PUBLIC DEBT MANAGEMENT:
Recent Developments in Asia
Paris, 25 November 200919th OECD Global Forum on Public Debt Management
Tobias HoschkaHead, Financial Policy and ALM
Asian Development Bank
2
AgendaAsia and the Global Financial Crisis: Fallout So Far Less SevereBuilding Domestic Bond Markets in Asia: The Last 10 YearsAccessing International Capital Markets: The Markets Have Re-OpenedProactive Debt Management: Examples from Asia
3
Asia and the Global Financial Crisis
4
Fall-out from the Global Turmoil in Asia so far less severe than in other major economies.
GDP Growth
6.1
3.9
6.4
0.7
(4.2)
0.3 0.4
(2.7)
1.5
-6
-4
-2
0
2
4
6
8
2008 2009* 2010* 2008 2009* 2010* 2008 2009* 2010*
%
ASIA EUROPE U.S.
* Projected.
Source: Asia: Asian Development Outlook 2009 Update, Europe, U.S.: IMF World Economic Outlook.
5
… with significant intra-regional disparitiesProjected 2009 GDP Growth Rate
(%)8.2
6.0 5.94.7 4.3
2.0 1.6
(3.1) (3.2)(4.0)
(5.0)-6
-4
-2
0
2
4
6
8
10
PRC IND BAN VIE INO PAK PHI MAL THA HKG SIN
Source: Asian Development Outlook 2009 Update
6
Asian financial institutions much less affected by asset write-downs.
7
Nevertheless, lower economic growth and fiscal stimulus packages have resulted in higher budget deficits…
Budget Deficits (% of GDP)
(2.70)
(6.0)
(6.8)
(1.2)
(2.6)
(0.9)
(4.3)
(1.1)
(4.0)
0.6
(3.1)
(0.1) (0.4)(0.3)(0.2)
(8.0)
(6.0)
(4.0)
(2.0)
0.0
2.0
%
INDIA PRCTHAILANDPHILIPPINESINDONESIA
Fiscal stimulus 1.5% of GDP
Fiscal stimulus 1.4% of GDP
$7 billion fiscal stimulus program
• 2009 stimulus programof $3.4 billion
• $42 billion infrastructureprogram 2009–2012
Government implementing $600 billion fiscal stimulus package (13% of GDP)
2007 2008 2009* 2007 2008 2009* 2007 2008 2009* 2007 2008 2009* 2008 2009*2007
* Projected.Source: Asian Development Outlook 2009.
8
… and larger borrowing programs
9
Domestic Bond Market Development
10
Since 1997, outstanding bonds in emerging East Asia have grown significantly.
6
China
Malaysia Republic of Korea
Indonesia
Thailand
Viet Nam
… with growth in virtually all economies.
12
ABMI Framework and Role of Task ForcesASEAN+3 Finance Ministers
ABMI Steering Group - Monitor progress and coordinate future plans
ASEAN+3 Deputy Finance Ministers
Meet annually
Meet semi-annually
East Asian policy-makers established the Asian Bond Market Initiative (ABMI) in 2003.
Promoting Issuance of Local Currency Denominated Bonds-Credit guarantee and investment mechanism-Promotion of Asian Currency Note Programme-Promoting issuance of structured finance instruments
TF 1 TF 2 TF 3 TF 4
Facilitating the Demand of Local Currency-Denominated Bonds-Development of investment environment for institutional investors-Development of repo markets-Enhancing cross-border transactions-Information dissemination
Improving Regulatory Framework-Strengthening regulatory and supervisory framework for securities-Facilitating collaboration among SROs in the region-Improving bankruptcy procedures related to bond transaction-Promoting application of international accounting and auditing standards
Improving Related Infrastructure for the Bond Market-Infrastructure for securities settlement-Increasing liquidity of bond markets-Fostering credit culture-Developing professional services
TASK FORCE
13
Accessing International Capital Markets
14
The Philippines and Indonesia are Asia’s most prolific international issuers.
15
YTD 2009 issuance has been the highest in the decade.
One year after the crisis, spreads are at record lows for Asian sovereign issuers.
Sovereign issuance has continued throughout the financial crisis.
18
Most Asian sovereign issuers have enjoyed credit rating upgrades over the last years.
19
International capital markets are open even to lower-rated issues.
CASE STUDY: October 2009 Sri Lanka
$500 million
2nd international issue after October 2007 $500 million debut5-year issue at US Treasury + 505 basis pointsCoupon: 7.4% (2007: 8.25%)13 times oversubscribed (2007: 3 times)269 investors (2007: 130)
60
65
70
75
80
85
90
95
100
105
110
Oct-07 Jan-08 May-08 Aug-08 Dec-08 Mar-09 Jul-09 Oct-09
Bid price
Secondary trading performance of SRILAN 8.250% due 2012Secondary trading performance of SRILAN 8.250% due 2012
LTTE defeated
Source: J.P. Morgan as of 22 October 2009.
104Issue of SRILAN
7.400% due Jan-15
Lehman bankruptcy
60
65
70
75
80
85
90
95
100
105
110
Oct-07 Jan-08 May-08 Aug-08 Dec-08 Mar-09 Jul-09 Oct-09
Bid price
Secondary trading performance of SRILAN 8.250% due 2012Secondary trading performance of SRI LANKA 8.250% due 2012
LTTE defeated
Source: J.P. Morgan as of 22 October 2009.
104Issue of SRI LANKA
7.400% due Jan-15
Lehman bankruptcy
20
The international Sukuk market has opened to Asian sovereigns and quasi-sovereigns.
Republic of Indonesia: Petronas:April 2009 $650 Million August 2009 $1.5 Billion
Rating BB- A-Maturity 5 years 5 yearsSpread UST+705 bps UST+162 bpsYield 8.8% 4.279%Highlights • Debut US$ Sukuk for Indonesia • Offered in conjunction with
• 230 investors globally $3 billion conventional issuance• 62% allocation to Non-Islamic • 4 times oversubscribed investors • 80% allocation outside Malaysia/
Middle East
21
Proactive Debt Management:
Examples from Asia
22
Proactive Liability Management: Locking-In Low Interest Rates
Large Asian borrowers locking in
$8 billion of floating rate MDB loans
Source: Bloomberg
7-year Interest Rate Swaps
23
Taking Advantage of Low Long-Term Yield by Duration Lengthening
Examples:October 2009 Republic of the Philippines 25-year issue, $1 billion, coupon: 6.375%Philippine PSALM bond exchange refinancing bonds maturing in the next 2 years with 10- and 15-year bonds (total up to $1.2 billion).
10-year US Treasury Yields
Source: Bloomberg
Thank You.
Q & A
