformation imperfection, in the form of a reputation advantage for their issuance in their homemarket, whose proceeds are then swapped into Indonesian currency and used for investments there.Since the Indonesian subsidiaries of Korean firms are likely to have difficulty in accessing localdebt and banking markets, this is an example where an advanced financial market can supportthe competitiveness of domestic firms abroad.

(v) Singapore

Singapore allowed LCBFI even more recently, when the Monetary Authority of Singapore (MAS)permitted foreign borrowers to issue debt denominated in Singapore dollars (SGD) in August 1998although they were required to swap the proceeds immediately out of the Singapore dollar foruse outside the country. The International Finance Corporation became the first foreign issuer inthe Singapore corporate debt market in 1998, launching a SGD300 million 3-year bond issue. Priorto August 1998, foreign issuers were prevented from borrowing in the local corporate bond marketby the government’s policy on noninternationalization of the Singapore dollar. Government bondissuance had not previously been aimed at developing large liquid lines in key benchmark maturities.Hence at the time of launch there was little secondary market liquidity in government bonds dueto the absence of a sizeable free float, and there was no benchmark bond yield. In terms of liquiditymanagement and hedging, the repo market was immature thereby making it more difficult andcostly for primary dealers and investors to finance bond inventories and hedge SGD bond positions.The swap market was undeveloped and illiquid. With the lack of depth in repo and futures andan illiquid swap market, there were very few hedging opportunities to support either the demandor supply sides of the market.

With Singapore property companies the dominant issuers, there was no broad range of issuerson offer and the investor base remained similarly concentrated. Issue sizes were small which,



combined with the buy-and-hold nature of the investors, resulted in an illiquid secondary corporatebond market. A further disadvantage was that trading in the OTC market lacked not only liquiditybut also transparency.

In conclusion, it is clear that the introduction of local currency bonds issued by foreign issuersoccurred in virtually all cases at a time when the bond markets were hardly developed; the marketinfrastructure was in its infancy (no benchmark yields, nil or few derivatives and swap markets,nil or few indigenous rating agencies, dominant OTC trading, no market-making); the regulatoryenvironment remained stringent; and government intervention was prevalent. In all cases, a few,illiquid issues started the markets, after policy decisions were taken to pave the way for such issues.

The Asian experience demonstrates that LCBFI can be established—and successfully, at that,as is seen in the next section—even in what would appear to be an adverse environment, whereeconomies remained tightly controlled and not deregulated.

B. Scale and Type of Local Currency Bond Issuance since Launch

(i) Japan

In Japan, the Samurai bond market grew rapidly from its modest origins in 1970. In the first10 years, over 100 issues took place, raising over Y2 trillion (see Table 3 and Figure 1).

TABLE 3THE FIRST TEN YEARS OF LCBFI IN JAPAN: YEN-DENOMINATED FOREIGN BONDS ISSUED IN TOKYO MARKET,

1970-1980, (IN ¥ BILLIONS)

ISSUER PUBLIC OFFERINGS PRIVATE PLACEMENTS TOTAL

NUMBER OF NUMBER OF NUMBER OFISSUES AMOUNT ISSUES AMOUNT ISSUES AMOUNT PERCENT

International Institutions 24 474 4 38 28 512 22.9

Foreign Governments 57 1160 9 82 66 1242 55.7

Foreign Local Governments 8 124 0 0 8 124 5.6

Government Institutions 11 183 13 128 24 311 13.9

Private Sector 1 20 3 23 4 43 1.9

TOTAL 101 1961 29 271 130 2232

Source: The Industrial Bank of Japan.

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TOBIAS C. HOSCHKA

FIGURE 1AMOUNT AND NUMBER OF ISSUES OF SAMURAI BONDS, 1970-2002

Structured Bonds (Yen billion)

Plain Vanilla Bonds (Yen billion)

number of issues

4,500

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

0

Issu

e Am

ount

(Ye

n bi

llion

)

Num

ber

of I

ssue

s

180

1600

140

120

100

80

60

40

20

0

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1992

1996

1998

2000

2002

Source: Nomura Securities.

Over time, the product range also became more sophisticated to suit investors’ needs (seeBox 1). Domestically, the largest group of Samurai investors were institutional investors, includingvarious banks, life insurance companies, other types of insurance companies, credit unions, creditcooperatives, and agricultural cooperatives. Other investors were individual investors and enterprises.The amount purchased by the banking system and institutional investors at the inception of theSamurai market formed the major part of the issues whereas the ratio of retail investors was initiallyquite low.


BOX 1PRODUCT INNOVATIONS IN THE SAMURAI MARKET

Over time, the product range in the Samurai market has became more sophisticated to suit investors’needs. The level of innovation has remained high, with the continuous introduction of new typesof LCBFI, such as dual currency bonds, with the principal denominated in foreign currencies, butyen-denominated coupons (introduced between 1995 and 1999 and offered to retail investors inan environment of a weak yen and low yen yields). In 1996, this type accounted for almost halfof Samurai volume. “Knock-in” dual currency bonds were pioneered in 1998, specifying that redemptionwould be in yen unless the dollar-yen rate fell to or below a trigger value during the life of thebond. “Power reverse dual currency” bonds have been offered since 2000 in an environment ofclose to zero short-term yen rates. They offer a high fixed coupon for an initial period, followedby variable interest rates that are proportionate to the ratio of the current dollar-yen rate to areference rate set at launch, with coupons consequently increasing in case of yen appreciationand vice versa. In effect, institutional investors are offered more leveraged coupons, thereby takingon a higher level of foreign exchange exposure risk. Other innovative structures include so-called“Survival” bonds (reverse FRN) and Nikkei-linked bonds (already authorized by the Ministry of Finance,but so far not issued).


The Hong Kong LCBFI market started in 1977, but has gained significant scale only over since1996 or so. Figure 2 shows the substantial growth of the market with outstanding LCBFI issues accountingfor 38 percent of all outstanding bonds in the HKD market (excluding Exchange Fund Notes [EFN]).Figure 3 indicates that LCBFI account for around 50 percent of all new issues (excluding EFNs)over the last years.


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TOBIAS C. HOSCHKA

FIGURE 2OUTSTANDING BOND ISSUES IN HKD MARKET

HKD

(m

illio

n)

500,000

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

01997 1998 1999 2000 2001 2002 2003

Years

Non-MDB Overseas Issuers

MDBs

Local Corporates

Statutory Bodies/government-owned corporations

Authorized Institutions

Source: Hong Kong Monetary Authority.


FIGURE 3NEW ISSUES OF HKD DEBT SECURITIES BY ISSUER TYPE

200,000

180,000

160,000

140,000

120,000

100,000

80,000

60,000

40,000

20,000

01997 1998 1999 2000 2001 2002 2003

Years

Other Foreign Issuers

MDBs

Local Corporates

Statutory Bodies/government-owned corporations

Authorized Institutions

Source: Hong Kong Monetary Authority.

HKD

(m

illio

n)

(iii) Australia

Despite their relative late launch, outstanding Australian Kangaroo bonds amount to A$35.7billion in 2004. This corresponds to around 20 percent of all outstanding bonds in Australia. Some40 percent of bonds were issued by the public sector, and 60 percent by the private sector (see Table4). Financial intermediaries dominate (82 percent), with banks the single largest sector. Most of theseinstitutions are from the United States and 75 percent have a credit rating of at least AA.


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TOBIAS C. HOSCHKA

TABLE 4KANGAROO BONDS MARKET SUMMARY, JUNE 2004

Amount Outstanding Public sector issuers 14.2

(A$ million) Private sector issuers 21.4

Issuers by Industry Banks 37

Diversified financial services 13

Utilities 11

Real estate 3

Other 4

Issuers by Region United States 54

(percent) European Union 28

United Kingdom 14

New Zealand 4

Source: Reserve Bank of Australia.

Foreign issuers in Australia tap the market when cross-currency swap spreads offer attractivearbitrage opportunities: after a two-year absence, nonresident issuers returned to the Australian bondmarket in mid-2003. While these issuers’ total Australian dollar borrowings typically represent a smallshare of their overall borrowings (around 5 percent in the case of supranationals, for example) theyare an important source of local currency credit diversification for domestic investors.

The increase in issue activity over the last two years can be attributed to a fall in the relativecost of raising funds in Australian dollars. This cost is driven by corporate bond spreads and cross-currency swap spreads (since issuers typically swap out). Corporate bond spreads have started tofall quite drastically in early 2003 from around 60 basis points over government securities to anaverage of 20 basis points since then. This tightening of corporate bond spreads can be explainedby a shortage of government securities (since the Australian government has reduced borrowing activitiesdue to its fiscal surplus) and by the high credit ratings of issuers that allow investors to view suchissues as a close substitute to government securities.

Cross-currency swap spreads have been driven by the increased volume of Australian issuerstapping overseas markets, i.e., borrowing in foreign currency and swapping into Australian dollars(Box 2 provides an overview of swap market dynamics). Record foreign currency bond issuance byAustralian entities in 2004 has pushed up the cost of converting foreign currency to Australian dollarsand made it cheaper for foreign issuers to do the opposite.5 At least partly as a result of the recordoffshore issuance by Australian issuers, the basis swap spread has increased from around 2 basispoints late 2002 to almost 12 basis points by mid-2004, making local currency issuance by foreignissuers more cost-efficient.

5 The strong offshore demand for Australian dollar bonds was driven by the relatively high interest rates and the expectedappreciation of the Australian dollar. Three quarters of the offshore bond issues were by non-Australian issuers, andaround two thirds of the bonds were sold to Japanese retail investors (so-called “Uridashi” bonds).


(iv) Korea

The LCBFI market in Korea has so far remained an insignificant component of the domestic corporatebond market. There have been 30 issues since inception, with an average maturity of 2.4 years andan average issue size of WN45 million (about US$40m). The market has total current outstandingbonds of only US$300million equivalent and is thus by far the smallest of the five economies studied.The LCBFI remain dominated by the foreign subsidiaries of chaebols. According to the Reuters FixedIncome Database, apart from the three MDB issues (EBRD, IBRD, ADB), the remaining bonds wereall issued by subsidiaries of Korean chaebols and were largely BBB-rated. Five of these had putfeatures and two were privately placed.

BOX 2SWAP MARKETS IN ACTION: THE AUSTRALIAN EXAMPLE

The LCBFI market is critically dependent on the availability of well-developed and liquid swap markets.Foreign issuers that raise local currency for domestic purposes typically issue fixed-rate bonds andswap the proceeds into floating-rate liabilities as part of their asset-liability management to reduceinterest rate risks.

Foreign issuers that tap local currency markets but do not require local currency for theiroperations need to swap bond proceeds into a currency of their choice. A cross-currency swaptransforms the currency denomination of a debt obligation, for example, from Australian dollarsinto US dollars. Similar to the United States Internal Revenue Service, borrowers make regular paymentsin the US dollar floating rate and receive the Australian dollar fixed interest rate to service theunderlying bond liabilities. In addition, at the outset of the bond and at the same time as thebonds are issued, the foreign issuer undertakes a principal exchange of the Australian dollar bondproceeds against the equivalent amount in US dollars at the prevailing spot exchange rate. Thisprincipal exchange is reversed at the end of the swap at a pre-determined exchange rate.

The Australian market is a good example to demonstrate the dynamics and interdependenciesof swap and bond markets regarding LCBFI. Historically, there has been more demand for swapswhere the counterparty pays an Australian dollar interest rate and receives US dollar interest ratethan the other way around. As a result, the counterparty paying the Australian dollars generallyhas to pay a small premium (the “basis swap spread”) over the Australian floating rate (in additionto demand and supply by issuers, the basis swap curve is also influenced by currency expectations).Thus, the higher the basis swap spread, the more attractive it is to for foreign issuers to issuelocal currency bonds. On the other hand, if basis swaps become negative, it becomes more cost-efficient for Australian issuers to issue offshore and swap back into Australian dollars. Over thelast two years, the dynamics of the basis swap curve have been a key factor determining bothLCBFI activity as well as offshore issuance by local investors. Thus, it is important to understandthat introducing LCBFI will open the door to local companies raising funds in overseas markets.The end result of such “two-way traffic” in the cross-currency swap market is lower funding costsfor both local as well as foreign issuers.

Source: Reserve Bank of Australia.


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TOBIAS C. HOSCHKA

(v) Singapore

The more recent Singapore market for LCBFI has quickly grown to an annual issuance volumeof around SGD2-3 billion, accounting for about 20 percent of annual issues (Figure 4). Since August1998, a total of SGD15 billion has been raised in the LCBFI market in Singapore. As can be seenfrom Figure 5, financial institutions have become the dominant issuers and the initially importantrole of MDBs and government agencies has receded since.

FIGURE 4SGD BOND ISSUANCE BY ISSUER TYPE

1998 1999 2000 2001 2002 2003

Years

SPVs

Foreign Entities

Corporates

Financial Institutions

Property CompaniesStatutory Boards

SGD

(bill

ion)

25.00

20.00

15.00

10.00

0.00

10.00

5.00

Source: Monetary Authority of Singapore.


FIGURE 5SGD BOND ISSUANCE BY FOREIGN ISSUERS

0

ISGD

(bi

llion

)

Size

of

SGD

(mill

ion)

Years

1999 2000 2001 2002 2003

2.0

1.0

0.5

1.5

0.0

100

50

150

MDB/government agency

Financial institutions

Average issue size

Corporate

Other

Source: Monetary Authority of Singapore.

C. Assessment of the Development Strategies Adopted

In most countries, the first and foremost step to establish LCBFI has been the purposefulgovernment policy decision to create such markets. This was followed by active support and developmentpolicies to foster their growth. In this section, we discuss the different strategies that were adoptedby governments to develop the LCBFI market.

The first step in encouraging foreign issuance activity is typically to attract supranationalissuers to the market, especially MDBs, such as the ADB, IBRD, or International Finance Corporation.In many Asian countries, ADB was the first or among the first to issue local currency bonds. TheMDBs serve a valuable function in opening local currency markets because they can increase thevolume of outstanding bonds, while offering virtually no credit risk (in 2001, for example, theAAA-rated Samurai bonds by IBRD and EBRD carried lower yields than Japanese government bonds).When there was a dearth of blue chip borrowers, as even in Japan in the early 1990s, the MDBs,especially the ADB and IBRD, acted to revitalize the high-grade bond market. Often, they issuedinnovative bonds, such as the ADB’s 1993 Samurai bond issue, with a maturity of 20 years, at thetime the longest in the market. In 1989, the World Bank set up a scheme of guarantees of Samuraibonds, issued by developing countries. In 1993, the ADB issued Samurai bonds in Hong Kong,China; Singapore; and Taipei,China for the first time, encouraged by the yen’s strength (these weretermed “Dragon bonds”). This initiative was aimed to encourage Asian investors to hold yen assets.

Market participants are generally of the view that it is essential to have MDB issuers act aspioneers in the early stages of the local bond market’s development, as these borrowers:

(i) are well-known issuers in international capital markets;

(ii) have virtually no credit risk;


16 FEBRUARY 2005


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(iii) provide risk diversification for local investors; and

(iv) bring the presence of local bond markets to the attention of international investors.

Since MDBs manage their funding program on a global basis, competitive funding costs areessential. Typically, MDBs swap bond proceeds into floating-rate liabilities based on US-dollar LIBOR.The MDBs would thus only issue local currency bonds if the after-swap funding cost is competitivewith that of other markets. Box 3 lists the requirements that MDBs typically have when issuing localcurrency bonds.

BOX 3MDB REQUIREMENTS FOR ISSUING LOCAL CURRENCY BONDS

Supranationals such as MDBs typically have a number of requirements to be able to issue localcurrency bonds. These requirements stem partly from the MDBs’ Charter or Articles of Association,and partly from funding cost targets that typically require issuance at very competitive terms andconditions. Requirements typically include the following:

(i) Tax exemptions: Confirmation that interest payments by the MDB and its paying agentswill be exempted from withholding taxes. This requirement is based on the fact that MDBsare granted tax-free status in their member countries.

(ii) Domestic rating exemptions: Since MDBs are typically rated by all three major internationalrating agencies, securing an additional domestic rating adds little additional value forinvestors.

(iii) Broad investor access: The ability of all major domestic institutional investors, includinginsurance companies and pension or provident funds to invest in the MDB bonds increasesthe distribution and liquidity of bonds, and thus lowers funding costs.

(iv) Risk weighting: Risk weightings of MDB bonds should be no more than 20 percent inline with current Bank for International Settlement guidelines (“Basle 1”). Under the new“Basle 2” guidelines this risk weighting will be reduced to 0 percent.

(v) Reserve Eligibility: Similar to government bonds, MDB bonds may be eligible to be countedagainst statutory reserve and liquidity requirements imposed on financial institutions. Thisprivilege will make it easier for MDBs to achieve their target level of funding costs.

Other development policies have included sequential deregulatory steps that provided a regularand gradual stimulation of the local currency bond market for foreign issuers.

(i) Japan

Again, referring to the country case with the longest history, since 1979, the Japanese MoFhas gradually allowed foreign corporations to issue unsecured bonds (beginning with Roebuck’s five-year, noncollateralized Samurai corporate issue). Since 1984, further liberalization steps were taken,including a reduction in the required minimum credit rating (from double-A to single A); abolitionof an issue ceiling for issues by industrial country sovereigns and international agencies; simplificationof issuing procedures for triple A-rated issuers; and from 1986, freeing the issuance of privateplacements of Samurai bonds by foreign public entities from virtually all restrictions.


In 1988, MoF allowed foreign governments and international institutions to issue yen-denominated Floating Rate Notes by public offering on the Tokyo Stock Exchange for the first time.In 1988, MoF allowed foreign corporations to issue by private placement. The ceiling on a borrower’sissuing volume (previously set at a third of a borrower’s annual borrowing) was revised and Japanesecorporations were allowed to purchase these bonds through private placements (before, onlyinstitutional investors could purchase Samurai bonds issued by private placement). In 1991, theminimum rating requirement for foreign governments, central banks, and foreign government-guaranteed institutions was lowered to triple-B, while development policy introduced Japanesegovernment guarantees on bond issuance of emerging market sovereigns (Miyazawa Initiative).In 1996, rating requirements were abolished completely. As a result of the deregulation, the privatesector share of the Samurai bond market increased: in 2001 private sector institutions issued about58 percent of all Samurai bonds.

Another major policy initiative to develop the Samurai market was favorable tax treatment.Until 1988, the principal buyers of Samurai bonds were foreign investors who were estimated tohold around half of all outstanding issues because Samurai bonds were exempted from withholdingtax.


The experience in Hong Kong, China was also characterized by significant government-ledinitiatives to stimulate the growth of the market for local currency debt by foreign issuers. A milestonewas the Exchange Fund Bills program of March 1990, which served as proxy for government debt,providing a reliable, “risk-free”, benchmark yield curve for HKD debt. A yield curve was establishedgradually through the issuance of longer-dated Exchange Fund Bills between 1993 and 1996. By1996, risk-free benchmarks were issued with tenors up to 10 years, and provided the basis forestablishing a yield curve.

As an endorsement of the role of the Exchange Fund Note program in providing a continuous,reliable benchmark yield curve off which other issues would be priced, the World Bank launched thefirst 3-year bond issue priced over EFNs two weeks after the inaugural 3-year EFN issue, with bondsbeing priced at a narrow premium to the three-year EFNs. By end-1993 MDBs were becoming increasinglyfrequent issuers, with a total of six issues launched in 1993 alone. Demand for MDB paper was atleast partly driven by regulatory incentives that were provided in the 1990s when MDB paper wasmade eligible at the discount window, ensuring that banks were keen buyers of these issues. Whenthis privilege was rescinded in September 1998 as part of the government’s effort to strengthen thecurrency board in the face of the Asian financial crisis, MDB issuance became significantly less frequent.

The Exchange Fund program also contributed to growth in the derivatives market. Net dailyturnover in OTC foreign exchange derivatives in Hong Kong, China rose by 92 percent in the threeyears to April 1998 and continued to grow by 14 percent in the ensuing three years to reach USD1.5billion, largely due to the 42 percent increase in currency swaps. At the same time there was evidenceof increasing use of HKD interest rate derivatives between 1995 and 1998 as a result of the highvolatility in HKD interest rates caused by the Asian crisis. This trend continued in the three yearsto 2001 with HKD interest rate derivative transactions increasing by 110 percent due to hedging ofinterest rate risks associated with greater activity in the debt market and promotion of option-embedded financial products.


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TOBIAS C. HOSCHKA

Other development policies included the listing of EFNs on the Stock Exchange of Hong Kong(to increase transparency) in 1998, and the posting of official reference prices and yields forbenchmark EFNs on Reuters by the Hong Kong Monetary Authority in 2002. Critical to the earlydevelopment of the Hong Kong bond market was the establishment of an efficient centralizedclearing system, the Central Moneymarkets Unit (CMU), which was also set up in March 1990,together with the Exchange Fund program. The latter initiative enhanced Hong Kong’s financialmarket infrastructure, as links with Euroclear and Cedel for HKD-denominated debt helped to promotethese bond issues to offshore investors. In December 1996 an interface between the CMU and theReal Time Gross Settlement interbank payment system was established, which enabled the CMUsystem to provide its members with real-time and end-of-day Delivery versus Payment, significantlyreducing settlement risk. Linkages with other Central Securities Depositories in the Asian and Pacificregion followed between 1997 and 1999 with Australia, Korea, and New Zealand as well asestablishing a “one-stop” debt securities clearing, settlement, and custody platform for Asianinvestors, placing the CMU at the forefront of cross-border securities trading in the Asian timezone. It is clear that by providing such linkages, access by international investors to trading andsettling local currency issues has been made much easier.

(iii) Australia

In Australia it would appear that initially there was no overall development strategy by thegovernment to target foreign bond issuance. The reason for this different emphasis during the firstintroduction of LCBFI may lie in the situation of the balance of payments. Japan introduced LCBFIsoon after it developed a significant trade surplus and hence became a net creditor in the late 1960s.While Hong Kong, China has maintained no significant trade surplus in the past 20 years, it hasaccumulated significant foreign exchange reserves. Singapore introduced LCBFI in 1998, just whenits trade balance surged into surplus. Even in Australia’s case, the first LCBFI coincided with a tradesurplus in 1991. However, Australia did not have a persistent need to recycle current account surpluses,and therefore did not have to worry about the currency implications of being a creditor nation. Morerecently, however, government policy has been become targeted at attracting highly rated foreignissuers. This stems from the fact that such issues can be viewed as substitutes for government securities.Moreover, since the Australian government has been reducing its issuance program due to persistentfiscal surpluses, it was keen to ensure that other highly rated issuers enter the market to meet investordemands for high-quality, local currency bonds. Thus, the Reserve Bank of Australia broadened theeligibility criteria for market operations at the margin, to include a wider range of bonds issued byforeign governments and supranationals.6

(iv) Korea

In the case of Korea, the current government has vowed to continue reform of the domesticfinancial system with the explicit objective of ensuring that Korea (by 2010) is an international financialcenter on par with Hong Kong, China and Singapore. One critical feature of such a plan will be todevelop the LCBFI market. Given that there have been virtually no issues by foreign issuers over

6 All of these eligible issuers are AAA-rated and include the MDBs as well as other agencies such as KfW, Nordic InvestmentBank, as well as some German Landesbanken, and one sovereign (Republic of Austria).


(continued next page)


the last years, except for the three issues by MDBs between 1995 and 1997, the government hasbeen studying the reasons for this phenomenon. While one reason is the lack of favorable cross-currency swap spreads, market participants have pointed out that extensive regulatory requirementsmay have contributed to deterring LCBFI. These include extensive disclosure requirements (mostof which require Korean language documentation), onerous approval requirements in case proposedbond terms deviate from standard terms and conditions, and the requirement that foreign issuersneed to get credit ratings from at least two out of the three local rating agencies. These extensiveregulatory requirements have made it difficult for foreign issuers to tap the Korean market whena window of opportunity arises in the cross-currency swap market. Recently, the government hastherefore begun to address some of these regulatory issues. The regulation that limited foreignissuers to an issue size of up to KRW5 billion was lifted in July 2004. Foreign issuers may be exemptedfrom the current requirement to publish financial statements according to Korean accountingstandards, and changes to the withholding tax treatment are currently under consideration. It remainsto be seen whether these measures will be sufficient to jump-start the nascent Arirang bond market.

(v) Singapore

The market for local currency bonds issued by foreign issuers in Singapore started with thedecision by MAS to introduce such bonds in August 1998. This decision occurred after carefulconsideration and the authorities proceeded carefully, adopting a step-by-step approach. Easing thepolicy of noninternationlization of the Singapore dollar was a critical success factor in openingthe local bond market to foreign issuers (Table 5 sets out the liberalization steps).

TABLE 5MEASURES TO EASE TO THE POLICY OF NONINTERNATIONALIZATION OF THE SINGAPORE DOLLAR

DATE OBJECTIVE EVENT

13-Aug-98 Foster development of the capital Notice to Banks MAS 621 replaced by MAS Notice 757.markets

Supply side: increase international Relaxation of rules to permit bond issuance by foreignparticipation in SGD capital markets entities where the proceeds are to be used outside

Singapore, i.e., retain policy that bond proceeds mustbe swapped out of SGD at the time of launch.

Enhance liquidity in Singapore Allow nonresidents to engage in Singapore dollargovernment securities market repurchase agreements in SGS subject to SGD 20

million MAS consultation limit.

26-Nov-99 MAS Notice 757 revised.

Demand side: enhance portfolio Relaxation of credit rating requirement for foreigndiversification opportunities issuers (single-A) to allow all sovereigns (rated or

unrated), all rated foreign corporates, and unratedforeign corporates provided the investor base isrestricted to “sophisticated” investors.

Extend hedging alternatives Banks permitted to freely transact in Singapore dollarOTC interest rate derivatives such as interest rate

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TOBIAS C. HOSCHKA

swaps, forward rate agreements, interest rate optionsand swaptions without MAS consultation.7 Howeverbanks are required to submit monthly reports detailingall interest rate derivative transactions in excess ofSGD5 million with non-Singapore counterparties.

Facilitate trading and deepen bond SGD20 million MAS consultation limit for Singaporemarket liquidity dollar repurchase agreements in SGS by nonresidents

lifted.

06-Dec-00 MAS Notice 757 revised.

Broaden investor base for SGD Banks permitted to lend SGD to nonresidents forassets investment purposes in Singapore. Banks can also

extend SGD credit facilities to nonresidents to fundoffshore activities as long as the SGD proceeds areswapped to foreign currency.

Extend hedging facilities Banks allowed to transact in SGD currency optionswith other banks and financial institutions in Singaporethat are regulated under MAS Notice 757 or itsequivalent.

20-Mar-02 MAS Notice 757 revised.

Improve bond market liquidity Exempt all individuals and nonfinancial entities(including corporate treasury centers) from SGD lendingrestrictions of the noninternationalization policy.

Further deepen hedging Allow nonresident financial entities to: transact freelyopportunities in asset swaps, cross-currency swaps, and cross-

currency repos,8 lend any amount of SGD-denominatedsecurities in exchange for both SGD and foreigncurrency denominated collateral,9 transact freely inSGD foreign exchange options with nonresidententities.10

May-04 MAS Policy 757 renamed “Lending of SGD toNon-Resident Financial Institutions.”

Increase flexibility of nonfinancial Nonresident, nonfinancial issuers of SGD bonds noforeign issuers longer required to swap/convert the SGD proceeds

into foreign currency before remitting abroad.

TABLE 5 (CONTINUED)

DATE OBJECTIVE EVENT

7 In September 1999, the Singapore International Monetary Exchange had introduced the SGD 3-month interest ratefutures contract with participation open to residents and nonresidents.

8 Previously such transactions were treated as forms of SGD lending.9 Previously, lending of SGD securities in excess of SGD5 million had to be fully collateralized by SGD collateral.10 Previously, financial institutions had to obtain documentary proof showing that SGD foreign exchange option transactions

with nonresident entities were for hedging purposes.


In Singapore’s case, MDBs and government agencies have not been particularly active borrowerswithin the category of foreign issuers, possibly due to the availability of high-quality local credits.Rather, foreign financial institutions have become increasingly frequent issuers, accounting foralmost 50 percent of issuance in 2003.

In November 1999, the MAS relaxed the requirement for a minimum issue size of SGD100million and the average size of issues launched by foreign borrowers quickly fell below SGD100million. This could be explained by the fact that sophisticated foreign issuers are comfortablelaunching transactions as small as SGD10 million off Euro Medium Term Note programs.

Tax incentives were also directed to facilitate issuance by foreign borrowers. Thus, in the 1999budget it was announced that where certain foreign issuers swap the proceeds of a SGD bond issueinto a foreign currency with an approved Singapore counterparty, payments under the cross-currencyswap will be tax-exempt. In addition, in March 1999 the Singapore government announced a taxincentive scheme to attract financial institutions to boost their local debt teams and base bondorigination, trading, and distribution in Singapore under the “Approved Bond Intermediary” scheme.The scheme (which was later folded into the “Financial Sector Incentive” scheme) provides for highlyadvantageous tax rates for approved institutions and has contributed to international banks buildingup their Singapore debt teams—an important condition to attract international issuers to the localmarket.

In summary, measures designed to successfully develop LCBFI markets typically include thefollowing:

(i) regulatory change to allow LCBFI and broad publication of government intentions;

(ii) attracting MDBs and other supranationals to issue in the local market by providingregulatory and tax incentives, thus sending a signal to the global market, that thedomestic market is “open for business” for foreign issuers;

(iii) providing a conducive regulatory environment in terms of disclosure anddocumentation requirements;

(iv) regulatory flexibility to approve product innovations that meet investor and issuerdemands;

(v) establishing links to international settlement and clearing systems, thus facilitatingthe purchase of LCBFI by international investors through their own familiarintermediaries.


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III. ASSESSMENT: BENEFITS AND POTENTIAL ISSUES OF LCBFI

The development of LCBFI markets has a number of advantages, both from a microeconomicand macroeconomic perspective. Microeconomic issues are first discussed as they form the basisfor the macroeconomic discussions. Potential issues related to LCBFI, in particular regarding exchangerate impact and possible crowding out, are then examined.

A. Microeconomic Benefits

Regarding microeconomic benefits of developing the LCBFI market, four main beneficiariescan be identified: domestic and foreign issuers, as well as domestic and foreign investors. Clearly,a national government is concerned with the benefits that accrue to local issuers and investors,and not foreign ones. This section therefore takes the domestic policy lens. It is important torealize, however, that domestic and foreign players are interdependent, i.e., unless a “win-win”situation arises for both groups, transactions will not proceed and markets will not develop, andthus ultimately it is the local players who lose out in the process.

Regarding foreign issuers, there are issuers that raise local currency funds for their operationsin the host country, and those that tap the local market only if it offers efficient funding opportunitiesafter swapping out the proceeds into another currency. The first type of issuer is typically a localsubsidiary of a multinational company (MNC). The impact of issuing a local currency bond is reallyno different from any other local company raising funds, and there is therefore no reason notto allow such issues. In fact, in most countries, local currency bond issues by subsidiaries of MNCshave been allowed years before foreign issuers were allowed to swap out proceeds. The benefitsof allowing MNC subsidiaries to issue local currency bonds rather than forcing them to import capitalare clear: MNC subsidiaries provide diversification opportunities for local investors, are often highlyrated, and deepen the local corporate bond market. There is little risk of “crowding out” in thecapital market by such issues; in fact there may be a “crowding in” effect, as MNCs may be moreaccustomed to issuing bonds than local corporates and thus set an example for other localcorporates.11

Foreign issuers that tap the local market and then convert the proceeds into a currency ofchoice bring a different set of benefits to the local market: first, as was mentioned in the earlierdiscussion of cross-currency swap markets, the existence of a swap market has significant potentialbenefits for local players when hedging offshore borrowings. Unless an active and liquid swapmarket exists, currency exposures resulting from international borrowings are hard to hedge andcan lead to significant currency mismatches (see Box 4). Developing the LCBFI market can thushelp to reduce funding costs for local issuers that want to tap overseas markets for their fundingneeds, for example to raise funding in larger size or longer tenors than are available in the localmarket. Such local companies require counterparties to hedge the currency risk associated withoffshore borrowing, which foreign issuers tapping the local currency market will readily provide.Thus, developing the LCBFI market offers local companies the opportunity to borrow offshore andhedge currency risks by entering cross-currency swaps with foreign issuers, an important

11 The first “Sukuk” or Islamic bond issue in Malaysia, for example, was undertaken by the local Shell subsidiary in theearly 1990s, setting off a string of issuances by other local corporates.


improvement over past practices of leaving such borrowings unhedged, which had contributedto the severity of the Asian financial crisis.

BOX 4WHY CURRENCY MISMATCHES MATTER

In a recent publication, Goldstein and Turner (2004) analyze the issue of currency mismatchesin emerging markets.1 Currency mismatches occur when assets and liabilities are denominated indifferent currencies such that net worth and/or net income are sensitive to changes in the exchangerate. Borrowers in many emerging markets have at times faced currency mismatches on a massivescale. Foreign-currency denominated liabilities have frequently financed local-currency activities,and too often, the stock of foreign currency-denominated assets has been comparatively limited.In such cases, a large and unexpected depreciation of the domestic currency can destroy muchof the net worth of firms and households and initiate a wave of insolvencies, a financial crisis,and a deep fall in economic output.

The authors cite extensive empirical evidence that in virtually all of the financial crises inemerging markets in the 1990s, currency mismatches had played an important role. They furtherobserve that the largest output falls have occurred in those emerging economies with large currencymismatches. But currency mismatches not only contribute to causing financial crises, they alsomake crisis management much more difficult since they constrain the willingness of the monetaryauthority to reduce interest rates in a recession (for fear of initiating a large fall in the currencythat would bring with it large-scale insolvencies). The mismatching also produces a “fear of floating”on the part of emerging economies, sometimes inducing them to make currency-regime choicesthat are not in their own long-term interest.

So why do borrowers opt to enter into such currency mismatches in the first place? Currencymismatches typically occur when borrowers tap overseas markets, either because there are insufficientlocal financial resources available, tenors in the local market are too short, or borrowing offshoreoffers lower interest rates. While borrowers from developed economies are typically able to borrowinternationally in their domestic currency (or enter a fully-hedged transaction if borrowing in aforeign currency), borrowers from emerging markets are often unable to do so. In recent research,Eichengreen et al.2 refer to borrowing internationally in foreign currency on an unhedged basisas “original sin” and attribute countries’ inability to borrow in their domestic currency frominternational investors to imperfections in international capital markets. In contrast, Goldsteinand Turner argue that countries can reduce the extent of currency mismatches by developing localcapital markets, thus reducing the need to borrow offshore, and by strengthening the localmacroeconomic and institutional framework, thus attracting international investors to lend in localcurrency. Interestingly, there is general agreement among all authors that no country has beenable to reduce the extent of “original sin” without first developing a deep and liquid domesticbond market.

Another set of benefits of actively developing the LBCFI market accrues to investors, bothinternational and domestic. Foreign investors are typically attracted by the high-quality issuer namesthat typically issue LCBFI. These include not only MDBs and other supranationals, but also large andhighly rated banks, and even sovereign governments and their associated agencies. Once internationalinvestors develop coverage of certain local currency markets, they are more likely to start lookingat the local issuers as well. Thus, an important benefit for the local issuers is that they are morelikely to be able to borrow from international investors in local currencies, once the LCBFI marketis developed and international investors have become regular investors in local currency bonds.

SECTION IIIASSESSMENT: BENEFITS AND POTENTIAL ISSUES OF LCBFI

24 FEBRUARY 2005


TOBIAS C. HOSCHKA

Thus, an important “side-effect” of introducing LCBFI is the fact that local issuers will eventuallybe able to avoid the kind of currency mismatches that they incur when restricted to borrowingfrom foreign investors in foreign currencies.

Further, LCBFI has important diversification advantages for local investors, as local investorsare often overexposed to local issuers whose credit default risk tends to be highly correlated. Foreignissuers typically have credit default risks that display only low degrees of correlation with localevents and can therefore significantly improve risk-adjusted returns for local investors and increasethe resilience of local investors’ portfolios to local and systemic credit risks. Thus, LCBFI is oftenhighly sought after by local investors, especially when local investors are limited in their abilityto diversify their portfolio internationally due to regulatory or capital account restrictions.

B. Macroeconomic Benefits

The previous section has shown that developing the LCBFI market can help to reduce currencymismatches in a number of ways for local corporate issuers, as foreign issuers provide a naturalcounterpart for local companies borrowing offshore. On a macro level, LCBFI can also help reducethe currency risks that some of the East Asian countries currently face and that are caused by thelarge current account surpluses in the region. Throughout history, creditor nations have tended tolend to overseas borrowers in the currency of the lender. In contrast, the leading net creditor nationstoday, which are largely in East Asia, have been extending loans in US dollars, instead of their owncurrencies. This situation is at least partly attributable to the legacy of the Bretton-Woods system,which used the US dollar as the anchor currency. Unusually, in terms of monetary history, this leavesthe creditors open to substantial currency risk. This risk is exacerbated in an era where the outstandingbalance of foreign government bonds held by East Asian central banks has reached record amounts,and where leading international policymakers are calling for a devaluation of the world’s leadingcurrencies against the currencies of the East Asian creditor nations. Needless to mention, such dollardevaluation would result in significant losses on the outstanding overseas loans.

In this situation it is advisable to encourage the lending by East Asian investors in their localcurrencies to foreign entities. A step in this direction would be the introduction and expansion oflocal currency bonds by foreign issuers. Local currency bonds by foreign issuers allow foreign investmentwithout currency risk—the benefits enjoyed by most creditor nations (such as the United Kingdomand the United States) in the past. In addition, for countries that have significant current accountsurpluses, the introduction of LCBFI markets has positive implications for the balance of paymentsas such transactions are booked as capital outflows. Thus, LCBFI helps to reduce the current accountsurplus through capital account outflows by partially recycling such surpluses, while at the sametime shifting currency risk from creditor to debtor.

In countries where the government is running a fiscal surplus, foreign bonds by highly ratedissuers, if sufficiently liquid, can substitute as benchmark issues at the margin when the governmentreduces its borrowing program, as the example of Australia has illustrated where foreign issuers playan important role in meeting local investor demands for highly rated credits.


C. Potential Issues

Policymakers have two primary concerns when considering the LCBFI market: first, that suchissues may lead to “crowding out” of local issuers including the government. Second, that swap-driven issuance may have an adverse impact on exchange rate volatility or even lead to depreciationpressure on the exchange rate. Each issue is discussed in turn.

Concerning potential “crowding out”, it is clear from the country case studies that such concernsare unfounded. Foreign and local issuance often goes hand in hand. Specifically, in Australia, forexample, foreign issuers offer high credit-rated alternatives otherwise lacking in the market. Similarly,in Hong Kong, China and in Singapore, foreign issuers bring additional diversity to the local bondmarket that is missing given the low issuance volume of the government and the small base of localissuers. Thus, foreign issuers fulfill an important role in meeting local investors’ demand for highlyrated, low-risk bonds, thereby acting as substitutes rather than complements. In Japan, foreign issuershave also played an important role in stepping up issue activity—at least partly encouraged bygovernment policy—when local issue activity was low. Given today’s size of the Japanese bondmarket (the second-largest in the world), LCBFI, even though playing an important role, is minutecompared to total outstanding bonds, accounting for a mere 0.8 percent. Crowding out is thereforeclearly not an issue.

Regarding possible effects on the exchange rate when large issues get swapped into anothercurrency in one large outflow, this issue may be relevant for markets where foreign exchange tradingis low.

In Korea, for example, there have been some concerns that the exchange rate may be affectedby swapping transactions. However, with daily market volume in the exchange rate market at $20billion equivalent and issue sizes of LCBFI of, say $100 million, this would seem highly unlikely.In addition, of course, given that there is significant upward pressure on most East Asian exchangerates at the moment, LCBFI—if it were to have any impact at all—would actually contribute toreducing such pressures. Market participants believe that even in the smaller economies that mayhave downside pressure on the exchange rate, markets can easily absorb swapping transactionswithout any adverse impact on the exchange rate. It should be added, of course, that since LCBFIissue volume is ultimately under the control of the government, it can regulate the issuance flowand increase or decrease the volume as required by market considerations.

Thus, in summary, in most cases there would be little reason for policy concern caused byLCBFI. Given that the government can retain regulatory control, a step-by-step approach can beimplemented that allows regulators to gradually build up issuance volume and monitor the impacton key policy variables. Should it perceive adverse effects (contrary to our expectations) issuancevolume can always be adjusted.

IV. CONCLUSIONS

This paper reviews the experience of five East Asian economies that have permitted local currencybond issuance by foreign issuers. Japan first introduced Samurai bond issues in 1970 and since thenthe Samurai market has become an important part of the Japanese bond market with total outstandingbonds of Y7,000 billion ($68 billion equivalent) in 2004. Hong Kong, China was the second market

SECTION IVCONCLUSIONS

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in East Asia to allow nonresidents to issue local currency bonds in 1977. Since then LCBFI hasgrown substantially and in 2003 such issues accounted for 23 percent of all local bond issuesin the territory. Australia was a relative latecomer to the LCBFI market, only permitting foreignissuers to enter the market in 1990. Since then, and especially over the last few years, LCBFI hastaken off rapidly. Today, about 20 percent of all outstanding bonds in Australia are issued bynonresidents. Korea liberalized entry by foreign issuers in 1995. However, after the issue of threesupranationals between 1995 and 1997, issue activity has remained marginal, partly due tocumbersome regulatory requirements. In Singapore, entry was liberalized in 1998 and issue activityhas picked up steadily with LCBFI accounting for between 10-20 percent of annual issuance volumeover the last four years.

The paper has argued that LCBFI has a number of economic benefits. These includemicroeconomic benefits for local as well as foreign investors and issuers that result in a “win-win”situation for all parties involved. Macroeconomic benefits include the fact that by introducing LCBFI,countries are able to raise funds from international investors without associated currency risk.

From the analysis in the paper, a number of policy conclusions emerge for countries that areconsidering opening their markets to foreign issuers. First, it is clear that the introduction of foreignissuers occurred at a time when the local bond market was at a relatively early stage of development.Thus, there is no need to wait for the local market to reach an advanced stage of development beforeallowing foreign issuers to enter the market. Second, the development of the LCBFI market needsto be strategically driven by the government. Government policy and the chosen regulatory approachand incentives provided play a key role in developing the market. At the same time, governmentcan retain effective control over the LCBFI market if considered necessary. Third, the potential issuesthat are sometimes associated with permitting foreign issuers into the local market, such as an adverseimpact on the foreign exchange regime or possible “crowding out”, did not play an important rolein the countries studied. Given the relatively small size of the LCBFI market, it is argued that foreignand local issuers have a complementary rather than a competing role to play in developing the localcurrency bond market.

REFERENCES

Asian Development Bank, 2004. Asian Bond Monitor. Manila, Philippines.Bank for International Settlements, various years. International Financial Statistics. Basel, Switzerland.Goldstein M., and P. Turner, 2004, Controlling Currency Mismatches in Emerging Markets. Institute for International

Economics, Washington D.C.Eichengreen, B., R. Hausmann, and U. Panizza, 2003. “The Mystery of Original Sin.” In B. Eichengreen and

R. Hausmann, eds., Debt Denomination and Financial Instability in Emerging Market Economics. Universityof Chicago Press. Forthcoming in February 2005.

Nikkei, 1992. “Bank Jettison Samurai Bond Quota.” 24 April. Tokyo.

27

PUBLICATIONS FROM THEECONOMICS AND RESEARCH DEPARTMENT

ERD WORKING PAPER SERIES (WPS)(Published in-house; Available through ADB Office of External Relations; Free of Charge)

No. 1 Capitalizing on Globalization—Barry Eichengreen, January 2002

No. 2 Policy-based Lending and Poverty Reduction:An Overview of Processes, Assessmentand Options—Richard Bolt and Manabu Fujimura

January 2002No. 3 The Automotive Supply Chain: Global Trends

and Asian Perspectives—Francisco Veloso and Rajiv Kumar

January 2002No. 4 International Competitiveness of Asian Firms:

An Analytical Framework—Rajiv Kumar and Doren Chadee

February 2002No. 5 The International Competitiveness of Asian

Economies in the Apparel Commodity Chain—Gary Gereffi

February 2002No. 6 Monetary and Financial Cooperation in East

Asia—The Chiang Mai Initiative and Beyond—Pradumna B. Rana

February 2002No. 7 Probing Beneath Cross-national Averages: Poverty,

Inequality, and Growth in the Philippines—Arsenio M. Balisacan and Ernesto M. Pernia

March 2002No. 8 Poverty, Growth, and Inequality in Thailand

—Anil B. DeolalikarApril 2002

No. 9 Microfinance in Northeast Thailand: Who Benefitsand How Much?—Brett E. Coleman

April 2002No. 10 Poverty Reduction and the Role of Institutions in

Developing Asia—Anil B. Deolalikar, Alex B. Brilliantes, Jr.,

Raghav Gaiha, Ernesto M. Pernia, Mary Raceliswith the assistance of Marita Concepcion Castro-Guevara, Liza L. Lim, Pilipinas F. QuisingMay 2002

No. 11 The European Social Model: Lessons forDeveloping Countries—Assar Lindbeck

May 2002No. 12 Costs and Benefits of a Common Currency for

ASEAN—Srinivasa Madhur

May 2002No. 13 Monetary Cooperation in East Asia: A Survey

—Raul FabellaMay 2002

No. 14 Toward A Political Economy Approachto Policy-based Lending—George Abonyi

May 2002No. 15 A Framework for Establishing Priorities in a

Country Poverty Reduction Strategy—Ron Duncan and Steve Pollard

June 2002

No. 16 The Role of Infrastructure in Land-use Dynamicsand Rice Production in Viet Nam’s Mekong RiverDelta—Christopher Edmonds

July 2002No. 17 Effect of Decentralization Strategy on

Macroeconomic Stability in Thailand—Kanokpan Lao-Araya

August 2002No. 18 Poverty and Patterns of Growth

—Rana Hasan and M. G. QuibriaAugust 2002

No. 19 Why are Some Countries Richer than Others?A Reassessment of Mankiw-Romer-Weil’s Test ofthe Neoclassical Growth Model—Jesus Felipe and John McCombie

August 2002No. 20 Modernization and Son Preference in People’s

Republic of China—Robin Burgess and Juzhong Zhuang

September 2002No. 21 The Doha Agenda and Development: A View from

the Uruguay Round—J. Michael Finger

September 2002No. 22 Conceptual Issues in the Role of Education

Decentralization in Promoting Effective Schooling inAsian Developing Countries—Jere R. Behrman, Anil B. Deolalikar, and Lee-

Ying SonSeptember 2002

No. 23 Promoting Effective Schooling through EducationDecentralization in Bangladesh, Indonesia, andPhilippines—Jere R. Behrman, Anil B. Deolalikar, and Lee- Ying Son

September 2002No. 24 Financial Opening under the WTO Agreement in

Selected Asian Countries: Progress and Issues—Yun-Hwan Kim

September 2002No. 25 Revisiting Growth and Poverty Reduction in

Indonesia: What Do Subnational Data Show?—Arsenio M. Balisacan, Ernesto M. Pernia, and Abuzar Asra October 2002

No. 26 Causes of the 1997 Asian Financial Crisis: WhatCan an Early Warning System Model Tell Us?—Juzhong Zhuang and J. Malcolm Dowling October 2002

No. 27 Digital Divide: Determinants and Policies withSpecial Reference to Asia—M. G. Quibria, Shamsun N. Ahmed, TedTschang, and Mari-Len Reyes-Macasaquit October 2002

No. 28 Regional Cooperation in Asia: Long-term Progress,Recent Retrogression, and the Way Forward—Ramgopal Agarwala and Brahm Prakash

October 2002

28

No. 29 How can Cambodia, Lao PDR, Myanmar, and VietNam Cope with Revenue Lost Due to AFTA TariffReductions?—Kanokpan Lao-Araya

November 2002No. 30 Asian Regionalism and Its Effects on Trade in the

1980s and 1990s—Ramon Clarete, Christopher Edmonds, andJessica Seddon Wallack

November 2002No. 31 New Economy and the Effects of Industrial

Structures on International Equity MarketCorrelations—Cyn-Young Park and Jaejoon Woo

December 2002No. 32 Leading Indicators of Business Cycles in Malaysia

and the Philippines—Wenda Zhang and Juzhong Zhuang

December 2002No. 33 Technological Spillovers from Foreign Direct

Investment—A Survey—Emma Xiaoqin Fan

December 2002No. 34 Economic Openness and Regional Development in

the Philippines—Ernesto M. Pernia and Pilipinas F. Quising

January 2003No. 35 Bond Market Development in East Asia:

Issues and Challenges—Raul Fabella and Srinivasa Madhur

January 2003No. 36 Environment Statistics in Central Asia: Progress

and Prospects—Robert Ballance and Bishnu D. Pant

March 2003No. 37 Electricity Demand in the People’s Republic of

China: Investment Requirement andEnvironmental Impact—Bo Q. Lin

March 2003No. 38 Foreign Direct Investment in Developing Asia:

Trends, Effects, and Likely Issues for theForthcoming WTO Negotiations—Douglas H. Brooks, Emma Xiaoqin Fan,and Lea R. Sumulong

April 2003No. 39 The Political Economy of Good Governance for

Poverty Alleviation Policies—Narayan Lakshman

April 2003No. 40 The Puzzle of Social Capital

A Critical Review—M. G. Quibria

May 2003No. 41 Industrial Structure, Technical Change, and the

Role of Government in Development of theElectronics and Information Industry inTaipei,China—Yeo Lin

May 2003No. 42 Economic Growth and Poverty Reduction

in Viet Nam—Arsenio M. Balisacan, Ernesto M. Pernia, andGemma Esther B. Estrada

June 2003No. 43 Why Has Income Inequality in Thailand

Increased? An Analysis Using 1975-1998 Surveys—Taizo Motonishi

June 2003

No. 44 Welfare Impacts of Electricity Generation SectorReform in the Philippines—Natsuko Toba

June 2003No. 45 A Review of Commitment Savings Products in

Developing Countries—Nava Ashraf, Nathalie Gons, Dean S. Karlan,and Wesley Yin

July 2003No. 46 Local Government Finance, Private Resources,

and Local Credit Markets in Asia—Roberto de Vera and Yun-Hwan Kim

October 2003July 2003

No. 47 Excess Investment and Efficiency Loss DuringReforms: The Case of Provincial-level Fixed-AssetInvestment in People’s Republic of China—Duo Qin and Haiyan Song

October 2003No. 48 Is Export-led Growth Passe? Implications for

Developing Asia—Jesus Felipe

December 2003No. 49 Changing Bank Lending Behavior and Corporate

Financing in Asia—Some Research Issues—Emma Xiaoqin Fan and Akiko Terada-Hagiwara

December 2003No. 50 Is People’s Republic of China’s Rising Services

Sector Leading to Cost Disease?—Duo Qin

March 2004No. 51 Poverty Estimates in India: Some Key Issues

—Savita SharmaMay 2004

No. 52 Restructuring and Regulatory Reform in the PowerSector: Review of Experience and Issues—Peter Choynowski

May 2004No. 53 Competitiveness, Income Distribution, and Growth

in the Philippines: What Does the Long-runEvidence Show?—Jesus Felipe and Grace C. Sipin

June 2004No. 54 Practices of Poverty Measurement and Poverty

Profile of Bangladesh—Faizuddin Ahmed

August 2004No. 55 Experience of Asian Asset Management

Companies: Do They Increase Moral Hazard?—Evidence from Thailand—Akiko Terada-Hagiwara and Gloria Pasadilla

September 2004No. 56 Viet Nam: Foreign Direct Investment and

Postcrisis Regional Integration—Vittorio Leproux and Douglas H. Brooks

September 2004No. 57 Practices of Poverty Measurement and Poverty

Profile of Nepal—Devendra Chhetry

September 2004No. 59 Poverty Measurement and Poverty Estimates

in the Philippines: Selected Issues—Virginia Ganac

October 2004No. 60 Measuring Competitiveness in the World’s Smallest

Economies: Introducing the SSMECI—Ganeshan Wignaraja and David Joiner

November 2004

29

—Erik Bloom and Peter ChoynowskiMay 2003

No. 7 Strengthening the Economic Analysis of NaturalResource Management Projects—Keith Ward

September 2003No. 8 Testing Savings Product Innovations Using an

Experimental Methodology—Nava Ashraf, Dean S. Karlan, and Wesley Yin

November 2003No. 9 Setting User Charges for Public Services: Policies

and Practice at the Asian Development Bank—David Dole

December 2003No. 10 Beyond Cost Recovery: Setting User Charges for

Financial, Economic, and Social Goals—David Dole and Ian Bartlett

January 2004No. 11 Shadow Exchange Rates for Project Economic

Analysis: Toward Improving Practice at the AsianDevelopment Bank—Anneli Lagman-Martin

February 2004

ERD POLICY BRIEF SERIES (PBS)(Published in-house; Available through ADB Office of External Relations; Free of charge)

No. 1 Is Growth Good Enough for the Poor?—Ernesto M. Pernia, October 2001

No. 2 India’s Economic ReformsWhat Has Been Accomplished?What Remains to Be Done?—Arvind Panagariya, November 2001

No. 3 Unequal Benefits of Growth in Viet Nam—Indu Bhushan, Erik Bloom, and Nguyen MinhThang, January 2002

No. 4 Is Volatility Built into Today’s World Economy?—J. Malcolm Dowling and J.P. Verbiest,February 2002

No. 5 What Else Besides Growth Matters to PovertyReduction? Philippines—Arsenio M. Balisacan and Ernesto M. Pernia,February 2002

ERD TECHNICAL NOTE SERIES (TNS)(Published in-house; Available through ADB Office of External Relations; Free of Charge)

No. 1 Contingency Calculations for EnvironmentalImpacts with Unknown Monetary Values—David Dole February 2002

No. 2 Integrating Risk into ADB’s Economic Analysisof Projects—Nigel Rayner, Anneli Lagman-Martin,

and Keith Ward June 2002

No. 3 Measuring Willingness to Pay for Electricity—Peter Choynowski July 2002

No. 4 Economic Issues in the Design and Analysis of aWastewater Treatment Project—David Dole

July 2002No. 5 An Analysis and Case Study of the Role of

Environmental Economics at the AsianDevelopment Bank—David Dole and Piya Abeygunawardena

September 2002No. 6 Economic Analysis of Health Projects: A Case Study

in Cambodia

No. 6 Achieving the Twin Objectives of Efficiency andEquity: Contracting Health Services in Cambodia—Indu Bhushan, Sheryl Keller, and Brad Schwartz,March 2002

No. 7 Causes of the 1997 Asian Financial Crisis: WhatCan an Early Warning System Model Tell Us?—Juzhong Zhuang and Malcolm Dowling,June 2002

No. 8 The Role of Preferential Trading Arrangementsin Asia—Christopher Edmonds and Jean-Pierre Verbiest,July 2002

No. 9 The Doha Round: A Development Perspective—Jean-Pierre Verbiest, Jeffrey Liang, and LeaSumulong

July 2002

No. 61 Foreign Exchange Reserves, Exchange RateRegimes, and Monetary Policy: Issues in Asia—Akiko Terada-Hagiwara

January 2005No. 62 A Small Macroeconometric Model of the Philippine

Economy—Geoffrey Ducanes, Marie Anne Cagas, Duo Qin, Pilipinas Quising, and Nedelyn Magtibay-Ramos

January 2005No. 63 Developing the Market for Local Currency Bonds

by Foreign Issuers: Lessons from Asia—Tobias Hoschka

February 2005

30

SERIALS(Co-published with Oxford University Press; Available commercially through Oxford University PressOffices, Associated Companies, and Agents)

1. Asian Development Outlook (ADO; annual)$36.00 (paperback)

2. Key Indicators of Developing Asian and Pacific Countries (KI; annual)$35.00 (paperback)

JOURNAL(Published in-house; Available commercially through ADB Office of External Relations)

1. Asian Development Review (ADR; semiannual)$5.00 per issue; $8.00 per year (2 issues)

No. 10 Is Economic Openness Good for RegionalDevelopment and Poverty Reduction? ThePhilippines—E. M. Pernia and P. F. Quising

October 2002No. 11 Implications of a US Dollar Depreciation for Asian

Developing Countries—Emma Fan

July 2002No. 12 Dangers of Deflation

—D. Brooks and P. F. QuisingDecember 2002

No. 13 Infrastructure and Poverty Reduction—What is the Connection?—I. Ali and E. Pernia

January 2003No. 14 Infrastructure and Poverty Reduction—

Making Markets Work for the Poor—Xianbin Yao

May 2003No. 15 SARS: Economic Impacts and Implications

—Emma Xiaoqin FanMay 2003

No. 16 Emerging Tax Issues: Implications of Globalizationand Technology—Kanokpan Lao Araya

May 2003No. 17 Pro-Poor Growth: What is It and Why is It

Important?—Ernesto M. Pernia

May 2003No. 18 Public–Private Partnership for Competitiveness

—Jesus FelipeJune 2003

No. 19 Reviving Asian Economic Growth Requires FurtherReforms—Ifzal Ali

June 2003No. 20 The Millennium Development Goals and Poverty:

Are We Counting the World’s Poor Right?—M. G. Quibria

July 2003No. 21 Trade and Poverty: What are the Connections?

—Douglas H. BrooksJuly 2003

No. 22 Adapting Education to the Global Economy—Olivier Dupriez September 2003

No. 23 Avian Flu: An Economic Assessment for SelectedDeveloping Countries in Asia—Jean-Pierre Verbiest and Charissa Castillo March 2004

No. 25 Purchasing Power Parities and the InternationalComparison Program in a Globalized World—Bishnu Pant March 2004

No. 26 A Note on Dual/Multiple Exchange Rates—Emma Xiaoqin Fan May 2004

No. 27 Inclusive Growth for Sustainable Poverty Reductionin Developing Asia: The Enabling Role ofInfrastructure Development—Ifzal Ali and Xianbin Yao May 2004

No. 28 Higher Oil Prices: Asian Perspectives andImplications for 2004-2005—Cyn-Young Park June 2004

No. 29 Accelerating Agriculture and Rural Development forInclusive Growth: Policy Implications forDeveloping Asia—Richard Bolt July 2004

No. 30 Living with Higher Interest Rates: Is Asia Ready?—Cyn-Young Park August 2004

No. 31 Reserve Accumulation, Sterilization, and PolicyDilemma—Akiko Terada-Hagiwara October 2004

32 The Primacy of Reforms in the Emergence ofPeople’s Republic of China and India—Ifzal Ali and Emma Xiaoqin Fan November 2004

33 Population Health and Foreign Direct Investment:Does Poor Health Signal Poor GovernmentEffectiveness?—Ajay Tandon January 2005

31

MONOGRAPH SERIES(Published in-house; Available through ADB Office of External Relations; Free of charge)

EDRC REPORT SERIES (ER)

No. 1 ASEAN and the Asian Development Bank—Seiji Naya, April 1982

No. 2 Development Issues for the Developing Eastand Southeast Asian Countriesand International Cooperation—Seiji Naya and Graham Abbott, April 1982

No. 3 Aid, Savings, and Growth in the Asian Region—J. Malcolm Dowling and Ulrich Hiemenz,

April 1982No. 4 Development-oriented Foreign Investment

and the Role of ADB—Kiyoshi Kojima, April 1982

No. 5 The Multilateral Development Banksand the International Economy’s MissingPublic Sector—John Lewis, June 1982

No. 6 Notes on External Debt of DMCs—Evelyn Go, July 1982

No. 7 Grant Element in Bank Loans—Dal Hyun Kim, July 1982

No. 8 Shadow Exchange Rates and StandardConversion Factors in Project Evaluation—Peter Warr, September 1982

No. 9 Small and Medium-Scale ManufacturingEstablishments in ASEAN Countries:Perspectives and Policy Issues—Mathias Bruch and Ulrich Hiemenz,

January 1983No. 10 A Note on the Third Ministerial Meeting of GATT

—Jungsoo Lee, January 1983No. 11 Macroeconomic Forecasts for the Republic

of China, Hong Kong, and Republic of Korea—J.M. Dowling, January 1983

No. 12 ASEAN: Economic Situation and Prospects—Seiji Naya, March 1983

No. 13 The Future Prospects for the DevelopingCountries of Asia—Seiji Naya, March 1983

No. 14 Energy and Structural Change in the Asia-Pacific Region, Summary of the ThirteenthPacific Trade and Development Conference—Seiji Naya, March 1983

No. 15 A Survey of Empirical Studies on Demandfor Electricity with Special Emphasis on PriceElasticity of Demand—Wisarn Pupphavesa, June 1983

No. 16 Determinants of Paddy Production in Indonesia:1972-1981–A Simultaneous Equation ModelApproach—T.K. Jayaraman, June 1983

No. 17 The Philippine Economy: EconomicForecasts for 1983 and 1984—J.M. Dowling, E. Go, and C.N. Castillo,

June 1983No. 18 Economic Forecast for Indonesia

—J.M. Dowling, H.Y. Kim, Y.K. Wang,and C.N. Castillo, June 1983

No. 19 Relative External Debt Situation of AsianDeveloping Countries: An Applicationof Ranking Method—Jungsoo Lee, June 1983

No. 20 New Evidence on Yields, Fertilizer Application,and Prices in Asian Rice Production—William James and Teresita Ramirez, July 1983

No. 21 Inflationary Effects of Exchange RateChanges in Nine Asian LDCs—Pradumna B. Rana and J. Malcolm Dowling, Jr., December 1983

No. 22 Effects of External Shocks on the Balanceof Payments, Policy Responses, and DebtProblems of Asian Developing Countries—Seiji Naya, December 1983

No. 23 Changing Trade Patterns and Policy Issues:The Prospects for East and Southeast AsianDeveloping Countries—Seiji Naya and Ulrich Hiemenz, February 1984

No. 24 Small-Scale Industries in Asian EconomicDevelopment: Problems and Prospects—Seiji Naya, February 1984

No. 25 A Study on the External Debt IndicatorsApplying Logit Analysis—Jungsoo Lee and Clarita Barretto, February 1984

No. 26 Alternatives to Institutional Credit Programsin the Agricultural Sector of Low-IncomeCountries—Jennifer Sour, March 1984

No. 27 Economic Scene in Asia and Its Special Features—Kedar N. Kohli, November 1984

No. 28 The Effect of Terms of Trade Changes on theBalance of Payments and Real NationalIncome of Asian Developing Countries—Jungsoo Lee and Lutgarda Labios, January 1985

No. 29 Cause and Effect in the World Sugar Market:Some Empirical Findings 1951-1982—Yoshihiro Iwasaki, February 1985

No. 30 Sources of Balance of Payments Problemin the 1970s: The Asian Experience—Pradumna Rana, February 1985

No. 31 India’s Manufactured Exports: An Analysisof Supply Sectors—Ifzal Ali, February 1985

No. 32 Meeting Basic Human Needs in AsianDeveloping Countries—Jungsoo Lee and Emma Banaria, March 1985

No. 33 The Impact of Foreign Capital Inflowon Investment and Economic Growthin Developing Asia—Evelyn Go, May 1985

No. 34 The Climate for Energy Developmentin the Pacific and Asian Region:Priorities and Perspectives—V.V. Desai, April 1986

No. 35 Impact of Appreciation of the Yen onDeveloping Member Countries of the Bank—Jungsoo Lee, Pradumna Rana, and Ifzal Ali,

May 1986No. 36 Smuggling and Domestic Economic Policies

in Developing Countries—A.H.M.N. Chowdhury, October 1986

No. 37 Public Investment Criteria: Economic InternalRate of Return and Equalizing Discount Rate—Ifzal Ali, November 1986

No. 38 Review of the Theory of Neoclassical PoliticalEconomy: An Application to Trade Policies—M.G. Quibria, December 1986

No. 39 Factors Influencing the Choice of Location:Local and Foreign Firms in the Philippines—E.M. Pernia and A.N. Herrin, February 1987

No. 40 A Demographic Perspective on DevelopingAsia and Its Relevance to the Bank—E.M. Pernia, May 1987

No. 41 Emerging Issues in Asia and Social CostBenefit Analysis—I. Ali, September 1988

No. 42 Shifting Revealed Comparative Advantage:

32

No. 1 International Reserves:Factors Determining Needs and Adequacy—Evelyn Go, May 1981

No. 2 Domestic Savings in Selected DevelopingAsian Countries—Basil Moore, assisted by

A.H.M. Nuruddin Chowdhury, September 1981No. 3 Changes in Consumption, Imports and Exports

of Oil Since 1973: A Preliminary Survey ofthe Developing Member Countriesof the Asian Development Bank—Dal Hyun Kim and Graham Abbott,

September 1981No. 4 By-Passed Areas, Regional Inequalities,

and Development Policies in SelectedSoutheast Asian Countries—William James, October 1981

No. 5 Asian Agriculture and Economic Development—William James, March 1982

No. 6 Inflation in Developing Member Countries:An Analysis of Recent Trends—A.H.M. Nuruddin Chowdhury and

J. Malcolm Dowling, March 1982No. 7 Industrial Growth and Employment in

Developing Asian Countries: Issues and

ECONOMIC STAFF PAPERS (ES)

Experiences of Asian and Pacific DevelopingCountries—P.B. Rana, November 1988

No. 43 Agricultural Price Policy in Asia:Issues and Areas of Reforms—I. Ali, November 1988

No. 44 Service Trade and Asian Developing Economies—M.G. Quibria, October 1989

No. 45 A Review of the Economic Analysis of PowerProjects in Asia and Identification of Areasof Improvement—I. Ali, November 1989

No. 46 Growth Perspective and Challenges for Asia:Areas for Policy Review and Research—I. Ali, November 1989

No. 47 An Approach to Estimating the PovertyAlleviation Impact of an Agricultural Project—I. Ali, January 1990

No. 48 Economic Growth Performance of Indonesia,the Philippines, and Thailand:The Human Resource Dimension—E.M. Pernia, January 1990

No. 49 Foreign Exchange and Fiscal Impact of a Project:A Methodological Framework for Estimation—I. Ali, February 1990

No. 50 Public Investment Criteria: Financialand Economic Internal Rates of Return—I. Ali, April 1990

No. 51 Evaluation of Water Supply Projects:An Economic Framework—Arlene M. Tadle, June 1990

No. 52 Interrelationship Between Shadow Prices, ProjectInvestment, and Policy Reforms:An Analytical Framework—I. Ali, November 1990

No. 53 Issues in Assessing the Impact of Projectand Sector Adjustment Lending—I. Ali, December 1990

No. 54 Some Aspects of Urbanizationand the Environment in Southeast Asia—Ernesto M. Pernia, January 1991

No. 55 Financial Sector and EconomicDevelopment: A Survey—Jungsoo Lee, September 1991

No. 56 A Framework for Justifying Bank-AssistedEducation Projects in Asia: A Reviewof the Socioeconomic Analysisand Identification of Areas of Improvement—Etienne Van De Walle, February 1992

No. 57 Medium-term Growth-StabilizationRelationship in Asian Developing Countriesand Some Policy Considerations—Yun-Hwan Kim, February 1993

No. 58 Urbanization, Population Distribution,and Economic Development in Asia—Ernesto M. Pernia, February 1993

No. 59 The Need for Fiscal Consolidation in Nepal:The Results of a Simulation—Filippo di Mauro and Ronald Antonio Butiong,

July 1993No. 60 A Computable General Equilibrium Model

of Nepal—Timothy Buehrer and Filippo di Mauro,

October 1993No. 61 The Role of Government in Export Expansion

in the Republic of Korea: A Revisit—Yun-Hwan Kim, February 1994

No. 62 Rural Reforms, Structural Change,and Agricultural Growth inthe People’s Republic of China—Bo Lin, August 1994

No. 63 Incentives and Regulation for Pollution Abatementwith an Application to Waste Water Treatment—Sudipto Mundle, U. Shankar,and Shekhar Mehta, October 1995

No. 64 Saving Transitions in Southeast Asia—Frank Harrigan, February 1996

No. 65 Total Factor Productivity Growth in East Asia:A Critical Survey—Jesus Felipe, September 1997

No. 66 Foreign Direct Investment in Pakistan:Policy Issues and Operational Implications—Ashfaque H. Khan and Yun-Hwan Kim,

July 1999No. 67 Fiscal Policy, Income Distribution and Growth

—Sailesh K. Jha, November 1999

Perspectives for the Coming Decade—Ulrich Hiemenz, March 1982

No. 8 Petrodollar Recycling 1973-1980.Part 1: Regional Adjustments andthe World Economy—Burnham Campbell, April 1982

No. 9 Developing Asia: The Importanceof Domestic Policies—Economics Office Staff under the direction

of Seiji Naya, May 1982No. 10 Financial Development and Household

Savings: Issues in Domestic ResourceMobilization in Asian Developing Countries—Wan-Soon Kim, July 1982

No. 11 Industrial Development: Role of SpecializedFinancial Institutions—Kedar N. Kohli, August 1982

No. 12 Petrodollar Recycling 1973-1980.Part II: Debt Problems and an Evaluationof Suggested Remedies—Burnham Campbell, September 1982

No. 13 Credit Rationing, Rural Savings, and FinancialPolicy in Developing Countries—William James, September 1982

No. 14 Small and Medium-Scale Manufacturing

33

Establishments in ASEAN Countries:Perspectives and Policy Issues—Mathias Bruch and Ulrich Hiemenz, March 1983

No. 15 Income Distribution and EconomicGrowth in Developing Asian Countries—J. Malcolm Dowling and David Soo, March 1983

No. 16 Long-Run Debt-Servicing Capacity ofAsian Developing Countries: An Applicationof Critical Interest Rate Approach—Jungsoo Lee, June 1983

No. 17 External Shocks, Energy Policy,and Macroeconomic Performance of AsianDeveloping Countries: A Policy Analysis—William James, July 1983

No. 18 The Impact of the Current Exchange RateSystem on Trade and Inflation of SelectedDeveloping Member Countries—Pradumna Rana, September 1983

No. 19 Asian Agriculture in Transition: Key Policy Issues—William James, September 1983

No. 20 The Transition to an Industrial Economyin Monsoon Asia—Harry T. Oshima, October 1983

No. 21 The Significance of Off-Farm Employmentand Incomes in Post-War East Asian Growth—Harry T. Oshima, January 1984

No. 22 Income Distribution and Poverty in SelectedAsian Countries—John Malcolm Dowling, Jr., November 1984

No. 23 ASEAN Economies and ASEAN EconomicCooperation—Narongchai Akrasanee, November 1984

No. 24 Economic Analysis of Power Projects—Nitin Desai, January 1985

No. 25 Exports and Economic Growth in the Asian Region—Pradumna Rana, February 1985

No. 26 Patterns of External Financing of DMCs—E. Go, May 1985

No. 27 Industrial Technology Developmentthe Republic of Korea—S.Y. Lo, July 1985

No. 28 Risk Analysis and Project Selection:A Review of Practical Issues—J.K. Johnson, August 1985

No. 29 Rice in Indonesia: Price Policy and ComparativeAdvantage—I. Ali, January 1986

No. 30 Effects of Foreign Capital Inflowson Developing Countries of Asia—Jungsoo Lee, Pradumna B. Rana,

and Yoshihiro Iwasaki, April 1986No. 31 Economic Analysis of the Environmental

Impacts of Development Projects—John A. Dixon et al., EAPI,

East-West Center, August 1986No. 32 Science and Technology for Development:

Role of the Bank—Kedar N. Kohli and Ifzal Ali, November 1986

No. 33 Satellite Remote Sensing in the Asianand Pacific Region—Mohan Sundara Rajan, December 1986

No. 34 Changes in the Export Patterns of Asian andPacific Developing Countries: An EmpiricalOverview—Pradumna B. Rana, January 1987

No. 35 Agricultural Price Policy in Nepal—Gerald C. Nelson, March 1987

No. 36 Implications of Falling Primary CommodityPrices for Agricultural Strategy in the Philippines—Ifzal Ali, September 1987

No. 37 Determining Irrigation Charges: A Framework—Prabhakar B. Ghate, October 1987

No. 38 The Role of Fertilizer Subsidies in AgriculturalProduction: A Review of Select Issues—M.G. Quibria, October 1987

No. 39 Domestic Adjustment to External Shocksin Developing Asia—Jungsoo Lee, October 1987

No. 40 Improving Domestic Resource Mobilizationthrough Financial Development: Indonesia—Philip Erquiaga, November 1987

No. 41 Recent Trends and Issues on Foreign DirectInvestment in Asian and Pacific DevelopingCountries—P.B. Rana, March 1988

No. 42 Manufactured Exports from the Philippines:A Sector Profile and an Agenda for Reform—I. Ali, September 1988

No. 43 A Framework for Evaluating the EconomicBenefits of Power Projects—I. Ali, August 1989

No. 44 Promotion of Manufactured Exports in Pakistan—Jungsoo Lee and Yoshihiro Iwasaki,

September 1989No. 45 Education and Labor Markets in Indonesia:

A Sector Survey—Ernesto M. Pernia and David N. Wilson,

September 1989No. 46 Industrial Technology Capabilities

and Policies in Selected ADCs—Hiroshi Kakazu, June 1990

No. 47 Designing Strategies and Policiesfor Managing Structural Change in Asia—Ifzal Ali, June 1990

No. 48 The Completion of the Single European CommunityMarket in 1992: A Tentative Assessment of itsImpact on Asian Developing Countries—J.P. Verbiest and Min Tang, June 1991

No. 49 Economic Analysis of Investment in Power Systems—Ifzal Ali, June 1991

No. 50 External Finance and the Role of MultilateralFinancial Institutions in South Asia:Changing Patterns, Prospects, and Challenges—Jungsoo Lee, November 1991

No. 51 The Gender and Poverty Nexus: Issues andPolicies—M.G. Quibria, November 1993

No. 52 The Role of the State in Economic Development:Theory, the East Asian Experience,and the Malaysian Case—Jason Brown, December 1993

No. 53 The Economic Benefits of Potable Water SupplyProjects to Households in Developing Countries—Dale Whittington and Venkateswarlu Swarna,

January 1994No. 54 Growth Triangles: Conceptual Issues

and Operational Problems—Min Tang and Myo Thant, February 1994

No. 55 The Emerging Global Trading Environmentand Developing Asia—Arvind Panagariya, M.G. Quibria,

and Narhari Rao, July 1996No. 56 Aspects of Urban Water and Sanitation in

the Context of Rapid Urbanization inDeveloping Asia—Ernesto M. Pernia and Stella LF. Alabastro,

September 1997No. 57 Challenges for Asia’s Trade and Environment

—Douglas H. Brooks, January 1998No. 58 Economic Analysis of Health Sector Projects-

A Review of Issues, Methods, and Approaches—Ramesh Adhikari, Paul Gertler, and

Anneli Lagman, March 1999No. 59 The Asian Crisis: An Alternate View

—Rajiv Kumar and Bibek Debroy, July 1999No. 60 Social Consequences of the Financial Crisis in

Asia—James C. Knowles, Ernesto M. Pernia, and

Mary Racelis, November 1999

34

No. 1 Estimates of the Total External Debt ofthe Developing Member Countries of ADB:1981-1983—I.P. David, September 1984

No. 2 Multivariate Statistical and GraphicalClassification Techniques Appliedto the Problem of Grouping Countries—I.P. David and D.S. Maligalig, March 1985

No. 3 Gross National Product (GNP) MeasurementIssues in South Pacific Developing MemberCountries of ADB—S.G. Tiwari, September 1985

No. 4 Estimates of Comparable Savings in SelectedDMCs—Hananto Sigit, December 1985

No. 5 Keeping Sample Survey Designand Analysis Simple—I.P. David, December 1985

No. 6 External Debt Situation in AsianDeveloping Countries—I.P. David and Jungsoo Lee, March 1986

No. 7 Study of GNP Measurement Issues in theSouth Pacific Developing Member Countries.Part I: Existing National Accountsof SPDMCs–Analysis of Methodologyand Application of SNA Concepts—P. Hodgkinson, October 1986

No. 8 Study of GNP Measurement Issues in the SouthPacific Developing Member Countries.Part II: Factors Affecting IntercountryComparability of Per Capita GNP—P. Hodgkinson, October 1986

No. 9 Survey of the External Debt Situation

STATISTICAL REPORT SERIES (SR)

in Asian Developing Countries, 1985—Jungsoo Lee and I.P. David, April 1987

No. 10 A Survey of the External Debt Situationin Asian Developing Countries, 1986—Jungsoo Lee and I.P. David, April 1988

No. 11 Changing Pattern of Financial Flows to Asianand Pacific Developing Countries—Jungsoo Lee and I.P. David, March 1989

No. 12 The State of Agricultural Statistics inSoutheast Asia—I.P. David, March 1989

No. 13 A Survey of the External Debt Situationin Asian and Pacific Developing Countries:1987-1988—Jungsoo Lee and I.P. David, July 1989

No. 14 A Survey of the External Debt Situation inAsian and Pacific Developing Countries: 1988-1989—Jungsoo Lee, May 1990

No. 15 A Survey of the External Debt Situationin Asian and Pacific Developing Countries: 1989-1992—Min Tang, June 1991

No. 16 Recent Trends and Prospects of External DebtSituation and Financial Flows to Asianand Pacific Developing Countries—Min Tang and Aludia Pardo, June 1992

No. 17 Purchasing Power Parity in Asian DevelopingCountries: A Co-Integration Test—Min Tang and Ronald Q. Butiong, April 1994

No. 18 Capital Flows to Asian and Pacific DevelopingCountries: Recent Trends and Future Prospects—Min Tang and James Villafuerte, October 1995

No. 1 Poverty in the People’s Republic of China:Recent Developments and Scopefor Bank Assistance—K.H. Moinuddin, November 1992

No. 2 The Eastern Islands of Indonesia: An Overviewof Development Needs and Potential—Brien K. Parkinson, January 1993

No. 3 Rural Institutional Finance in Bangladeshand Nepal: Review and Agenda for Reforms—A.H.M.N. Chowdhury and Marcelia C. Garcia,

November 1993No. 4 Fiscal Deficits and Current Account Imbalances

of the South Pacific Countries:A Case Study of Vanuatu—T.K. Jayaraman, December 1993

No. 5 Reforms in the Transitional Economies of Asia—Pradumna B. Rana, December 1993

No. 6 Environmental Challenges in the People’s Republicof China and Scope for Bank Assistance—Elisabetta Capannelli and Omkar L. Shrestha,

December 1993No. 7 Sustainable Development Environment

and Poverty Nexus—K.F. Jalal, December 1993

No. 8 Intermediate Services and EconomicDevelopment: The Malaysian Example—Sutanu Behuria and Rahul Khullar, May 1994

No. 9 Interest Rate Deregulation: A Brief Surveyof the Policy Issues and the Asian Experience—Carlos J. Glower, July 1994

No. 10 Some Aspects of Land Administrationin Indonesia: Implications for Bank Operations—Sutanu Behuria, July 1994

No. 11 Demographic and Socioeconomic Determinantsof Contraceptive Use among Urban Women inthe Melanesian Countries in the South Pacific:A Case Study of Port Vila Town in Vanuatu—T.K. Jayaraman, February 1995

No. 12 Managing Development throughInstitution Building— Hilton L. Root, October 1995

No. 13 Growth, Structural Change, and OptimalPoverty Interventions—Shiladitya Chatterjee, November 1995

No. 14 Private Investment and MacroeconomicEnvironment in the South Pacific IslandCountries: A Cross-Country Analysis—T.K. Jayaraman, October 1996

No. 15 The Rural-Urban Transition in Viet Nam:Some Selected Issues—Sudipto Mundle and Brian Van Arkadie,

October 1997No. 16 A New Approach to Setting the Future

Transport Agenda—Roger Allport, Geoff Key, and Charles Melhuish

June 1998No. 17 Adjustment and Distribution:

The Indian Experience—Sudipto Mundle and V.B. Tulasidhar, June 1998

No. 18 Tax Reforms in Viet Nam: A Selective Analysis—Sudipto Mundle, December 1998

No. 19 Surges and Volatility of Private Capital Flows toAsian Developing Countries: Implicationsfor Multilateral Development Banks—Pradumna B. Rana, December 1998

No. 20 The Millennium Round and the Asian Economies:An Introduction—Dilip K. Das, October 1999

No. 21 Occupational Segregation and the GenderEarnings Gap—Joseph E. Zveglich, Jr. and Yana van der MeulenRodgers, December 1999

No. 22 Information Technology: Next Locomotive ofGrowth?—Dilip K. Das, June 2000

OCCASIONAL PAPERS (OP)

35

FROM OXFORD UNIVERSITY PRESS:Oxford University Press (China) Ltd18th Floor, Warwick House EastTaikoo Place, 979 King’s RoadQuarry Bay, Hong KongTel (852) 2516 3222Fax (852) 2565 8491E-mail: [email protected]: www.oupchina.com.hk

1. Informal Finance: Some Findings from AsiaPrabhu Ghate et. al., 1992$15.00 (paperback)

2. Mongolia: A Centrally Planned Economyin TransitionAsian Development Bank, 1992$15.00 (paperback)

3. Rural Poverty in Asia, Priority Issues and PolicyOptionsEdited by M.G. Quibria, 1994$25.00 (paperback)

4. Growth Triangles in Asia: A New Approachto Regional Economic CooperationEdited by Myo Thant, Min Tang, and Hiroshi Kakazu1st ed., 1994 $36.00 (hardbound)Revised ed., 1998 $55.00 (hardbound)

5. Urban Poverty in Asia: A Survey of Critical IssuesEdited by Ernesto Pernia, 1994$18.00 (paperback)

6. Critical Issues in Asian Development:Theories, Experiences, and PoliciesEdited by M.G. Quibria, 1995$15.00 (paperback)$36.00 (hardbound)

7. Financial Sector Development in AsiaEdited by Shahid N. Zahid, 1995$50.00 (hardbound)

8. Financial Sector Development in Asia: Country StudiesEdited by Shahid N. Zahid, 1995$55.00 (hardbound)

9. Fiscal Management and Economic Reformin the People’s Republic of ChinaChristine P.W. Wong, Christopher Heady,and Wing T. Woo, 1995$15.00 (paperback)

10. From Centrally Planned to Market Economies:The Asian ApproachEdited by Pradumna B. Rana and Naved Hamid, 1995Vol. 1: Overview$36.00 (hardbound)Vol. 2: People’s Republic of China and Mongolia$50.00 (hardbound)Vol. 3: Lao PDR, Myanmar, and Viet Nam$50.00 (hardbound)

11. Current Issues in Economic Development:An Asian PerspectiveEdited by M.G. Quibria and J. Malcolm Dowling, 1996$50.00 (hardbound)

12. The Bangladesh Economy in TransitionEdited by M.G. Quibria, 1997$20.00 (hardbound)

13. The Global Trading System and Developing AsiaEdited by Arvind Panagariya, M.G. Quibria,and Narhari Rao, 1997$55.00 (hardbound)

14. Social Sector Issues in Transitional Economies of AsiaEdited by Douglas H. Brooks and Myo Thant, 1998$25.00 (paperback)$55.00 (hardbound)

15. Intergovernmental Fiscal Transfers in Asia: CurrentPractice and Challenges for the FutureEdited by Yun-Hwan Kim and Paul Smoke, 2003$15.00 (paperback)

16. Local Government Finance and Bond MarketsEdited by Yun-Hwan Kim, 2003$15.00 (paperback)

FROM EDWARD ELGAR:Marston Book Services LimitedPO Box 269, AbingdonOxon OX14 4YNUnited KingdomTel +44 1235 465500Fax +44 1235 465555Email: [email protected]: www.marston.co.uk

1. Reducing Poverty in Asia: Emerging Issues in Growth,Targeting, and MeasurementEdited by Christopher M. Edmonds, 2003

FROM PALGRAVE MACMILLAN:Palgrave Macmillan LtdHoundmillsBasingstokeHampshire RG21 6XSUnited KingdomTel: +44 (0)1256 329242Fax: +44 (0)1256 479476Email: [email protected]: www.palgrave.com/home/

1. Managing FDI in a Globalizing EconomyAsian ExperiencesEdited by Douglas H. Brooks and Hal Hill2004

2. Poverty, Growth, and Institutions in Developing AsiaEdited by Ernesto M. Pernia and Anil B. Deolalikar,2003

SPECIAL STUDIES, OUP (SS,Comm)(Co-published titles; Available commercially through Oxford University Press Offices, Edward ElgarPublishing, and Palgrave MacMillan)

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1. Rural Poverty in Developing AsiaEdited by M.G. QuibriaVol. 1: Bangladesh, India, and Sri Lanka, 1994$35.00 (paperback)Vol. 2: Indonesia, Republic of Korea, Philippines,and Thailand, 1996$35.00 (paperback)

2. Gender Indicators of Developing Asianand Pacific CountriesAsian Development Bank, 1993$25.00 (paperback)

3. External Shocks and Policy Adjustments:Lessons from the Gulf CrisisEdited by Naved Hamid and Shahid N. Zahid, 1995$15.00 (paperback)

4. Indonesia-Malaysia-Thailand Growth Triangle:Theory to PracticeEdited by Myo Thant and Min Tang, 1996$15.00 (paperback)

5. Emerging Asia: Changes and ChallengesAsian Development Bank, 1997$30.00 (paperback)

6. Asian ExportsEdited by Dilip Das, 1999$35.00 (paperback)$55.00 (hardbound)

7. Development of Environment Statistics in DevelopingAsian and Pacific CountriesAsian Development Bank, 1999$30.00 (paperback)

8. Mortgage-Backed Securities Markets in AsiaEdited by S.Ghon Rhee & Yutaka Shimomoto, 1999$35.00 (paperback)

9. Rising to the Challenge in Asia: A Study of FinancialMarketsAsian Development BankVol. 1: An Overview, 2000 $20.00 (paperback)Vol. 2: Special Issues, 1999 $15.00 (paperback)Vol 3: Sound Practices, 2000 $25.00 (paperback)Vol. 4: People’s Republic of China, 1999 $20.00(paperback)Vol. 5: India, 1999 $30.00 (paperback)Vol. 6: Indonesia, 1999 $30.00 (paperback)Vol. 7: Republic of Korea, 1999 $30.00 (paperback)Vol. 8: Malaysia, 1999 $20.00 (paperback)Vol. 9: Pakistan, 1999 $30.00 (paperback)Vol. 10: Philippines, 1999 $30.00 (paperback)Vol. 11: Thailand, 1999 $30.00 (paperback)Vol. 12: Socialist Republic of Viet Nam, 1999 $30.00(paperback)

10. Corporate Governance and Finance in East Asia:A Study of Indonesia, Republic of Korea, Malaysia,Philippines and ThailandJ. Zhuang, David Edwards, D. Webb,& Ma. Virginita CapulongVol. 1: A Consolidated Report, 2000 $10.00 (paperback)Vol. 2: Country Studies, 2001 $15.00 (paperback)

11. Financial Management and Governance IssuesAsian Development Bank, 2000Cambodia $10.00 (paperback)People’s Republic of China $10.00 (paperback)Mongolia $10.00 (paperback)Pakistan $10.00 (paperback)Papua New Guinea $10.00 (paperback)Uzbekistan $10.00 (paperback)Viet Nam $10.00 (paperback)Selected Developing Member Countries $10.00 (paperback)

12. Government Bond Market Development in AsiaEdited by Yun-Hwan Kim, 2001$25.00 (paperback)

13. Intergovernmental Fiscal Transfers in Asia: Current Practiceand Challenges for the FutureEdited by Paul Smoke and Yun-Hwan Kim, 2002$15.00 (paperback)

14. Guidelines for the Economic Analysis of ProjectsAsian Development Bank, 1997$10.00 (paperback)

15. Guidelines for the Economic Analysis ofTelecommunications ProjectsAsian Development Bank, 1997$10.00 (paperback)

16. Handbook for the Economic Analysis of Water Supply ProjectsAsian Development Bank, 1999$10.00 (hardbound)

17. Handbook for the Economic Analysis of Health Sector ProjectsAsian Development Bank, 2000$10.00 (paperback)

18. Handbook for Integrating Povery Impact Assessment inthe Economic Analysis of ProjectsAsian Development Bank, 2001$10.00 (paperback)

19. Handbook for Integrating Risk Analysis in the EconomicAnalysis of ProjectsAsian Development Bank, 2002$10.00 (paperback)

20. Guidelines for the Financial Governance andManagement of Investment Projects Financed by theAsian Development BankAsian Development Bank, 2002$10.00 (paperback)

21. Handbook on Environment StatisticsAsian Development Bank, 2002$10.00 (hardback)

22. Defining an Agenda for Poverty Reduction, Volume 1Edited by Christopher Edmonds and Sara Medina, 2002$15.00 (paperback)

23. Defining an Agenda for Poverty Reduction, Volume 2Edited by Isabel Ortiz, 2002$15.00 (paperback)

24. Economic Analysis of Policy-based Operations: KeyDimensionsAsian Development Bank, 2003$10.00 (paperback)

SPECIAL STUDIES, ADB (SS, ADB)(Published in-house; Available commercially through ADB Office of External Relations)

37

1. Improving Domestic Resource Mobilization ThroughFinancial Development: Overview September 1985

2. Improving Domestic Resource Mobilization ThroughFinancial Development: Bangladesh July 1986

3. Improving Domestic Resource Mobilization ThroughFinancial Development: Sri Lanka April 1987

4. Improving Domestic Resource Mobilization ThroughFinancial Development: India December 1987

5. Financing Public Sector Development Expenditurein Selected Countries: Overview January 1988

6. Study of Selected Industries: A Brief ReportApril 1988

7. Financing Public Sector Development Expenditurein Selected Countries: Bangladesh June 1988

8. Financing Public Sector Development Expenditurein Selected Countries: India June 1988

9. Financing Public Sector Development Expenditurein Selected Countries: Indonesia June 1988

10. Financing Public Sector Development Expenditurein Selected Countries: Nepal June 1988

11. Financing Public Sector Development Expenditurein Selected Countries: Pakistan June 1988

12. Financing Public Sector Development Expenditurein Selected Countries: Philippines June 1988

13. Financing Public Sector Development Expenditurein Selected Countries: Thailand June 1988

14. Towards Regional Cooperation in South Asia:ADB/EWC Symposium on Regional Cooperationin South Asia February 1988

15. Evaluating Rice Market Intervention Policies:Some Asian Examples April 1988

16. Improving Domestic Resource Mobilization ThroughFinancial Development: Nepal November 1988

17. Foreign Trade Barriers and Export GrowthSeptember 1988

18. The Role of Small and Medium-Scale Industries in theIndustrial Development of the PhilippinesApril 1989

19. The Role of Small and Medium-Scale ManufacturingIndustries in Industrial Development: The Experience ofSelected Asian CountriesJanuary 1990

20. National Accounts of Vanuatu, 1983-1987January 1990

21. National Accounts of Western Samoa, 1984-1986February 1990

22. Human Resource Policy and EconomicDevelopment: Selected Country StudiesJuly 1990

23. Export Finance: Some Asian ExamplesSeptember 1990

24. National Accounts of the Cook Islands, 1982-1986September 1990

25. Framework for the Economic and Financial Appraisal ofUrban Development Sector Projects January 1994

26. Framework and Criteria for the Appraisaland Socioeconomic Justification of Education ProjectsJanuary 1994

27. Guidelines for the Economic Analysis ofTelecommunications ProjectsAsian Development Bank, 1997

28. Guidelines for the Economic Analysis of Water Supply ProjectsAsian Development Bank, 1998

29. Investing in AsiaCo-published with OECD, 1997

30. The Future of Asia in the World EconomyCo-published with OECD, 1998

31. Financial Liberalisation in Asia: Analysis and ProspectsCo-published with OECD, 1999

32. Sustainable Recovery in Asia: Mobilizing Resources forDevelopmentCo-published with OECD, 2000

33. Technology and Poverty Reduction in Asia and the PacificCo-published with OECD, 2001

34. Asia and EuropeCo-published with OECD, 2002

SPECIAL STUDIES, COMPLIMENTARY (SSC)(Published in-house; Available through ADB Office of External Relations; Free of Charge)

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