Idea Transcript
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TIHIIE EMERGJING
MAKiIETFI THE WORLD
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INDIAN OCEAN Indonesia
The EmergingAsian Bond Market The boundaries, colors, denominations and any othe nformation shown on thismp do notmply on the port of The World Bank G oup, any judgment ot of any tertory, any enddrsement or acceptance of such bound res
TrustTerr.
of the
~~~~~~~~~~~Isl (US)
TIHIIE IEMIERGIING
ASIIAN
IBONI1D MAIRJKIETF
THE WORLD BANK WASHINGTON, DC
©) 1995 Thc Intenrational Bank for Reconstnirction anid Development/THE WORLD BANK 1818 H Street, N.W
Washington. D.C. 20433. U.S.A. All rights reserved Manuifacrurerl iii the United Slates of Amilerica First printin,g December 1995 Priotevi on recvcled paper Design hy Patricia Hoed Craphiik Design The findings, interpretations,and conclusioiis expressed in tI is paper are enti reli those lf tile auLlthor(s)atid shouili not he attribultel in any milaninerto the Wirld Banik. to its affiliatedl organizaionis. or to meumbers of its Board of Executive Directors or the counltlriesthey represenit. The World Bairk does not guarantee tht accuracy of timedata included in this publicatiin anid accepts nioresponsibility whalsoever fol alnyCoonsevLielnl e of their mice.The boumidaries, colors. dlenominatiors, anid other inforniationshown ori any niap ii Irlis ohiii-e vd nit impli)y onithe part of the World Banik any judgmmienit ont[ie legal status of an,yterrilory or tihe el,dorseu-ent or a, ,e p tanr1eof sLIch II OLIviaries. Ismail Dalla. principal aLIltor of The Emerging Asian Bonid Mamrket,is a US natiminalannclpast prilncipal financial sp eoialist in the World Bank's East Asia Countri I Department. He is cuocreti,r President of Wlashington Assel Management. Ilnc.. Washingtoni.D.C. TimeEnnerginng.4simmnBond Market bvyIsniail Dalla. DeemiaKhalklatle, Tens Chiippe. ISBN 0-8213-3487-5 Libhrary of ConigressCatalaiging-inn-Pulniicatiomn Daoa Dalla. Isiimail, 1948TimeeniergimgAsian hond market / hv Ismail Dalla. p.
cill.
Include, hibliographical references. ISBN 0-8213-3487-5 1. BRed market-East Asia. 2. Monetary policy-East
Asia.
1. Title.
HG4651.D35 1995 3
32
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23
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95-48236 CIP
1
.(C.Rao. Kali KomidiUry. Kwang JLin, aim
FOREWORD The ecoinomic performanice of East Asia las beena remiarkable storNspanrirnrg-seral deradles.The regi.. Ira, enjoyedrmacroeconomic stabilily, rcoisistenit growth,low iinartii icrireasingoperirreso to iieri-atlionralflo-rsof tradearid privatecapital.arid a sleadyrcedLlCtioI iir p-Iverlyanidimprr ig stanidards.AlirIg withirapii 1 riemrentilllivn expansion of productive capacity and eterisi B ciinrtries Fravealso vieselipeLi vigororisly.
sICtr u iral c mange-hr iri b rrliect ie,
ies.
fi
irainrcial a -eti rs if
tr ese
The regioniriowhasa rell-developediarikirig sy.sterrr. annd ioasts four if t[e trp twertvyslurk riarket, s Ille wnirld. However. East Asia's bond Irmarket.sare relatisei simall ald t an early slage of ieselopmrrenrt.Trie canibioi i izr of its bFond rrarkiets at USS 338 billirot. or 22 percent of CDPa lihe enid of I 994. was.s o nliirie-tiiil if tIre size t[ie regioir s eqLityNrirarkets. Tlii report has been psepared vis Airld Basik staff and is basevi air stilidies f bond ora,kels in Chinia. Hung Koig. Inidniesia. Korea. Malaysia. Philippines, Sirigapre. anidThailaivd. These studiies rave ieei r arriei iit im a ,Ilaborative effort between Banik stlrff arivi ililrtittilrral rLiriiterpalts lin these corriutries. These stuiiies are ircrlFatled separateiy as backgrournidpaper-. The iiiaiir objecti eo of the report are ti pinn ide a comrrprehensive ires ey il the East Asiao bsnid miarkets, irleriif) tie beot practices iliat have fostered vderelopoellrt of these haod urarkets. and preseirt a bsriad agenridafol refirms. that wouild firrher coitrlibite tin lieu deseloprrrenit iFr lie rlegionir. The repoirt fi rds great diversity ariiorig these miarkets ir thieir ize, sphistiratirri regLulators frarrrewn rk. and iifrastructure. Each of these enrantries has taken, sigirifuranitstep.i in rereir vears to imnprive ire frirectirninrg of ils lird iarket. In soiie voaUitries tle relirits are already arhprarti aird Ilie boardrirarkets hIarvebieguir to geros. In ililers. iiiore conicerted efforts are reqlrireni. Hiwever, it is -lear thal riool of these urarkets are piiied for genwth and.i moist cases, the irtiitinal prereqriisites nither are alreardy i place ire are beiirg sLI inl place. Market deveh nprrert is essentially urn rgains pricess. FLIt on,etFial ian re ainleniby apprinltiate auipprirtie actions by governments. Thie World Bank hiipes that this repuel Srill fa ilitate a dialoiigruebelteeir key rioarketparlii irptsil, regilators, and officials responsible fur plreoniolirigmarket dlevelopimrerntoo pierific irreairres Ihat ar, reqnired for each eoairitry. With tire right iiieasLrres.we evpeet tire bondrir iiiarkets in tlheseriirrities to glw very rapidhI anI 1 beciirre a rrrajoirsoiLeneful filairirig inriestimueriltil irirdstry air infi-silLorirtLle that are es-sitLial ii -surtri rapid dveelopreliltin tire oinds irIuost nhyraric regiionr.
NlanaginrgDirentiu, The
XX,inld Barnk
ACKNOWLEDGMENTS
This study has been carried otitin a collaborative effort by the W'orldBankstaff arid the coLinterparts inieight East Asian countries over a period of nine moniths. This report hasbeen prepared by a teamii beaded bv IsmnailDalla (Principal FiniancialSpecialist). The team included Deena Khatklrate, D.C. Rao. Kali Kondurv.Kvang Jun, anid Tem Chuppe. Subir Lall anil Gary Kleiruairmade importantcontributionisto the repoirt. The Asian bond market teari would like to express its gratitude to Gautam Kaji. Maniagingl)irector; for invaluable gijidance anidcontliued support; Russell Cheethua), Regional Vice Presideut. for full support; Vinod Tirorjrasand Ishrat Husairr, sur:cessiveChief Economists in EARfor gettinigthe study off the groond and for bringing it to a sIccessfur couripletiorn;Callisto Madavo, Pamela Cox. WilliamiiMcCleary.Vineet Nayyar.and Khalid Siraj for providlig guidance anidresources to carry out this regional study from thIeEAI Departurent; and Francis Colaco, Gary Perlin, anidHalisRotlhenibuhlerfor providing coisitructive comments on the draft report. The team wotld like to express its appreciationito JosepihC.K. YarinChief Exercutivre of the HonigKongMonietary Authority (HKMA),and AndrewSheng. Deputy Chief Execulive. for full sirpport and for providinga platformito disseroiinatethe stirdy;LorettaWniigof the HKMAforher totaldedication in ensuring the administrativearrangemilenits for the UonigKong conference; CosiriasRobless for guidance arid prorvidiigthe resiurces ii cam oulta parallel stiudy inIirdia; Roger Hall for statisticalsupport; and AmyMenden. Joyce Rompas. Muriel Greases.arid Patricia Hord for their valuable conitributionisin tlie prorductionof tire report. Joost Prlak edited [lie repirrt. The study would not have beenicomplete without tlhesupport and close cooperation of our courinterpartsin these countries. We wouildlike to thauikDato Malek Mericau.Advisor/Director.thle Arab Malaysian,MerchanitBaik, for valuable guidairre for the Malaysiarr stLudy;Ekanrol Kiriwat. Secretary Geireral,Securities arid Exchange Commissionof Thailand. for full support and guidaniceForthe Thailand study; Koh R3erigSeng, Deputy Marraging Director, Monetarv Authmority of Sinigapore,for valiable commreutson tle Sirngaporiestudy; Roland Young, President. All Asia Capital. Philippines. for agreeinig to ptit together threfinial report ..iu the Philippirno; PriaswijantoSabrawi of the Institut PenigembauganAnalisis Finansial, lirdionesia,for the liudonesiari report; Insirp Lee of tire Korea Secririties Research lIistitote for the Koreairstody; Priscilla (:hiri oftIle HKMAfor valuable cuentribution to the Hong Kong report; ArrjahiKoimarof the WorldBank for producing lie China report; aid N. J. Jhaveri. Chairnrariof ICICI Securities anid FinaniceCompany,Ltd., Iidia, for agreeing to participate hr the stildy 1
and prodicirig
tire
Inlia
report orr a compressed schedule.
Ismail Dalla TaskManager. Asian Bond MarketStur(ly
a-
-
TABLE
-
OF
CONTENTS
EXECUTIVESUMMARY
2
3
4
S
i
INTROl)t C'l'ON
I
THE EMERGINGASIANBONDMARKET
6
Bonid Markets is Selected Industrial Countries Size auid Cronposition of tlie East Asiani Bond Market Investo,s The Primary MarkeL The Secondary Market Benchmlarks Role of Credit Ratin1gAgencies Derivatives Taxationi Summary arid Conclusions
6 10 13 13 19 23 24 26 27 30
REGULATION OF THE EMERGING ASIAN BOND MARKEI'
32
Introduction Securities Market Regulatory Systems Government Oversight anid Self-Regulation Regalation of Securities Markets. Private Issuers, and Ltenmediaries Regulation of Government Secuirities and Iltermediaries Regilation t Investment Companies Sumimiaryaniy Conclusions
32 32 35 41 44 46 47
INTERNATIONALIZATION OF THE EMERGINGASIANBONDMARKET
50
Role of Foreign Portfolio Investment Bonid and Equity Market Opening in East Asia International Bonid Market Access by East Asian Developing Countries SLimmary and Conclusions
50 51 51 55
BOND MARKETS AND MONETARY POLICY Introductioni Indirect Monetary Controls in Selected Industrial Countries Indirect Monetary Instruments anid Monetary Policy in the East Asian Couitries Summary and Conclisions
57 57 57 66 72
6
LOOKINGAHEAD The East AsianiE-nn,,nfi ima2004 Iss Les linvesiols Su.mn.rs aird (CjXeli,sion.
A B
74 74 77 78 80
ANNEXES BONDMARKET-STATISTICALPROFILE THE INDUSTRIALCOUNTRYEXPERIENCE
81 116
ENDNOTES
134
SELECTEDBIBLIOGRAPHY
139
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re
.
LIST
OF
R-
ABBREVIATIONS
ADB AGSD BDC BIS BNMI BIOK BRI BSP CMtJ (.PF ECAT EPF G[DFI
Bank Asia, D-ielpirneri Se(unties Dealer, A,crediled Go-nner mirirei Baird Dealers Cluii Batik fire iiterriitaional Settlenirnints Banik Negaro MalaN ia Batik of Korea Bank Repudbic Ilnid-rsia Banigk Seinral rig Pilipi;,ia Cetral Moriiev NMarkettri,it SerIes Celntral Pro, idleirt Firrnl Ele-tricil, Generating Autliroriy of Thailarrd EliiŽ en Pro,idenit Firrld (;rio- Di.eol-i, Fixer1 Jlire,tiiei
GDP GHK GOS ;I
Product Groo- Di-i,e.I Go%erriiiir ofi Hirg Konig merrirrierit oif Sinigapore (; il 1ridoide,ia GlCoerrilnllelri
(GOF
Giii
COM
errilnierlt
;,,ernineill
of Korea ofr Nlalassia
CSIC G;SIS H KMA IDR KLSE KDEI LAF MAS MGS MSB MTRC POSB RAM REPO
Giii-ecriiierll ofSlirgaprire Ir-eLtinierit Corpi.ratrlri Go'err, merit S,ri ire hiiuxirainie S! ctii Horrg Ko.ig Milrretara Autlhorite
R1TG;
Ronal
SEC' SEHK SET SSS TRIS
C(onilriosin SeciriBtic and E-xhlnangs StuLk Exchange if Hing Konig Stiiik Ex chanigeof Thiailanid Siii1al Security System Sen isThai RaLingaundIniforrinatiurn
liidoiisiair RBiruali Kuiala LLIrrripLrStuck Ex-khanige Ilidoire,iati De,ojioioi airlc Clear, rg Agency Liqpridits Adj-1tri,eit Facility MolnetainAtilhiirrLx of Sinigapore rrre,r- SenI till-s Malalisiarin GI Veln MonretarsSlabili,atirn Bonld, NIi Tianin BailRsad(oNnpinratiori PiedOfflin Sanirig, Bairk Halitig Agen-ni Malarsia RBe 1nprka-e Agieennit Thai
Gon
merriiernt
4.7 4.8 6.1 6.2 6.3 6.4 6.5 6.6 6.7
TABLES IN TEXT EastAsia: SelectedEconomicIndicators,1993 FDI Flowsinto East AsianiCountries,1990-94 EqvrityPortfolioFlowsarid BoirvlIssuancetI EastAsia RelativePositionif BaiikinigAssets.Equity,arid iBonds.1994 Sizeof the EmergingEasl AsianBonidMarket,Errd-1994 Sizeof the ErilerginigEastAsianiBoirdMarket.1990-94 Main Sectocsif tie EastAsianiBaid Market Sizeof the NationalCoveeriiiieritBnridSectoc Sizeof tlie CentralBainkBondSector Sizeof the StateEnterpriseBnid Sector Sizeof t[ie CorpocateBondSectonr EastAsia: Irisestorsin Bonids.1994 NetIssuanceof B1 rids in Selectedl InldustrialCoUntries.1980-93 WithiloldinigTanfoclUS-BasedlstitutiornalInvestors InrdicatineEastAsiairBiid TaxRates AsianiBonud Markets:A P-nfileof RegUlatinrSystems PrisateCapital FlowstoAll Deseliipinig Counitries:1989-93 Capital FlowstinEastAsia. 1985-94 Shareof DeselopirgCoautrxBoirulaniyEquits Issties InternationalBonillIssuesbv SelectedEastAsianiCourrtries Bud Isstiesin InternationalMarketsby IssuerTypeir Selected EastAsiai Ciantries lirterriatiornal BourrIssLies liv SelectediEastAsianiCouiritries by Iirsitr.rrrreils AverageMaltirit) Ratingsof Sovereign ForeignCurrencyDebt, March1995 CDP arid Gioss DornesticFixedIhvestirenrt,1994-2004 Capital Structrure in Sele-tedEastAsianiCountries EastAsia: lirdicatiseFinaircingPlan if ProjectenlIrrvestment Ilidicatine Sizeof tIe EastAsian BotidMarket lirdicativeInvestmnteri Req.inireirts in Irifrastrirttire. 1995-2004 AssetSizeof EastAsianIlstititional Ilvestors TotalPerisioirAssetshr SelectedConitries
1.1 2.1 2.2 2.3 2.4 4.1 5.1 5.2 6.1
FIGUtRESIN TEXT GDPGrowth. 1980-93 RelatirePositioirof BankAssets.Ev1Uities.arrdBonds Biiid Marketas a Percentageif GDP EastAsia: Secolidar)MarketTradingin Binuds.1993 Yield Cones in Selectenl EastAsianrMarkets Interniationral BoindIssueshr SelectelEastAsianiCountries lirstrumertMix and Operationir for Selecte(lCountries lirilliect MiniretarPolicyIlstrirurenits in tie EaistAsianrCorinrtries Conryni.sition of the EastAsianiBonidMarketii 2004
1 7 7 19 24 54 59 70 77
2.1 2.2
BOXES Cagainias SingaporeInternationalMonetanrExchainge (SIMEX)
17 27
1.1 1.2 1.3 1.4 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 2.10 2.11 3.1 4.1 4.2 4.3 4.4 4.5 4.6
1 2 2 3 10 11 11 12 12 12 1:3 13 14 28 29 48 50 51 51 52 53 54 55 55 74 75 76 76 78 79 80
-
r
-
* C U R R E N C Y
E Q U I VA L E N T S
China Year-enid1994 Average 1994
US$ 1.00=Yuan 8.45 US$ 1.00=Yuan 8.49
Hong Kong Year-enid1994 A,erage 1994
7.74 tlS$ 1.00=HK$ US$ 1.OO=HK$7.73
Indonesia Year-enid1994 Average 1994
USSl.00=Rtipiah 2200 LISSl.00=Ripialh 2197
Korea Year-end 1994 Average 1994
US$ 1.OO=Won788.70 791.86 LIS$1.00=%Von
Malaysia Year-enid1994 Average 1994
US$ 1.00=RinggiI 2.56 US$ 1.00=RinggiI 2.56
Philippines Year-enid1994 Average 1994
11S$1.00=Peson24.42 US$ 1.00=Pesos24.15
Singapore Year-enid1994 Average 1994
115$1.00=S$ 1.46 US$ 1.00=S$ 1.53
Thailand Year-enid1994 Average 1994
US$ 1.00=Bahl25.09 US$ 1.00=1aht25.10
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EXECUTIVE
INTRODUCTION he Xorld Batik Group has been etigaged in fiiaricial irrarketstLidiesini many EastAsian' c'OluntrieS aS all integral palt of its ongoingoperatiotis. The inofriation gatheredand the insights gaiied from these studies, especially on Korea. Thailand,tire Philippitres.Indoresia.atml China.hase eriabledthe Batik to makean impirtait coitributirrn to t[ie foemulatioin offitaicial sectordevelopmenrieiit policies intits ttterirbertrutlitries.MOsIEastAsiancirntintiesinrsw haveefficient bankirigs stemsatsl rotbirsteqirit, narkets. However,fulure efforts lie bevotndtire banrking system,and the focustrill shift to capital itiarketdeselopimeit, especiallbtIre blrindrirarket.Therefore,the Batik. ii cornsiultationt with its ninemberouintriesarid miarketparticipants.hlasUntdertakena stuiryof the East Asiati bonidmrrarket.The studlywas tarried out titer October1994-May1995by a Banikteani in coliaboratiOul with Lounterparts ini iireilrerclrilnlntries.Counitr studiespreparedby conriltants in thesecusir-itries issuedseparatelyfrom this report.
SUMMARY
in,trintuentslike bank depositsarid equities. The deseloprment Of botid miarkets would also enicourage niew risk irianmagemeit productssuch as interest rate fttirLles aiid options. Firrtheririore.nell-functioning b iadrirarkets with a bIroadranigeof inotlrlameitsesLllld etrableierttralbanks to caurryon l iidirect rrimonetary policy thriiughopen lrarketoperatiiirs. The pa.t fitatnring patternosytern that in (de'ignied In r-egunlaelathrer thian 'rcoitroltir rmanrage the mrarket and niarket partiripaints. At aniearly stage. a pIr...actoi- regulatorNsnystemr et-al, ripen iiarket tipe oper-ations are firiiiteih lit the tsa, Ire -'nerntial tsrfat-filate mar-ketde-elorpmenrt. Thii thinnes's of tire mrark-i atii( a lack of eligible gov%erni- level ariid INpe if regulators ciirsel adopr 1 ted will alniiient paper. Tnt gnt airoundi these prolienis. 'entral depend oil tIre stage ofd~es-lopmtentof,ntppo(rti ng inriti. 1 btanks ini Inidoneia. K...rea, rlalassia anud [lie tiiiaiifarn treiisilrgth lusat abity o Pitilippriries rave issueti thei iiomi debrt inrt'tuurent'. eniforce -arIr la,,,. the pretadltig art r1itittg oSrternr Mo.st trarisactiourinsicrir iii lie jrrrmnar iia,rket, ,isile and tlue at*t.ttIiuIi,,g stairtiads. the- nphiriitit'atioii if op1 eri iiarket tranisactironsvin tulesecndnrrarN iarket ar-e iriestrirs trid is1Jers, arid a rtcitrelaeiregulators estreitrely litiited, trhonghiarraingetietits ar-e ic,ing mtathe syterti. I., bictiadet the,scope f tlire 'ecitidars rmarket iniiIene coulnitrie-. Lsirtg atv('tiorin to nssnegovertnrrent tIcIceritral buatik papler ii tite primrrut' mrarket is brriniginigitheir
Hsitig Kong anncT-lranltd rise Tririsiof thciniititvitiiial1 ififantructurre ini riae atnd Irae made noitabrle progress
Yids to tlte level of irraurketiriterent attcs.'
int implemientientig reIgUlators'ref0irnnstlat areenetu fitr bornd iriaket dieelopmtenit attnl are mititg t-Iarda Indisiresia, Koirra. !tlalay ia, tine Phuilippiin-. Sinrgapore-, dlier,It e-red . y.u-bsNteri. Malaysia lia.t all lie cetlvUire(d ati~i Thrailanisl thite pha-dn sort thte tine of ntsibsidiaed infra'urtruret - and hivscarrierd otit '-bsiaitial regulators 'enriiral taink di-osrirnr fricilities ii 'treiigilieri mronretary reforn11 insrnt ited Intsrreanniinreits regulators nystennb> 1 conrrtol. TIre third lIpe oif indirect nitiieturt politN cenItt'aliZtnig lie1 vippisri- lioness arirl slCetlnrpn Iiei instr'ulrretrt. ennrte rit-11iretrierits. require' Porrtfoioin fUll.-tiont iii a single igetir-. Kirrea needs it net ei- its asdjustmienitairiinug romtr-erial hank asnet.uIa d irisla torts airaketregilautr,' syt inii line wvithiits plait' lids i-ner risen less frequretrti with tbe itirreanimg resort irs fitranitial mrarket sderegrilatirir aildss capital -r'rrrnrt reenit yearn to minceflexibll intent nirrket tllraiertin. o-inpirg. China insd Iid i-ieia are a vii an rt Isntage if TIre reserve -'qurire -iieit herdI hat teen kept to th hmtini arket diet-e pirnici arid regrilatirt reits mriniinmurnin ltrsone'ia, Korrea. arid NIalassia. bitt awrile thin Phitiippinies teedn', ii itake it, negrlatni's svnrennainredritightiniitIe Phiipi1 pinies until 1993 besarine of tenn nirtir viet'hnpmienitvlatt itite tIttaRI a ihisc1loLir-c tire inreffe,ti, ernes rig tieir nmarkettpr Imaseui syte nt genecral. i ninigheleguhato I tiny' finn 1 rruirrni iii sonriimuma whiere -netral hank losnen. sere largn' iriishIt -~uld ai brndnnmarket ill Ire re-irahile, a' it ptarin'liesa nmnvjor riot uninsertake oipen market iper-tiotin: thinsso-risrainit irputreun foit bondr m,tarket deteloptnnirt iid will Inning lia, nuts beeni rerioed. hImplemienitation inn EvistAnivni tlithr advanitagen.inuciafinuga r,m leady' dieinred repin0nnutr-ien rigftIre remiaininig linianisial sneor refotrmruwnill ulatvir' frririew'tik annu netter 'oorrdiirnatirnrrtin d"evehp fac'iitate deselopnitent if tine bondrnul maket, tine tmitket. Aiterriativis,, ajmint tank lone c ourd lie net ill, tin -nersee marvuketd-ileesrniinit. It in alnurirtpa-irtuui RegLilator' Re-forumis. Inn addsitrion tomrnnnnpieti ng liat tIre, eguilatri,', agencies hueseif-fuirsed. 'ritii will firnanisial necor refnionnu.it in ennenutiviltn bnUddla -nduis enivble menmto ailrast untilretaint qivalitiesdstaff. The vindl cost-fetv reguvlatory'serrsirirnmenit. ln it -us senurities n'nrnnnnisnion,r innHmtig Kitig unti Nilay s,iaare Eunt Asian niiarkets, regnilatorI I'.. fusiesjtn:rfori tirlesflval finvkiiiciallir irteen trh-irt, andi thitrr es1periece 5iioutld funictioun of foisteiring tine development f tlire nmvrket hueseteweri Ivy tithe mus ries6.' asii( regnulatinigthin rmarkent.In hunihing an,effectis e regulatlory svsteinl, several fanors, rierd to lie takeni intut Insflutional lInfrastruocture. It is alid necessary'finconnnisleratur... L. It is critical tin estabrlishna regilatorr birth lurisate -unti gnersnmnentpolitc inakers, tlr finnsL Iott fraitteiork tinut f'its tine utni(quenreedis if wit-h enmerginig tlinedheveopin,elt of irnstituntionnavl unrdserpininirgsfinr the
~Ire
niii
bo)0d malket. j iclrlding icedit rating agenicies,efficieit clearance airrl settlement systems, b4(1n(d insurance. anid denelapureril if strong networks of initerurediaries iliat will facilitate pri nary and secondary trading.
sho.uld be cou. 5 ideredl in coinection with restrLicturinig of policy loans.'
NIalavsia and Thailand now have relatiselv well-functoil ng ratinig agenicies, while idonesia's PEFIND() has just coiriieoced operations. Rzatirig agencies ir these co tilries will rie-d lirile to farther biLild their organidzationsarild Leveltt1 i staff to gain fall acceptance of rirarket participants. In the iiaie vf Kirea. lie ratiiig agencies baie been ii pla,e for orirnelite btit atre nut been,fuictii ruiig as rating agencies because of the reguilalotr reqluirement that all blid.s mlst be guaranteed hyfinancial ilsliltutions. FLdl dereguilaionif firartial markets will provsie a nlew lease on life ic these agescies. Ii China. a oricert,d effirt seerm to hi? riLeeded lo briilvl twi r titlree rating agerities r at lie rational level io sel [lie standards fvir the rest. Rl tIre case of t[ie Philippiiries. a rein ialirig agency. witi irooaI-based ow-ership is cequireldto (cc-iie blild oruicket patlicipant.s. as lie present catinigagency saffesfrofnt its iris ership sitruclure aind tIe appearns rce if potential oirrlict of interest. There is clearly rio rieidl for Hiiiig Kung ani Singani re lo have local raling agencies. given tihe presence if tIhe majirir i ternatiorral rating agencries.To furthet increase thlr efficieiri of the ratiig agencies. necroisOrUsurl0iderati0r lirl.(addbe given tri akiig tile ratrig firnitirn vilirntar, arud addvlitioal rating agerrciei shoruldllie perrritterl inrrrarkets such as Malaysia adI Tl'ailarid. where t[ie blsrilI rrraktels are likely gonw rpidly.
Al l East Asian, markets except for Honig Kong suffer fmrm a lack of iquidly in lie secondary mlarket which impedes se!ondaly inarket trnailig. Since bond dealers operate on a sniall margin, a large tradiing volume is essential to stas ii business. Withtil ar access to fundrig. boild dealers arc geueral, rivitin a pIsitiorn to iiiake ntiarketor cnary a large invlntorY of bonds. The expeneirce if Hong lung shinald he reviewed hiy ile other countries. ThreMooane Aurtlhoriti has provided liquidity in the bonrdniarket by allowing MTRC arid the Airport AuthoritJl debt irstinmerits to be used for REPO transactioiis. Tluailan(l corretsly alloss only banks to participate in, lie REPO iarket. Exlension of thisfacility iith appropriate safegiards tii memsiers if BDC shriulvd eihairce liqiridity in the sectodary iiiarkets. Malaysia shotnil consider esparrdiig tIre participation in the REPO mriarkets. by includirig iriibarrk dealers which meet lie eligibiliLs criteria. The sanie applies to the Philippines. which limits REPO transactiiois only to n banks. Chrirr rvd ldo-esia dvmsnotcirrreirlly have aoy minechanisrirs tir enhance liuiLidity in t[ie seconolary riarket. Consivlerations shOUlrlIe given to enharlrcing litnriilby iii these mimarkets. lhe availability of centralized sources,vf infirnralioll will also facilitate tradirrg activily.
ncuritires issied by a rativriral mortgage corprration,. stale eritergrise bhrrivs.or r,epackaging of existirg delit issues vif rriuajrrr gonerrrrrment-rwvevlerililies (IChapter2). Except for Hring Kong. rio East Asiaoncouities have riarkel-basedh berichmrarks frir rmatrrilties beyiidl twr sears. Malaysia has made air excelle start rlrroLigIl MGS seCalcilies aunhCaganras. State errterprise blonds 1 in Thailardl roaLIv Ie used as benchmarks if they were issironl by uajor enrterpnises saclr as lie Electricity
An irmporirart factor that affevts brid maketl developmerit is taxation. Ir general. tax treatnrent should be the sarre fr both stocks anid londs.The alier tax risk adjrsted return on b.nd i rvrstrimentsshorauld he corripetitie with other irsestruerit rehicles. Irn nary East As;ian countries, Ille lax treatment of bornsh instrinnents. both interest irivome aniy capital gains, is riot irifrri. hr irmanrycornuties, there is ro capital gail tax on echuiti jrresltlrer, atlld mi divilerid iicirre is laxed at low rates. Capital gains frm brrird trarlirg. Iriowever,are taxed at brth t[ie rrrrpocatearld irdividiral levels. For exarrple. in [lie Philippines. interest irirome from bondl investrrmertsis sahbjert to a nithholdrhing tax of 25 percell. Furtherrrrre trnlike stcrks. Iirrds are subject to dooniclientarv stamp dvflt. which ircreases transactionn costs ariv retards secondary market trading. Irvestors in Korean bonds are exempt from a (0.35 percen traunsaction ley which applies to evauilies whrile rrr-resi-
Generating Auliltuity of Thailanvl on a regUlar basis arrrrss riialtrrilies. In tle rase of lie Philippines. the groverriiet liirotlds rcrnsider issuirig three- to five-year fixedl rate instrirurntsL t) crealte a yiel curve. Korrea lhas a grd shioirl-lerirsberrlurark. based vi ilte MSB,. Creatior if a Iving-termyiehlh(ure uf gouvec,rrrrerrt bondss
derns pay interest aird capital gairs lax at 25 perceirt hich canrbe lowerevdthroughi tax treaties. Honig Konig las rio withholdlg tax. sut profits are taxel at 17.5 percent. Hirwever. Exchange FuLndBills aird snupranahroral honds are e-eairpt fronii taxativn. Sirgapprredoes nut lax imapilalgaiis, althoughldivivends are taxesI at the
Orie of tIre iriprrtart parameters inirbir ri ark,l devtylripmirerit is a markel-baseil benilniuark thal errables riacket parti,iparts tr price bidrils itr boitr pirriary aori secoridacy rrrarkets. ALrhvfirities SbOilli seritrslyU cC1si.ler -eatirg such berrlrnarks These rrray iclirdee
Xim
Organization of the Report This report is organiized into siX chapters. Chapler I pris ivle, an itrtdoluction and rationale for bonid miiarket development. Clhapler 2 discussesthe size and coniposiliol of the EasLAsian bondi market in leplh. The size ally slractilire of b1ndl market, in eight economies anll the mrain eclous f these markets (i.e.. government. central bank. state enterpvrise and pri ale bondsl are di.sussed. An overview ofeach country's bond market is presented. The organiization,of the primary andl ,econdiacs boTnd iarkelt is examined, floCsing oll In'sW thlese snarkel are organized in eachLountry aid thIe supporting institutional infrastroctare ouch as primary dealers. market makers. hIqlailliit aupports.credit ratbig agencies, benchlimarks,and clearing and settlement systemls. A uor,ev of the slatas of seconidarymarketsis preoenled. and policy measiuresthat contributed 1o tlhe developlmelit of theie markets, and factors impeding Ilteir growth. are idleirtfied.
marginal 27 percent corporate iH]crne tax. HsungKong, Malav,ia, and Thailandl havetaken the lead in remorving tax disinceotives onibond,. Otier East Asiani colnltries shotild follow sail in elinoinafing dliserilmintatory taxaaion of bood, to remain competiltie. Consideration shoald also be giveli to the rem.. al of diffelential taxation betwseendoniestic aIlid foreign ins estols. Fiisallv. a robust bond market requires well-informsed investors issuers, market professionals. anid regulators. Each of iltese key participants needs to ha'e a soand anderstanding of new financial instrurnento as tiles are initroduiced to the rInarkel. trading reehanionis, procedures for clearance. seltlemenit. aird safekeeping of seculrities. This task will be-ome fnore oneraus aith the introdusltion *f mor5cesiiphisticatedl financing technliiqulexsucr ad reparchane agreensentsand leri alises. Therefore, it is important that the goeniment aliil the private sector develop training programiis1t meet the needs of niarket parlicipatlts. governlmelit regulators. and velf-regulatorc. Conclusion East Asiani e-noinlie, hase rirade renrarkable progress in developing their economiies andl filialicial miarkes, especially the bankinlg systeni. If East Asia in to sustails rap iI groswthslyer the nIext decade. invetoieent in
Regulatory polhies affecting bond miarkets in these econorses are diseussed int Chapter 3 in ani effort to identify the essential elesilents of a desirable regulatory fisaniework. Chapler 4 exanmiriestlhe impact of the iritertiationalization osfthe East Asiani bonldl markets. The role of foreigil portfolis inivestmsentaildl it, inspact Oi bond niarkets alid regulatory aild other factors itiat
5-apital-intelisi
facilitate
1
ye
elIanilfaclurinlg,
ilifr astilr.
Ie.
all d
housing will sleed tIl expand tresimendlously.Finlancing of isnvestsmsentvf tisis hulge magnituale will reqrlire ubsstantial mosbilization of resoliur-e Oh a large scale. Given lhe regili's Isigll saving rate. the iriesImelit call le fiarseed reosIly fimne witsilii the region. However, this aill call for rmiajoirefforts shytire gonenrsienstsaird regulatorx in close collaboration with market panbiciparls is tlhe prirvate -ectllr lo accelerate levelopment of doirrestic capital isiarkets, especially bnid mIlarkets, so that intermediatiors of lonig-term savings a0(Ilohng-tereln investmerits can be performed efficiently. Mo.t East Asiani ciunlries hale uandertaken mssajerI lic)y reforors dtirinig recent years. These reforms will need to be accelerated. hr additior to nildertaking lie policy sefonsisin the finarscial sector. there is a rieed to fIslrer slevelop instilttiosral infrastrsrtlre (credit rating, clearrig and settleleIt. ctistody, liquidity. benchmark. taxation sssarketmakers, and bsnd inisurance agenciest to foster growthi f East Asiall b.rsd snarkets.
en
or
hilpede
participation
In
interliatiinal
bond
markets are liscussed. The extent to wlsicll government issuers,
stale-owsied
elllerpjrines
asid
private
corposra-
lion, sas a r eell aIsle ts raise foiodsin iste,,iatiolal capial Ilmarkelsis also presrtedll. The relationship betweel off-sisore Ilmarketsand the development of local 1 bosrd markets is explored arl vov'nitr risk consideratiosns are disculssed. The use of hbnd niarkets iss the csslnductlof isisioentar policy is deetailedin Chapter 5. The imporarince of a rshust bsridl rrrarket is condecting efficient Ispen Imliaketoperations ib diocis,sed. assns the eXpe-ieliceof selectedcoLlitries in exansined tIl draw lessolns for developing couilntries of East Asia. As asse-sment of tIle prospects for bosid market growth in East Asian countrie, and an agenida for bolnd issarket developisieilt are presenlteldill Chapler 6.
I N T R 0 D U C T I
ili a poipulation of 1.6 billion anid a eornbined GDP of USSI.3 trillion in 1993. East _ Aia' is nlowa mnajorecririnic powerliouse. ln 1993 Itheseeight oantrien aecountedfor Is perceni ofglobal itput or 27 peri(eir of tlie total GDP of lowarid rridd-i-ii nome ciiuntrie- as a, "hole. East Acias GDP is larger thair tilal of Frace. Italdy, r tIre UCiited Kiiigdonr aid alhroot a fifth of US CDP TIhe region's GDP grew ierre than, 2.8 tines o-er 1980-93. witih ol arerage annuial griwth of 7.8 percent tFigure 1.1): this vas minrethoar tLwicethe rate nif global griiwth. The reginnirs 1994 eco ri.neic grow ii ic eotiiiated at 9.3 perCeirt. Per iapita nironirreoalso oubLled, arid therr growtlh is eperted tii aern-lerateaIs ortninuirg eroiroriii, progre,e is bi6hlsteredby falling popurlation grimth.
Figure 1.1: GDP Growth, 1980-93 (Average annual growth: percent)
1
Table 1.1: EastAsia: SelectedEconomic Indicators, 1993 Pa. -r
L*,,9 c.B:V-1311./ tic loSS,
1
6-
*
_
|
2-
|
|
|
|
q*
q
Pnrpi*ehdqp850 54 1tott50r 55 Orq >^^ogapilre q q q
|
|
Tirita-rd
3
d
CHNKORTHA SGPHKGMYSIDN PHLtAr,aWorld
Soar-,; tiortit
Roo.
49)t 426 H-ng K-ng 18.060 110 t
t:trohi-'.
I1qtiroenra - * 740 1t-5 K-ore 7.660 .1tt NUa t.1401 64
*ii
14_-|
N
Ea.t Asias rapid growth has been propelled by high le,els of saving anin inveetnent. Frroriiaroaniid22 percent of GDPin 1965. itosatiogs rate hac risensiarply than the avertio35 percent, roughl) 61) percent mon,re age fir i ndusiriai ounlnries. In 1993. Ciiia. Honig Kong. Indonesia, Korea. Malaysia, Singapore. anid Thailaiid had savinig rales above 30 pereent of ;DP (lable 11). Over tire pact 25 yearc iriestiienit -ose at aborirt 11 terrent a yean to reach l5 percenitof CDP The ret flow if foreign aoirg, into East Asia during the period aiiinrited tIn oaily 0.3 percent of CDP The Philippinres, abinch has lagged ielhiird tire otlier critintries in Irik grop. -eeTno11) rave LLirneda 0orner in 1994 as its C;DP greu 43 perrent.
-10 10Lr.
8E
O
2.11t) 125
1ii14
.
>1 rococ isoc
uric ....
Ari I Pc 5
9i6 .5i 5.8 9.1
40 31
41 27
31
2P.
35
34
6.2
38
3t
-3.1
1.4 iri9
16 47 316
24 44 *tt
-6. 3.7 -5.5
8.2
East Asia's oruiceso is rut liiitedl
-2.7 -1.4 0.1
ti grirwthi in prrlodue-
~~~~~~tiori-es,prir perforiarnuce hoc, also lieri
irrtotaindinig. OOer tIre past quarter centUrN, the regionro erports of giiodo aird -ercire- for Miiore hlai ti1irt-fiold to about $850 hillioi. and Ir.w accrunai for aboit 22 peirent of world iprpots. Siiiiiid iarriieio ironiiir irraniagementled by onsernatie fi-ral pohiies aid a stable political limate .ocrlrined 8ith low-cOst and highilyskilled labor bla,e ittracterh -n 1rporatioroc froiii Ihle inhustrial iiirn-
tries to invest ii the region. Most of this (lireel investmerit has been irn export-oriented industries. As a resLilt tile region has beeti able to accuirilate large foreign excharige reserves arnourrtirng to $203.9 billilarn,fir 16.5 perceniif the world's fir-igir excharige resoir r....
East Asia's success in attracting foreignt capital flows Iras riot berr iirniitedl to direct inrestmerit. While tlhe region's export oriertatinr anid low-cost and highly skilledl labo(r have attracted vast arriouirrts of FDI, its capital iiiarkets have catile of age arnl East Asia is niow a major reripierit of loreign poritfolii irivestmrernt. lirdeed. eqirity plrtfolio irvestmerit inicreased rriore tinair elevenfilol. ahile foreign inivestiierrt in East Asian bands surged toelvefoll over 1990-93 (Table 1.3). While adportioni of tlrese poarIfolio flows has bees due to 90 lhe low iirterest rale ernvironment of the early-19 s ir the OECD couritries. the robust growth in the region's eqirily rrrarkets. togethier with the strength of East Asiarr currerrcies. ias enlharicedlie regior's attractivenress for portfolio irvesiliient.
East Asiaux share of global filieigrr direct irivexstrrent (FDI) was abort 14 percent inr 1980: by 1990, it hail iricreased ti 44 percent. Ea.t Asia is now tie laigrst re ipient of FDI flows. sarpassi ng Latiin Aierieca. accorfirtirng for 57 percent of lie total. Histrorially. the LUnited States anid ELrrope were the irnajiursourcees of 9 FDI flows to East Asia. Since the late 1 80s. hoiwever. Japan arid [lie rewly iriruntrialized ecorn'omies of East Asia hase beconre tire domiaint sources if these fhrirs. Cthilia and Malaysia haoe beerr tie mirajorbeneficiaries of illese irrfloiws in recerrt sears (Table 1.2), rLathe Philippinres arrd Korea will be souight int for profitable iirvestiierit o)pportitie ues asthi relax. arn ultimately elminte, the remaiiiiirg resirin lions onrl tieir capital nlfcouints.
The growth of East Asiani financial mrarkets niuririg this period lhas leen equally imrpressive. The firraricial sector in these couoitries was dominratedl riil ilie late 9 1 80s by banks, whichl served as the main r:orporate furrding sourer. Sinice then their equitly riarlsetsi hare gnwrri dramratically. Hong Korig. Siirgapore, Malaysia. and Thailanil are now aniong the world's 20 largest stock irrarkets. At the end of 1994, tital mrarket capitalizatiiir of the eighlt East Asianr stock exchairges arinouait-
Table 1.2: FDI Flows Into East Asian Countries, 1990-94 (US$ billion) Chin. Indonesia
Karen Maloawii Philippi-eThaliland Toaal
1990i 3.5 1.1 0.7 2.3
1991 1.5 1.t 4.0 0.5 2.0
1992t 11.2 1.8 0.5 4.5 0.2 2.1
1993 258 2.0 n.5 4.3 0.8 2.4
1994 33.0 2.5
13.s
20.3
35.8
45.0
4.4
lO5
2.4 110.5
.S-ur"e: W6,,OtDAl ThOns.,
b,l,l
ecl to aboiut $1.1 trillior. or- 71 percent of GDE Co)npared witi total assets oif the banking system of $1.4 trillio,. fir abnot 92 pen-eut of GDP This growth was broughlt about lo a large extent by increased foreign porhfilio investimenit attracted by East Asia's iooraning eroiromies.rraostly open capital acconits, and relatisely stable exchange rates. The East Asian boind markets,
n0.
4.8 .0 3.0)
in contrast. hase grirwan more slowly. At the end of 1994, total market capitalization of the East Asian bond market ariounned to $338 billioi ofir 22 percent of GDP
snr.
-less than a tIhird of the equily markel capitalization lTable 1.4).
Table 1.3: Equity Portfolio Flowsand Bond Issuanceto EastAsia (U5$ million) B,uil Isnufaire
Eqoiyv Flow- (Ncr)
China hn,loidnia Korea Malaysia Philippines ThailasTaint Bondfeserigirriniernnaiosi a: .S,'ore; UBHdBn-k.
1990 0 312 518 293 0 449 1.572 iiro.......
t99O
1992
653 0 345 0 -t 41
1.194
1.038
1993 2.278 1,836 6.029 3.700 1.082 3.117
119 3.045 385 333 4 5.080
18,042
rkrL-..
2
1990) -48 26 342 3 395 -87 631
(Nel)'
199t 21 381 3.020 377 124 -78
1992 -21)1 t56 2.876 754 -51 548
1993 2.056 8 3.694 -290 688
3.848
4.032
7.903
1,747
Table 1.4: RelativePositionof BankingAssets,Equity,and Bonds (1994) Us$s
Bank A-sets offCDP
China H.LigKong' Indaneniaw Knrea Mtalatnia Philippines s,ngappre TI-aita-id Total
388 257 90 283 711 34 115 153 1390
76, 195 57 75 100 54 18(a 110 92
44 270 47 192 199 56 135 132 1073
9 205 30 51 283 87 217 94 71
33 11 9 161 40 25 15 14 338
43 56 39 72 10 22
G-ini-n Japart Uilled Kingd,,om Un,itedSlaten
3255 7106 2257 3620
169 152 216 54
471 37201 121() 5082
25 80 116 75
17191 3443 366 7429
90 74 35 11
Soar.
%
St, k MarketCap 9, CLI$ P
Lus$
BondMarkel 97i fCDP
9 6
Wl,d&Ias
Althnugh fixed incomniesecuritien haie been less populay iliantequities as fiiianci,ig iisiruniients anid a metniitin for liolding savligs. (his has begtin It chalnge, witi East Asiati corporatiotis toamfloanting gra ing amonints 1 of debt sertiritien in itterationtial alit (liioestic iiiarkets. The n-imber anld nize of East Asilai fiiiis are growiig rapidly, atid larger finiis find it advantagea,n to increase the prnpiltion of debt Is eqjity it their finatiing mix. In East Asia. thii is lik,lN lo be esen more no becauneof the ongoriig pricatizationi f state etiterprisen. hich will require lotig-tenti debt to finance their itvestient priogramsas the baankiing syntem will nlt be able to pr, ide lilais iin sulih a large scale. Oni the rlemiand side. nti itistitutioiial inventors. soch an peitsiroi fids, are emerging it tite region ni a larger scale than in the past. creaig a ne,, rarket for debtlinlciumetits of medlium- anid lontg-terrnmaturities.
Mosn East Asian goterinentas arle iarporalizing and theti pri aLizinigtlheir state eniterpries, especially iliajor public atility companties. Since tile objective in thin tratisilioni phase is int lit rhedl otajoriy om,aership. the etLterprn,es are being enciiunrged to raise futida froram doiestic market, by issuitig boids to iiieet their investineat reqlireients. This has beeit dramatized in Thailaitd nhere chrporatiois imsuedbotlds ont a stale that niade theii the largest oegnietit of the domestic boitd oiarket. The experieste of lie inadustrial eciuntirienshows thal expanldiig firms terid to favor debt to eqauilyfinancing, bolli becaune debt allitm as tnersto retaini greater cotiIrl oa,er corporate dle,inion atid because masnsie in-lIenirtt reqitiremeitn caninot be Ituel by bank fitiance tir righis issues. The atLractiseness of debt finan,e is also likels to increase as East Asian stock niarkets mataireanid valoLatianis based niore onifundaieital factors than oti sentimettal anI teelinieal notsideralti is.
East Asiat issuers have raised seer substanitial amniunts in time internatioinal bolnd markets il receit years. Between 1991 atid 1993, Asian issuern ither than Japan floated $25.7 billitonin fixedlinomitmesecurities in foreign iarkets. far niore that, these firms raised While lie cittmercial baiking system has played a throughi share offerings.' With conovelible bondsiSSnedl ital role in finaincing the needs of pablic and private durifg this period. (lie total would rise to sonie $32.7 sector entterprises ini Eant Asia, its ability to carry ouit billiot. The siilid economic performance of lie East terni transforniation faces increasing cotistraints as the Asian economies tanbprnmpted inteinational rating region's appetite fir capital grows. Mst batik leposits ageniciesto raise their sovereign debtiatinigs (except for hase short rnatorityv and too mucli Ing-tenmi lending the Philippine-i In ilvestnientgradle. further inicceaning ren dlt in asset-liability tnattiiiy tminsmatches. The their altractiveness In foreigi insestors. adveiit of cik-based capital adequLacy requireniens
3
Forall the impressiverecord if (ie regionin (lie areas of povertyalleyiatioit anid huinait resotn-rue develop-
iner6ial baniks. they will find it difFeckill to cope wibh future(ldtiuaid.Continueddepetidenceottthe batikinig selttir for mitetgageloatis tail catise prollems due io iiiisimiati,hesit asset-lialbilitsstroctures unilesstiortgage-backed seturilies aredeveloped.Malaysiais the first coontryin the regitin to havetaken Llielead by estlablisliniga titortgage-ba,-ked se.curitiesnioaketii 1986 titroLIgltCagattiasBerhad-National Mortgage
iiietit. itifrastructire de,eloptitetit has laggel. It is estitotted thal in stiiie coutntri,sof EastAsia inilie D)80 s.
Corporation-nhich isstes mortgage-bocked hittds ttiat now colstitute alloat 9 per,ent of ilie bondsout-
institiileil
by
bheBatik of Ititeniational Settlemients is
ftirtlter liriititig the ct.iommercial banks' ability to finait-e itirpittate exfiansioi. The cotrporate sectoris thus torniig to bondsof iiiedilltit-aitl lotig-temimaltrities a, sobslitiles Forbankloaus.
tliere titay hasebeenia shorttfallof itfrastitLilure in,vetstanidinig iti the Mala-sialatiiarket meilt of as itiochias 2 to 3 percenitof GDP Despite spectaculargrowthin per capita itenitl's, utisatisfied 'rhe plteiiotiietitl growtlhin EastAsia'sequily markets detnandfur iifrastniucture scr,ite,H reitmaitishigh in Ealc has allrat-ted east amntitits of fitreigit pItutfllo inoentAsia. For example,in 1990,jiust 69 percent tf the tiiit. LIS iistitutiontalitivestorallicatitts tothese narregitti'spopulatiotihadat-cess lo safedrinkitigwateraitd ketshayve tItadniplnldfroiii 3 perceit iniea ly 1980 to abauL77 pert-ciettosatitatiot, leaviig soite 400 niillion 12 percetitin 1993. TheseportfoliI inflowshaveconpeoiplewitlhut basic amniititis. 'elec,iiomimiicationtis tribotled to lhe rapirl growth ol the East Asiati toverage raltis areevet lower:it the Philippint-sthere econottnies and the deselopiiientof their capilal niarweremiuly10 telephotiemiainihnes per 1.00(1ptiple it kels. as dlocuttientedinia retent WorivIBatik reportl) 1990. Ativl detiandl haI been gr-wihg expoiietiutal- Thin high levelof pttrtfolioinivestientis generallysitu1 IY-in 1993. the wailiiig peritid Fora le1cpht.netititfiiietl to first-tier tornpanies,aut ih) tiatn)ttouiitries,it nection was2.6 searsin Indittiesiaandlo0er10 years hasalreadyreachedthe litilt pernmilted fu,rforeigtiownin the Philiippilles- Addressitiginfrastructure tottle- ership. In fat.ilie atailabilitv of the firnt-tier shares neckswill be crucial io suistaiitingEastAsia's growth hasbecontea otistrainitin HlotigKoing.Thailatid.and perftormianice. Korea.To address ii'is pirtblemi,s,ciral East Asian itAintries ha'e termilledlthe issuanneif cottnvertible IlnEastAsia-as in otherdetehpitig regiotis-thie pIbbovds. Thesebotids cart- onwcoitpotnratesattil are lhi sectorlias trarlitiotiallyprovidedinifrastniiisoure ser- typically cotnvertible intosharesat a prerniumof 20 tit vices, finat-iig titen fron tax reyenue attd, toa less- 25 percetitwithin a specifiedperiot. KErea,Thailanid. enexretit. loatisfroiti nioltJilateral ti-ganizatiitiissilch as aordHo-g Kong hiaveheertihe pat e selters. As tf the WtorldBankattn the Asiati Devi-lopniettBaik, aitn Deceeniber 1993. the size of the Asiativott'ertible bond frotn tilateral sourtces. This patterti is chanigingitilh market.extlihdingJapat, wasentitnatedby Euromittiev itcreasiitg private sectorpaulicipatitin,especially it at abouit $7 btilliot. Wilh paltial tinfull coluivertibility of] powerand tranisportatiot.The renotirt-esrequired to the tapital accouitit,thereis noow a greaterititerestill nteet East Asia's rapidly increasingilemand fbr infraEastAsianfineilmcomnue selrities. Inideed,in 1993,at stLiictUrewill le etnortntins;ife Wokll Batik prtjects a least 20 fuiids wereFloatedii the US itiarket with lie letel of aboutS150billioni a y'ar: fitiancitg of these tairi objectite if in-estitiginifixed itcoiti ser-tritien irt timassive levelsof investnieuittatl he greatlI fatilitated EastAsiati markets. Furtherdetelopinentof dnmestic ly developingdoniestic bonid markels a, long-ti-rui bttiid tiarkets wiil offer a wider raToge 'if itivestmnent fulditg sounrces-whichi will alsit serveas a souircet of vehiclesto foreigninvestors. fuands for tiewly privalizcdenterprises. The Itwal cuirreri,iy-detiomiialedrevetue strearnisif itfrastruictue The 1980s saw lhe encergeitreof ten iistitutionial projectsdictatethat finaticinglie arratigedin dmtniestic itvestors siuchas pensititi atid provident fnuidsaild debt markets.apati frontthe faoitthat raisitigcapital ini itsliurancecomitpaonies inisevr.al EalstAsiati t uiintries. inteinational bhtvditiarket'rsencotit diiffiCLItlies front Thin new class of iniveistors has act LMnIldated vast tuelack of liqtild iwap aitrketsiii cXt11tC cillreticiel. atitiLtits of fundstioaliug over$80 lillitim. Theseputoidenit funics were initially used to meet governtmeent WithEastAsia'suoraInpopuilatiotigrowitgfront,19 perfuintditigrequirenietits.claoingtheir managerslimited ceit of ltital plopiulatioihit197()to 52 percetitin 1991. freelom ifnaosetallo,satiii. How,euer, niostAsiat cotn1 finaicitg ultbanhotusitighasaculluireda itt'Wiirgei-y. tries mave retentilY oved towardmakipgliele tnitractuWhile mosthousingfitiance is i w putyvIdedby 'tutal sasitg sectormoreatutonoitttLIs Iy liftitig coitroltson 4
ihieir oxesin(eat policies. The Singapore authorities aire opening thie Ceniiral Provident Frild to prflesoisnal inianagerx aoil allowing m[re freedom inilo esterinet strategies, anldMalaysia's providleeIt fond mnaiagersare nowrequired to invest 0io lore tlhianS(l percent of tlheir
fixed income in,estors. Gixen the pace at which East A.ian ounlitries haxe been derlegulating their finauicial sectors. private oisurancermpanie wv,Ili inhrnoorn in theniext few years.reqauiring fixed InIomIlesecLaritiesof loniger rmaturities. Trogether.these ihreecategories of
assets in goxernment secaLrities. The dlrix'iig fo,rce behind [hlis change is ilte fiscal surpluses of these colil nines estiecially Singapore. Malaysia. anid
institutional inxestrsi pension fLnils. miutual fiLIls. arid inlAran-e colipopanies)are expecled to genierate e10orsMIs demrandfolfived-icirzme inxestnr,eottxe hi,les.
Thailaud. With 'len free-dom in i--xe ntmet rleri,ioniiiaking, ilese intitational ix estors are no,w'cekirig long-tenm fi-ed incom-einstnimieatsthat will unininize their asset-liability misnaltches, opteiig a ew field for fixed ineorri0esecaritse.
Wi li financial liberalizatior hr an advaoced stags in
The iitnlual firi( indiistrs is al.o makinugrapid strides ini East Asia, aid ill the roming years tlIis class of in,vestors will rrinstitute ani important segirlent of the fixed iucome i -tveor iuriiverse. Thailand aiid Malassia have been at the frirefront in ileveloping tlleir IllatLLal fuinsl iridiistries. With tIle deregulation of Ilre riatual faiisl iridustrs arid the licelisirg of rew friil managers. Iris iridostry expanided leirfold fron 1992 to aboLat$1(1 billimn in 1994. In Malaysia, unit roots have experien-crl dramilatic grraih. wrhile Koriea and hindoriesiaare
tihe East A.ian coantrie- relianoe onldirect irltrIments of nriraetar podlicy sarh as interest rale ceilings anid dire(tevi credit,, has been steadily receding. Mornelar authoriLiesin Ea,t Asia are novingtirward osing nmarketrasedlrinoetars poliy i ristramllelrit. slack as (openmarket operatiorrs anid on-demarid rediscount operations. tIlhaLi lireltly iollaLice the prices of finanrial asset alLi. therefore interesl rates. These indirent inechansi,ns can oily a rk if ilere is a iiiasket forgoerimneot bonds arid short-term comriiercial paper. The East Asiair countries are falls csrgnizant of the winsls of chanige in ite finianicial cilimate and have irioved in reenit years to bild tire irfrastriictiire for bond rinarket rlcielsoprnit. inicludiirng setting oip souiild regulatory
in tIre early stages of' dexelopinig riiutaal fiuiids. linxuran, ronispardie are another class of potential
strctlures-credii ratiig agencies, anid leaing ansisettdemeiit systems.
5
2 TH
*fl
E
E M E RG I NG
ASIAN
his chapterpresentsa broadoverviewof East Asian doirresticboid irrarkets,their Iriajorsee-
IN SELEC:ED
D
MARKET
development in eachCoLIntry. Al oneend is thieUJlited States,where bonid market developmoent has beeni
tors. fonctioning of primary and secondary markets, and supporting isltilLtiolnal ijnfrastructure and identilies the key issaes thal need to be addressed by polirvirakers, regulators. arid niarket participants to foster the developiment of vigorous borid markets ir the region. This dis-assiorn is prefaced by a brief review of tlhe esperierrce of the bond mrarkets ini four leading inid(istiial coulitries-the United States. Japan, Geririaniy.arrldtIhe Un ited Kirgdorrr-to provide a ronirparatire perspective arrd diaw sTire broad conelusirns iliat the East Asiani couanties carl use as the basis frr furthler deceloping their bond irrarkets. The es>eriences of France arid Spairr, which rave built their hirod rrrarkets in recenit years, althongl riot corvered in this sttidy. should alsorbe of interest to tIle poliJcyiiakers ini these East Asian, econoities. BOND MARKETS COUNTRIES
BON
autononrauv. respooding to profit incentives and a desire to miniimize the borrowing costs of finianicing. Japan represents tiie irther entrerine. with the governoireritassuming an active role in shaping t[ie profile of brind market developirrent to iriake it consforiri to its overall strategy of ecornonric developiorent. As bond rinarkets evolve, however. techniques if issuing bonds. miarket orientation, arid initernational linikages seenoto r:orverge. The broad features rrf the bhrod iriarkets in iltese fooir induistrial countries are discrissed in this section, while corimprehensivedcetails.togethier with the related statistics, are *ontained in Arnire B. Bonds foril a significant segmenit of the market for finanicial assets in these four industrial countries. In the Uinited States, bondsand stocks were 110 anid 75 percent of GDP in 1994. respectively, almorst at the samine level as in Japan. The Germanm market for bonds was a little less iliarmfour times Lhe market for stocks. while the UK stock market was almost three tuinesthe market for ronds. Total bank assets as a proportion of GDP were highest at 216 percent in the UK, billowed by Japan (152 percent), Germnany(169 percent), arid the ULimiedStates at 54 percent IFigLire 2.1). The high ratios of bonds to GDP in Japan and Germaniy reflect the fact that baniks in those rruntitries raise a large proportion of ilteir resourees in the bond markets.
INDUSTRIAL
At the end of 1993, the outstandimigdollar volume of 21 oirajor industrial country bond oarkets stood at aboLt US$17 trillion-miore [hair three-quarters of global GDP durinig that ynar Of Iris, almost three-foaLIths is accounted for by fouo irirlustrial couintries-the United States, Japan. Gennany, and tlhe Uniited Kingdonm. The United States bond market. whiicl has almost a pioneer staus, is the largest, and has the mrostdeveloped and sophisticated issuing techniques, secnlndarv niarkets, transaction transparency, diversity of inostrumrernts regalatory apparatus, arid irinoatirois. Though there are broad similarities in tire patterns nufboid niarket development across these four couintries. there are siginificanit differences in tlie organization, and path of bonid market dev-lopment. The role of goverinmenti in tIre development of bond niarkets varied acucirdinig to tIre inistitotional iniperatives and stages of finnanrial sectrur
The relatire size rif bonxdnoarkets in these countries since 1970 is presented in Figure 2.2. Total face valae of all outstanding bonds in the US market increased fmm 48 percent of GDP in 1970 to 110 percent in 1994. The Japaniese bond market recorded an increase fonii 23 perceintin 1970 tir 74 penrecit of GDP in 1994. The Genmianand UK bond iniarketshave beeri of rore mod-
6
esndimieiisions. German bohiadc 'tid at 90 percenl of GD)Pin 1994. lint in absolute lenris aere less thanlhalf the salhe of the Japaniese Iniv I market. The IK's bond/GDP ratio. on tle other hand. remained more oii lesn constant al aboul 35 peixenit. despite a sifold rise in the aiiotniii of bonds outtandliiig beta een 1970 anid 1993.
Got eminent -esurilies hase been lie inainslay of lie bonid markets in all fotir cnnltries. In 1993. ticey were the highiesl aS a proportion of GDP in the Uniited Slates (45 percent) and lowest in Germany (29 percent), tle reaon beiing the large fiscal deficils ci these countries. In ile afiermalib of World War 11,most of these gi.erimiwent, ran large anil cintinienlug budget deficils. first lo finance tle rentrlnrring of their economiiecandillie l to uslaiI social welfare aclititie. As aresalt. the raio of gotmcriienl dilebt to GDP row,esharply In aboult43 percent ini 1980. Sonic industrial iiuaiilries. Including Japan anid the Liniledi Kingdom. hane -caled doan hlieir fisal deficil,. ualeminiltrieswilli bigger deficits snili as
Figure 2.1: Relative Position of Bank Assets, Equities, and Bonds (End-1994; Percentof GDP)
F
250 200
t Ilie Uiited Slates and Germans. in the nake of [lie heavy fiscal burdeni of an ification. have totbeen aSle to d11 so. This rapivls griowing debt raised lie stakes for gase-riiienis inlig tLominimii e iheir borrowingcosts.
ISO
150
|
|
|
100
M1 ainicipalilies and local governiii.iilen have been promiI*leil IS,Jers of aind,only in tle Uniled Slates because of their la exempt slatLs. Corporatioiis ias e been thie largest i-se.rs of boidrls after giiseriniienli ii the Unitedl
50
Stales anid. to a lesser eWleiil. in Japan. WVithinthe cat0 lapan
Gerwiny
BankAssets * B 51555
Isisssoielissont ss,s
United
egories nf corplirale bonud. hank bonds-allernali vels called bank debentares-are iiponraitl i Germiiany
United
K,ngdnem Stains
and Japain. while tle
Equities *
Uiiled States were non-finanicial corporations. This differ,eiie in issuer profilen reflects the actise ..nle of Japaneseaind Geriiian bankL In fiiianiii ng (Srivate
'eColpozLlilil.l
Bonds n
..........
Figure 2.2: BondMarket as a Percentageof G>DP
The US corpiirsile sector has relied
iii1 vicIt fiiianiiiig liaii the olher three iiuantries iecanse iiterest expenns arle lax-dedaitible iwhile slivicleiidn are iaol: Ihii, miakesit morreatlractise for corpirate treasurers Io lake on inicreased leverage. Tan deduetibilitvy of iiter-
120 -iiPore
100
,esl pavmrits
80
iiiaiii issucrs of bonls, in the
/
is a rel.tivrely recnL vIeseliipmileintit
Japanl.(Genlam, anid ilhe Ltiited Kinigdoml. Inideed. om,iie17 Serceiil Sf pritiate fixerl capilal fonmatioin is finainced thitughi bond u ssues in [lie Uiiled Stales. in conotraslto only 2 perveeiitin the UK and 4 peni eil in
60-
Japan.i 40 -
20
TheinUS bii iluarlket has been lIbe mosil uinnovalue .ummmiimmg tlie iid-trial ciminiri-es. Twa of lie mluislpr,niiin lieiil innovationis in recenl yearn have been mortgagedbackedl and asset-hacked seurilies. which doiiinale
|
1970 1980 1990 1991 1992 1993 1994 -
Unted Kingdnm
-
Germany
--
Japan
lie tlS binld iniarkel. There hate niil beeni conimparable
UnisedS.
des-lopmemits on the saute Scale in the other three Ciountries. thiaugh there are iidicalionis thal Ihi,v will soon h/illow[lie treivls inithe LIS ond niarket.
Smis. s.ts t sssimi.snd,nklghs .. ... tinnd s us t,n t sssslle:.Sstssv.nBltssis.t/nr.tsIssssisss,slftell,,susrt1nr ss,t
7
Mortgage-backedsecurities (MBS) emerged in the United Statesduriig the 1980sas onduilsto chaiinel fuindsfroiminvestorsto miortgageI orroxier. TheseaIre securities backed by a po)0l(of Tiiortgages-whi,ih
more relevant to Chlia in view of the close ivaolseinentof its banks il financing i,idi,stial (leveIopmient.
are in
luria loanis ,seclred by specifeid real prioperty. Tie nitedilStatesiluortgagemarket is the largest in the world andalsoone of the largestcompounents of the US debt rnarket.ardi hasbenefiteelthe inst froii go ernment policie.s. It ,ffers an instructive ase of public policyfosteniiig(lie developiment of capital iiialkets. Asset-backedsecuiritiesare collateralizedlsertrrities. They arecreatelwitil Underlyingcillatelal asvariedas autiomobilevehicle loans, c-eelit arel receivables, houseecluityloans, accountsre,ceivable.boat loanis, rerreational iehi,le loans, and outher Lypesof loans. Asset-backedsecuiities are sniall conipared li nortgage-hackedl securities.l,,it a fast gril ing seginentof tlheUS bond market. All lour hond marketshare ieeiuinrcreasiugly exposed to internationall,,,ndlissues-bothlforeignbondls(tIlose issuevl by foleign eitities in lie list cosunitry)and Eurocurrencybonds(bonrlsissied in huost-unurtry curreney,outsile of its bourdlers). In terrnisof ouLtstandling arimurits,the largestit,er,iati,,nal issueofl blr ids is in the UnlitedlStales,followed ill les,'endiig rdelehiV Japan,German,y, anillte ULnitedKingelem. IndustrialCountry Experiences EastAsiai, coiiurtriescan dIra importantlessonisfr,,t,, lion [lie boiill marketsii thesefour indUstriali'untulties progressedto their preseiitstagerf develipmlient, the soiucesof their strength.their characteristwirs. and ile policy fraiienork in whichthe i,alrketsvesehdped.In particular, the industuialcouitri espewielice pro,ides insightsthat canlie useclby tLhe erinergiligAsia, ololitries in leterrimining a irix of siu'cessful practices they can adoptii developingtheir bonld iarkels. Theseare discuissed beli:
* The fiequpeney anidregulacily of geiverniienlit hlondl issuiesanidthe methodsuse(din Ille pri'nalrymarkets dliffer amiongthe feaur'ouiilries. Regudariss,lance cyMies suppirt 1leepermarketsand briiaderiinterest, whwhrarecrial fur thosegoverniments withisibable 1 borri-singprograms.H-een. varying lie sizeany tining of issues an allo. gosecrnniutsto capture fa,oralbleiiiarket auditions.All four countriesslave graduallynions cr away from elireit syvslidatl-i Lto nuarket-oriew,ted auion sins as tl,ei,r bondl niarkets matliired.Within lie aurtliulus. blioth"iliforiilanlddicrimisatoro pricing of lbnds are pleuet. *
lhe basic plrincililegoserinrigLhe uperatuion of priIltarsritarketsii thesef,uarc,iwutriesis simillarwithl nounor sariationis.Marketsfor gsverminent bonds ale soiganize l hy settirngup ruitosirks-grnopsof firiaurcial firm,,,acting as priInilarYlealerlsin goas runiunit secirrities siclh Usi,-ally fLilltion inl a q1ui I pro qov hasis: in exchangefur eellainpri ileges,Lleyagree to bid for priiary issiLesalie to miakeseril,llarn 1 niarket, ini g..enilrlcult lebt, subject to uldesand regulationsgoserningtheir operation. Iln details, hunever.the priucedures saryalllong ciuluntries.In Japan.for esanipule. the syidicalehasl rule oii in thle se-orinlarsmuaiket or neutral bank uiniu,elarv pilicy implemieitatiuuui.In irouadtums1. lie pricedures adoptedin marketorganizatioinare valiants of lie ninesIliat ee eIv ilie UlitedIStates. airll their esse-leelies in acl,iesinrgih,eobjective if inlataill1 rig to'-sidled lilui dity in seconldar'niarkets(arid thi,sdepth il pridmar'irar'kets)arld sper, isilngwrid ri tolringillg their oiperatirilscoiinuii...islyawidcloselv io maintainstalilfity in,tI' h,,d markets.
* Most of Lhetranisartions in lhe secon urlay u,arkels
areoser the countfe(OTCG exseptin the Ul.
* The dreelopmuuent of equliti anld biurudmarkets depenids .1(1 the an-rall devel,upimeu,t of Ilie enoriorvy aid ils fi,,anieialsectur. * B,rsdmarketsin Japanand Germnany arede,inliatev by banks. This is niianilv lbec!ausi of the hisiorical legacyof heavyrelianiceoru huebanikingsystemtii firiance growth anid. to some extent,(iiie ti Lthe iristitutional relationship bsetneen private enterprises ancethe uifiiersal han,kirigsystem.Thesigirificanue of this characLeristi of lie inde miiarketmaiiylIe
8
* The ability tii eilgagein repurchiases--or REPE of blothlonganid agreeT uerits failiitales nilailage nsit
shiort positions by securities de1alers.and thuLIS reirces the cost if aiarket-mak ig andh(i(reases li itqy il lie markets.The largestREPOmarket is il the tU(iled SLates;this riiarketis hamp in 1sereed other indlsirial c,lntries hy, regulatory restrirtions ortxes. thougheff,rtsare eingilade toulilininize lie rigor if th,eseinpeelimiieits. if (nut toeeliminatetheiil.
*A imiipiortantrequi5 ite for efficienit fonetioniog of [lie secondary market is the plresenceof benichmark ne,iurilies. which are commonly represented in all foul ontries There are ariotatis in the praclices a(lopted in designat.ing berilhiiiark secLlrilies hiiwe cr. In the ll, iited Slates, the diild 30 :t-ir eaar blilids in ninedas tle key henichliark, while in Japan, gs ernment binds itlh ani origirial iriatnirity of 1( sears are coiisid-ered ti 1)e the Ierichriark securilies evenr trouighi thlex may rinot be Ille iiirst reenil1v iIsIred.
in regar(l to issuan,e if iiniriinipal bonids i. the ollioe as ini respect to governmenli bnds. TI Germany niomnipail hbodsare sold on request arid are kept on offer til lie tIesi-red aiiioriil ib reached. The ,ecorldar, miarket iti mtinic-ipal bi,nds is less aclive thoriat irngo-erir tilrtand corporale bin.ds. * Tflere are dliffererice' ioa.r...porale bond issriuan'e nethnids. In t[ie US, scic bon1dsare distlribitted to t[ie public or plar-ed wilir iristitritisnial iriieslrr throuighi uiderwri ting nyndicates arranged hy i-setriteirt baurks.often ori a c rmpetiltvi basis. All publiclI issued corporate british has-e tir be registered i ith tlhe Securrilies anid Exhliaige ( :tiiiiiiisbioir. Germuanorv fillosw tIhe icsLw rrrelhods for corpr rate bontuds which are sitililar Int thirse Unsedfor i iternauinial boinlds.In the UtK. public isscnuoaiof corporate ..inudsfollows lie sanmeprr-edures as tlial for go.esrurmeutl brnds. Thlus Iltere is a wide ilnrui,e of methodsfr thi is-i-ers if private brnuds.
There is urn noif.ru.iisystler fcrr clearing auicisettliiig governmiienit securities acrrrnn foor counilrien. Oril tie UlS and the UK settle trauroactius in hiutg-teriii g-ceronmerint borndsby t[ie riextday. Book-enutrsaud the relaled neoting synrms help li iiiniuiize risks anid reduce the vilu-me of transactions to be lecLided. Eureurbonuds aoe -eitled iii a -ciesn-dat greriod dulrilig whicl t[ie bondsare held iii a clearing synteiil an ELlroclear or Cedel. Here again, there is dhicergeniue. In Japau. for exalimple. norrmal settleuiienit occurs ont a iredeterti neil 'vyile rather tliaii at the dsiscretimoi f the tradinig parties.
*
Setinldary iiiarket tradirg in il'rrpoirale bolildsis mostly ii the f)TC iiiarkets in the tlS. thno.ghithey are often listed innnock eXehanges. Il Japan. in t1,he other hand there is ns atlive .ecnildary market in corporale and bank binds as these bcirndsare trioslIs held by inudividlual iivesti,rs whi hold thelii to niani-rtt. GerIirianc, a three-tiered tradsingof inirporate boIuds- official mradiing regolated niarketL anidunofficial mrarkelt-pres ai l, While rifficialarid regalael- markets arc corifined to the stitck estahange. inruiffi ial transaitnoon are carried nut by t,le1phioiie throughout the oirin itriand airios boders.
The investorbiase for goveninnienit bonds iS important frrnii Ills point if view of t[ie fuiictioiniiig of ceconidary inaarkets.The esperiern's in these foulr rouintries aiiuplydelnionintrates [hat if bonds are held by institut ioial investors sucli as pensions anId pnridenI funds. mutual foinld. arid illlnaliLe comnnpanies lather Iran retail incenlttrn-inidividuals auil hooL1eholds-there is likely' tr lie greater irnser, impliarlirig liqunidity anid lenigthenlinigthie miat-ily struitlule One treic i ith imuplicatilvii for t[ie East Asian hlnd * flearance aisi settleinneiutif inirpirale blionds varies mnarket. is that the Irr...poririrr..rf bliondn held byvIle acro-s' the fnnir cnmunlriss, riot so rrtnsih in basic banking systemshas ,evealerl ai ceinlar devlininig strucitue arid froral at iri plr,edinral detail&. In this trend. Aiuotheraspect of tlie inses nane air tf goctLliitesh States, thie -ntral clearing Iroimse performs erninnuitlibndsCin iisinlstrial countries in thiegri,mrig mriultilateral nelling osftransartionnisfir its niembers, doiminaitioni foireigin lolders if brnids. hIiile vhile tIle depositories pr-cide book-entry iraiisfer hroader markets ion h,elp -ehlnneboireroiwinig evis.c sestenus tor ainhie-e delivery against payienlt fiur they also coniniote a growirig interdepiendiei'e secinrities. In Japan. gin-eruin,enir anld crirporale aniroingetfinianLcialitrarkets Inat ain snake it diffic-lt bmind settlemiret pronceduresars thIs saie. The tnt implerisut doimentis goals. German systein requires paymerit .nd drlicvery of .e-men-tie ninIllt -econsd trasihig day fill-rring thue Muaniipal bind issuance methods ale Lilfelerit inl day of trade The UK us,esa seven-doa settleument the United States, Japan. anitdGeruiany. The UK lian for trades in -rrpirale bicrnnds. virtually im market it, urinicipal bninds. hun th, US, tIle VolILlie of municipal bond issuiance has iee 11s i thiln clear that Iltere are nin uniormi and Llniversalhigh duie to their tax-exempt status. Prosier-tnses Iv acceptled oLle governinig thi bhoudutarketo inithese need tIn lie filed arid credit rating is considered inidlastrial cnUnitries. The overarching prinriple is tihat essential by luis,t inrestrir-s IniJapan. thie proi,tedlure lie market houluld uperale tranrspiarently. fairly, annd
9
efficiently in consonance with risk/reward consideraLionsand to the faill Satisfaction of bo0th the issuersof and investors in bhods.The East Asian econoilijessia' therefore prefer an eclectic approach to fuather leveloping titeir honld markets, combining Ilose p)ractices andproceduresiltat have sua!cCeeded well iil inilsIrial coantries, takinig into account the stage of their fi nancial riarket development, the a'ailahilits of local istlitLLtional infrastructure niad other constraints.
(USS161 billion). Singapore (US$45 billionl) China (US$33 billion). MalaMsia (UIS$40 billion). anid Thailand (t 5514 billiont (Table 2.2j. Table 2.1: Size of the Emerging East Asian
BondMarket, End-I 994 (US$ billion) N111I-I si. tCjl'ira
SIZE AND COMPOSITION ASIAN BONI) MARKET
OF THE EAST
'Hng EKsig
tudosesia
At tie enidof 994. the sine ofEast Asia's bondiiarket was around US$338 billion, representing az niee 2 percent of the bond miarkets in 21 major indLIstrial roantries.' but it constituted ahbout40 percent of the hord market of the emerging eco ntnsies. estimate,) to be abotit US$800 billion. The size of the East Asiaii h,nd itia-ket was small inicomiparisonto the region's equity market capitalization of 115$1.1 trillion (71 percent of GDP). As a percentage of CDP it is siiall comparedto tlose in the major insducstrialcountries (United States. Japan. Germant, and theL'Uited Kingdcm). Holseiec; She growlh in East Asian boi)d miarkets has beeni inil)ressi-e. Over 1989-94. these markets grew at an average aniinual rate of 20t pereti. mitre thaic 1ince as fast as the bind markets in these fistr iticlastrial d(Initries. Bond niarke, iht China. Hong Kctng,Inldonmesia, anid lie Philippines have experieniced rapitl growth. Fiat lie sine of tlleir hbi,d tiarketks is relatiiels simall. The phenomenal growth in this grocpi of countries is characteristit of a lnascent miarket. The reltivet i lratrlle bonld titarkets of Korea. Malas sin. anid Singapove hase registered conisiderably lower growth raties. althoghl they esceeded those in the industrial counmttries. Table 2.1 provides aic oser l'w of the East Asian solid larkel b CLulclltrV ancdhs sector as vf` enid-1994. Bon) niarkets it East Asia hate been slow tt deselo) in part because of prudent fiscal policies that limtited goveritnient debt issuance; and in pall due to the heasy reliatice of the corporate sectoron eclciity markets alid batiks to fitianice tlceir investmilents: tiglitli regulatedl financial niarkets with extemisivegoiiefniiiient iontrolsovi interest rates;domio aice of bankks lack of adeqciateregalators framiework to prmtemithe investotrs: inadeqicate itstitcutiinal infiastri'tcre: aiils barriers tt capital flows. A bouid market profile of the eight East Asiati economies is provided in AnniiesA. Aniconigtie Ealst Asian baud oiarkets. ilie ilajor nitarkets are Korea
24.4
tt. O.t
I so
F
01.51
9.10
tIt
iti.
0.8 (It
15.
t.5
6.8 6.8
4.7 0.7
37.4 :t.7
32.1 2.55
Kss-o Mt.alt,sa
27.9 29.0
2.7 Ot.
Sit;ilIps, Simgapir-
24.8
0.0
42.3
55.O
't'liaitjo)(
2.6
0.0
Toa t 1.55.0 2.7 -o hd 1,ss'osot . sd...I.. Son's Th, d Bn.t k
0.1 t (0.t 7.6
0.2 0.0 (t
59.3
47.9
ff0.8 4.9' 5.1
33.3
11.5 ).1 16t.0 39.5
25.1 2.5 45.0 .35 13.7
77.1 t338.
The East Asian bond market comprises five naii seetors: national goiseinmentbonlds, state government bolids,. tale enIerprise ombd.. central bahik secarili-s and corporate bord, (Talile 2.3). Al the en'd sof 1994, goserminentbinds 'nistitatevl lie largest segseailalicost one-half--of lhe East Asian boid tlmarket (Table 2.4). Coeptcate anil sLate eiterprise bccilcs were lie cext largest segiortits represeitincg 2:1 anid18 percent, respect)iely. Central sacksecuiritiesaisointed fcr anothec 14 percenta It ilie remainingI percenl was issieildbs state govemeits. Th- importance ol these segilients varies actoss etitiutries depeidiing lh tlhestage of developmetit of tlceir-bond m,arketsamidtheir goenmcemts' fiscal pil icies. East Asia represeints a iouinter eboatiple lo itilstial cotnaitn trends iic that its goternmietis are dolwniziing their roles as priliaan issuers of boids dLuett fiscal sillplicses. Htctig Ktong.SingaoporeMalaosia. atd Thailctd aire leadisngthe way it lIdis respect. Corporate isscers have liegmi ti) otake their iiiark as the remaainiing inipediseicts to bintsd issuamice are beirig rernosed. Ilnfastrtncitri fimiac-e. whiere eihalcnceilprivate semtor partiwipatiol i iri Ilie iffimig.is alrea-hs aicelercititig Icle gnuwth ii this sectior (see Chapter 6). Ic [te pist few sears. timatyEast Asiai moiimntrieshate lls oed 1.)privaline their state-ownyedenterprises (SihEs). though the mittles of pri'alizalion flate beeniciffereil. Most vounttrie have adopted a partial divestiture polisy-whi'h is Sitilar to m'orporatizatitca-ihere pails of SOEs (case hieet prisasized. while-majntris sharesinte lce llretaiieil
t0
Tab
lile 7! 2.2:: S'i;:1 CeF t eI Eirlriuewfr', gsrigIIEl,ri;rt:A au:ruFl I JIrucIf u Pl curk t:, I 9!1'f-9041
I 990
(3Fini:.
,
23.
D1 )L
)
6 7
5(1.. 1-3 ]11. 11.
I 1(1111I4 '12w
I.)AI
3
I rllolile4-
1.7
1 i3:;.2
I :31.8
2.3.(.3 :7.1 EB.i :--1: LEl. .l
11.6 6 i.lI
LL
VEI El
]\u[lnvI ,;ia sO Philipillj: in 211in,;]l4Ell
ll n3 f'
'Ill;
Jiian
1I111 Ij in
i..l
I E13.6
1.8.1
2; .6
1 LI4 ] ::, 2LIfi:. 1:2 1d,S ,t3
7(l)
1.42 ' 24:2:.41;' 'j-; 3- E8 1
Thi 1 /I ,-! l it
:5gf,;'s.';7,r('.
26.4 3t11.
r. , 1lS' 1o ,,,,o
.
,CuIre IElJrI
sUlte
rlaI ril
(t
01 rI
C'i[I11.
ll'Ilailli
1
5
~~~~~~
6.3'
[15
81.7
.
.].
1.;. '71 ;.5
I ('.1
:
:1 .3
7i2.I :3: .I '. . 1 7.61
Se :ito r'-
11,i the
East
[ .:
)
3
E13 1
].1i]9l.
333.
I 4.,
-,
cIll cEl
2. >23
larketl:,
35 1 .1
73 ' 11(.2
I '9i91J11-V ''I
i.9'i3
I
11'14.6 -
I
2. I
45.56 41
-,
59 3 42.1'
:.31.9 EL
77,.1
MNIfll"!"
55
).14
514.
I:3.0 .. 1:.6j
] 1.2. L '2 2'I
WI1E.0
m ln
gL3;3 n Lir; eE
I01orlpTa..e fi ml.ar IE 1U.EI'k2
s
Alo _,
/-[>I1-I[lIarle tllo tie isteuu. Mostl i-itpitrale isare Litt isLsed tutua bloiigiht le,al btuiis .whele botl,ds issued are udlls suiitseriiueulls a priimary still-srilier wi,hi h i .irti sells these outids to eligible i,,,estuirs. Eligible itlsestaos aire tiutse tlhat qualit UdllerSe-itwi:3811 (fIB(c iif e tuatiie.Act if 0(65. Thus. the s-I iiarY silst Fiberls-tluSiilly r filltuatial usihlatiOills--il elrul t. itt-I ait oiiider-rilers. Merlharit hainukers pily alt imup-uralaul rule iii sile itliiuig tIle vital. re
-nuau:tilent ll
the Set
nrities alit
Esehauuge
Ac-t ill Maiy
In 1986, tue Mualaysia,t govr-uiniet lihelped labuilih CagaiunasBerhiavd.the Natitmial MNirtgageCurptralioti. ievii ali eItorl tit prunithe liqi idity to fitiarcial imisliltutiyuis thiat put tide it.t..iig hlialtsatid to ensure a vOiiliuaulus stililuit if mritvurgaige furnvs. li a relatisely shvrt time.
1992, litited tiiupautueswert ailuustedtt issiue dtell(tires aliv situce thleuihilalifietd aotituatuies h.ise begait to dot YO. The solumileif tet is.-Les bt tIhetuurpliuale lni rose lieu efovh s-u-1992-94. suitpasinmg lie slatietllelrlIise is.latice.
Cuigainas lias eslitlisiled ilself its a tiluajour player it the douuueotivb(ttI uilarkel. Its soltilte OI btutd issuIesia, mtuovetitbn qluviatirtji-edoser 199t2-it4 (see Box 2.11.
Public tlfefritigs if holiis ill Tliailandi:i sate tv ulteet seteral requiiremienibs, anthdihe issue lioi-e.s is bvmiliblersoliue. The issu,er tas itt satisfy SEC urileria. stitielh are itteutyeulM to etisiure that the iss5icr has estericilie ini the
16
It is c,timated tatu [irivate apital requirernenit in 4 Malaysia over the, inst 25 years -II be aiioiit 1M 6.3 trillion. [US$2.5 lrillionI. Trdiitional hor-iisrgs anid equjity financing are uanlikels to oati.,fr this ,iassir e level of in,e-ti,nen andi therefore bonii isonc ill have [iiincreased(ranrritially. Another ]inrg force f ir Firriv usoinarceis priiatuzatmoru if state eunterprises. Over [lie la~t -eseral Nears.,GO0Mluizis bieen, an [i,I l prourrotiirg rriatizatiorn: telei'c rooiurrisatiorr. eletrwiciy 1 hrtll.iighi-sys. any oher UItdts snl vr ar-e IWIerig
ally oliort-terrir... i'iin erv'al paper miatLurinig in less tliari onieyear Loiig-terni mi:iirneriialpapter')nrrtraiirieo of vii to three years) is also issued. althooghr to. a less.er extent. Ciirporate boinvdissunaie is almosttion-eisteirt becan-e of tIhe Grporalirin La, wMich rev1 ni-e [Fiat billd i-sranies be ippiro-I ii fry two-tinrEl of (lie shareIroilr Miiile iouihiseri-ial praterrihe onl, rsi[iire api 1 icol bii tIre bovarvi. Courp-rtc issuers get aroirri( lhii restin-tiiiir is, I-issr g Iloig-teriri voimr ciejalpaper isib'ri. 1i effect, a biiiril issraUr'e. Witjhl a rmori-irises t-
In tIheftrinre. these ne.sI pci,iat izeidenteririses, will biecirne majo,r issue,rs iif bordn,s
irierit
grade so- reigri rat rig. Ie vorporat sector in generalii I, rrimiteviavNe- to inirerriatir-iia finranicial marketo. How,es" erblie-chipi cirporat iviii snch as tlire PhinlippirnesLaing Distance TelepihirneConipanryanid tire San Migirl Cvr orioatiun riae bieen ahle io tap) foreign capital iiiarkets, mnaiuiltirroighi Wilhits issues.
pri,iatizeil.
Corpoiiate iSSniariieinithe Philippinnes is generally urnited to a iranrdfo if blute-chi p cor1psratiorns aruvd tire ,u-s-
Box 2.1: Cagamas rn-rt
tis
ii
b.iarku. ti,irksis
rtstti.
t1,he
-((an (it
Inniiiig
it i'
A,,,,,
miiiin
it
E
t1986t - iti Btirik Nega-i Mt~A.-i (ithr -cia 1,rriiE(t[ink-. tiiii tEIEiis. aiiit, riE-ciai vi, BtNNI trr(ts i 201 [iv- ci st.irC
i Atii
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5.r
in
t[CsIE
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O th
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to Nttiai--a
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-ibdii(iii
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,(tIiriTii-
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nt
i'rrr i
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iier
furnreatIiii'ri((E.strIE
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ui t
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51
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it'ri,(.i
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tIl i[[i . cirr
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rn
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4.7 301-
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IF (mnrE'
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tIc, rrrrrr'r
Irrit. 6rr ii rr
R.EIC
t
.sty Fri
rI,.
.iEtr-(II-i
(RM1mnillion)
(((( -,r-cr [IEEEn tIC, -. I,
r 1(1 [
nickel. Nd'ui-rFrer rai't, l,,,((rF i , r illr, r airit
th(FC
E
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a
Ag-rici 1,isp.r.
t{aiiii1,g
Pt f-or itt
rE-It
BoxTable: CagamasBond Issues,1990-1994
iE(irpIIE
d(IEEE
'EiiE.iEEE
I,- slu i......
(E
i-ii-aii
t1o cN,.I-IiEE
~C10s
IE
of is 4. A igirtilIrt
i
IlIr Cocuur 2Nk[S ceIn, ihu..rorar... Ih ,ig-i-nu iht ra tALoii(Eir [LiEEiEId g lhiq-tiri i'r iirt -iEtli t onEiIIiIEE '(. lrrsno,mirrn'ri-lgag ri ( -.tltiE irrgli siiti r....E ri-c iI iE([Id r
ii
ru-ei
Naiiv
C5gEE d E
rf shrs-tr'rrrI pre
lI
ns-ri .....
-.
5
,
1ECrE-i-ni gagi'
Local 1I01ndissian,e iv Homig Kong co ilpanie, is hampered by the profits tax on interest earned anld the stamiipviuty.There havebeen n1vfir Be loiieslic cor'o"rate boiid issulalices tv diale. ILLrecent years. [le alLIIlber if illtelatilli boilri sfferilngs dai iifeign i( L... ivs listed Ill file Hi-.iiig l\llng Sto,k Exihanige tHKSE) hils in-reasevl draiiiati,alls. 'rlie Hoiig Koiig gui erilumienlt iios granted ta(s iinlCe-ioii llS i leslirS iril ie hI sisof nllitilateral develipmieiit iiistititiOii1s i.e.. tile World Bank. IFC. a1id Asian DtevelopmenI Baii) I y lvirgiiiig [lie stanilp viiits lax aord lie payment of the profits tax bii . iilerest payable ii tihe Hoiig Kong dollar deblt fferle by tilese ilnstittliissS. In 1993. tlle vilie of inlel-riti(ioial Iliid offeriigs deioiiiinated ini Hiiiig Kioiig dollars iilCreasedli 11US$37 iioiiiui. a fiveflid increase friiii 19)92. ILLtie same car. fixe sealiclil panics issuled Honig K1iiig vollar bI 1 ,iti tll lica i iaiket.
In Indonesia. lie Fisl praivatesector bold issue ,Was brought to the iiiarket ini 1988. Silce 1989. there has ieei all increasiig trelid of privale bolnd isstialiee. io viate. tier-e hale be,ii 26 privs,le issuers aetive on1tile listedi bsI iiiarket. an1dall estiia.teri 50 iii liie prvatle pla,elitelilllliid iiarket. A lttal oh abol(l IDRi 1.4 trilhiioi has been issued
in
iirpolate
biiiiids
silie
1988.
beeii liaipeceili seceral regiaotoir rqiirieiis sucih us glioralitees. siiikiiig funids. aid b , a leigii> nd I iiiiibersriiiie issuilig rviess. If anl issnier .ialliot [rIsL siLiffi ieii coillateral. tie liiilI issue i olisle bii gnaranteed. ILLpractice. hiioner.n it is avdefavi lieijlresielit that all noni-slate se,itir issnern have siiffivieit colilateral backing their bvoindissues. Eveii thoughi regiilatiiiis are (lot elearliii iivvail artIZ's a giarantii. in tic ile, le link aiceplahbl glialtlian rs liav- ieeii lie slate baiiks. The iiiarket Corporate
Woild iss-ianve hals
es stale laiiks Io le highi Cildir-vi ii t h l illne of tIle fa.cti at tlhey are loiwied by t(e gill ciThe Korean biiid ii macket is the largest anling East ielit. 11the BAPEPAM i(Capitai Mackits SuLpervisrle Asian bonid mlarkets-at tile elid of 1994Ttie volIale of Ageiicy) deeies Ihat the (ollaterai iiffeed r ii the issuer iiitstlaiidinig bolsis stodiila tLIS$i161hiliivi. oc 42.8 ptilis snffi-ient, Woild issuesdo sit ha-e to he guaranileed. cent of GDP Hiweier, lew issues ire brouagilt I t[e Boiidv isu.es that ar. lot gLlar.iiteed requlire a siikiiig sic oket fteni at adiiiistralteis dletdermiiilned s eis aild fuiid. ilvo ser. the siiiki,g fLiIi is nitl StrLitred in a lIe issue timinig is alsoaliiiliistatiiei gFuel-led. ri eitiiinal aas sr that I iids are redeeiiiedprior li essell,e, Kireii b10rld isses aillie vIiewed as illo iialtuilrs Ii lotter. The egiiatiiiis require that siiikiig liarkages lilsteadi of iboids ill tile ltiadililt al sense. fundsiie se Llp ill tIle foiirof rlepssitskept witli a lesigCitrIsoratle liid issies are Liiiiierisrittlei Ib s5 a n1vIIiiitLe l ilter state lbiiik at ieiowimarketrates. whhii ihicreases comtrisi,lg seviiritiis colpatualies, ilc Iiait haiks. the cost fir tIle issue: The capital iarkels law also iniiestiimenit el clilt es. aiiridother fialii ial iiisliltpla-ce liiiiitatiiis voii iialiiriti -a minimimiii if i-ieut lions. CIlporale se,uurliti are flvilelioae I- iiie-Mial mattiii is relilired. Tie highiiist if issuing ibsidsalli hatLks, ilerilialit iniiks.,,iI stiii-k-briikiiig cliil 1 ipaii-s. Iln leligtil issnane lIsceiulC es IisuuILiagc .Orloiratiliils PiUili issLue of 1leo bonds replireis the p-IlliCtlion of a fr ii issiiiig shiii-lerun boinds. Aniitheir imupediiimentio prospevlis aloiig Ile liiies it t[ie pispt,ielts reituiliecrvl1)1iale issileis is tile high aii-ili oiii in tIe doslesti, iiieits iif tle Ciiiipanies At. 'rlie issuiing i orpn-atilil miiarketv-iipared itl thie rust of raising fuidls in iitlersiiisumit a securities report aiid a prelimiillar iiatioi,iil iiiarkels. Fr hIisreasonl. miam lIirid esiaii I orpoiialiuns indleedraisefiliild i iintiialtiiai capillialmrprostietous li tlie Korea SeLurites Supierisore Boarid. Altiihiughi interest rates viii ourpratluebolhids o it Ilmaturikets aid s p tl,e tiproi-ed into Iiidoiiesian rnpiali. ties if loire lualu tou sears ha-e heenuliser-alized. tile Uiindieriieiter s LlLaliv absouris the bulk f ilie issues sillsce Ini Singap.re. corporate sevuirities are floatedrb, c01ilierui.al baniks. iiies iait hibaiks, and tock-brikeriiig it is generallyv hihficiitii self these bl Ii ls ii t[ie pubbihi. Alsi. [lie iSuliln,ce aiiiviiiil cavi ointlith is v 11ntiolledI hI ,miopaiies. PLAilic isstle of lew hmondsrequires tLe tle CorpolateBviisd Covirdiilatinig Coiimmittee 1f tile puiblicatioii if a prospectius alolig tile lines df tile Kirea Seiirilties Dealers Assiuuialion,, ele thiiighi tIle irvspeolius reiUireslents if ile Cioumpanies Act. Where Iirldsar,esItulured air(i issued piirsaiit tIo a Inst corporale biiid is,i,aulie is. is ptitwipli. Iib-eralized. Piiir t.) 1981. Ulu-e exisled regullato,l gidiaii-e over dhecel. tIIes Must c1li1pl1 Witli tiiiILrst deed reqluirethe Illaxiniiin i-iiiipOIi rate ii1 u-isr ) 1 nuate bonid,. nelits of Ole Coiipanies Act. For a horeigii issuer. suitCuiireitly. corlpsvrati issiers are fee to select siitable ahl]e arrajugemueit,siiiist be aoide ful a payiiig agent lii Ile sitUateviin Siigap.iuseas iiiig as lhe faiiiihs are uiLiotc-ouplon rates. Howieer. t1heCoLIip0ii rate has to hie withill a ha rd of 2 perc-loage points fiuiti lie hose rate. ed .. i the excilaiige. li eniiable ioid-ii.iiders i8 pesl-<
Sligapiure 1tl be paid pruiptisN. The iolnvl issula-ie
18
markets il Singapore are domliniateil bs Asian dlllar bods--al lie eed ol 1993, ablit 98 peeilt ofall.. iltstamiliig bloridis were Asian dollar lmiids.
(see Annes A). lio ever. it is iimportant to reali-e tliat the riiootfreeruent tranisaelionii ini[hle iniluitrial eoaulitr bniiIii arkets astir 1 lei,hiilinark goverinieni ecnrlilies Imlieeltir familiarity a[iil these seIILrities. theil riskr-fee status. suid aiiarketdltefiiiirnel prices. togetlher wi[it highis sophiiStaletl suipp)ortinigiilrastirLeture, fa, ilitate travlinig. In emerging Asiai blind markets. secisivlarn market trailiig in a gi,en issue is typi,alls ui ye slIirtly after offeriig. iitl spre.ad- ,iilling q1iiLkly. Heiiie. se-riiilar miarket aetitvh rises asoi fals itliurliarim miiarketaCtiity.
State Enterprise Bonds Unlike oilier East Asiaii toilnrine. liitonesia rep,-eselrls a uniqilae (ase LIL [list [le goiseriiiietii ha- beeii altogeIther ahseit frim (lie prilarn markel. The balsurerd bndgetlawadiloiled in 191,7 per)cnileil lie gpierimiiieiit friiiii isisniig dellt se,iritie. inivIii-i .,ecmarkets. Slate-related agelies are able ir isse lebltseiiLlrities anird then duin,iluae lie iarkelt. 11l the 47 6lionl isetlers lo hille. 21 liie ieeii state-related agenlie-. aCClilti og for aliouot73 percent of1 tiital iel i-ied to date, and aiotliuer three has stalte-ouniledeititie- a, millrit sliareli.ullders. Foa [le first f,-e year- iii the biinud market. froii 1983 [vi 1988. tlitee stale s,tu ir issuter-, levi LyvJasa Maiga. acioiniled lier all issaaiie, of
fi Lel
iciullue
1InThlailaiI,
Figure 2.3: EastAsia: Secondary Market Trading in Bonds, 1993 (Average turnover ratios;percent) 60
seitiiies.
goi
Ilie
-
eruniletiu
stuippei
-iil-
is-iniig
40
ties in 1990. In early 1990. the RTh; 1eiield to increase the role of the irk ae -e.trur ini fiuuaul,iig massiv infiasmr-ortre investment liit -ll lreqiiredl to susiain Tlailarls, high grim h i-raes Fonrtee-ularge publiu
Airsa-. asn
utilities
aoln
Electriilv
Telpeilione
itluer stati enterprises.
30 20 -
sal.h as Thai
Geineratinig Auuthlrilt of Thailanl.
lrganizatioin
ofTlilaudl.
a illle
orpoe
1_
r-
1
atizeil asudtheir ohare. iare lihe isue it) vuiall iuiotsllieots. These eintelipries are eliiOilagevl to raise fi 1,
0 HKG KOR PHL CHN IDN MYS THA SGP
iii dvrlne.i rmarkels thourighiIu bonul ilaoue. As a resi It. Ille ize of thie state enterprise fooul iriarket m inureasevl draniatlwall, froomUSS1 700 muillioniuiii 19990to t LIS$7.6 billioM in 1994. THE SECONDARY
it, ti,iu,i,ug
based
effi,iern
hcuob
infrastrin ture si ul
mnarks.
clearing
oell--apitaluzled
anil setllenuueiit
luent[i
as market-
muuarket
[5uiis
5,, i'{U
is
iis/S
icu;
i(uu[cusu.
i
I Ea5^t Asi. as.iii invlilstrialHioiuirie.. ilbol of tlie tr-aiogakes hulaveii, on er-lie- iiouultr markelt. altlholigh luioid. are in general I ietei on ese-haligesin these vountries. Eiluhanige l istiing is largely *ieieid as 1 ellilire-
MARKETI'
A isell-luntltioniog .ercindar, Iumarketnot olns reqliies a s0LIFIdpolicy frami-iuiirk hut alsi oei-ils effiL lent snip-
porlling iistituitiial
*
ushekrs.
a,veplabuililut
idsileiuthe iuisestu,r base auivl enaliuicethe of blondS
as iulutittiuual
mi-ilet,irs
are
pro-
hileiled frol ilisestiig ill iilis,te securities. The pl,eilmiance o'I OT trailing is mainly duleto lie elatise e.ase of travling siuch a- nlo set miniliriniii tradliiig amauiuuis.less reirtive trauliig limes, asid faster seltleiiieiil. For e...utiple. irliall all tradliig ini Korea takes Iliae, lii thil OTC suarket-919.9 perelnt if tlital 9 3 [iadinig 61 1 9) -e-eli though onorethan 89 perrelit iif ilie livirld oiitstadinig are lictev oidl Ilie Korea St-uk Es-halige (KSEI. lIn Mlalaysia. tratlipg takes pia-e onu the Kuiala LUimptir StL,uuk Eslihanige (KLSEI atun oU [lie 1 OTC market. Br A tradinig Ol Ille KLSE i.liz eblnthii
verlit rss diins.ratiiig
agelvmies, liqiuivit supports. anndcenitral inufoinuatioin systemii. East Asia,i .iiiiries are in Ilie pioiess oit building oeia iiiarkel infraslrne,lre. H e-evseu,on-ars market l-ailing thus far Ias beeii spouavli ii East Asia IFigUre 2.3). Houg Kiongauid Korea ha,e relati sell mire a nuarketiufrasrrtmie.-Ioi msan trailifig iii these riarkets has beeni ouuiue%Hiat msorearLi,ie 1 wili t Itirnover rates if 58 an l 57 percnril. reshieitiiel! iii 1993. Il iuIuistrial otswu! bsiIi iarkets. daily tradiiig soluhniestypiialhh rLIll into billi .. s ofvfdollars
9
because tn1it24 corporate
litIds are listed awhilegos-
ernimiietithinds sire tiot listed. Ceagarmas bond are Itado ed riser the tt tilner. In tle Philippinies, governiteCut securities are tarledi Ithe OTC riiarket pin, bv 24 accredited gottettinenit dealers.. i..stI of cient are tnitisetsal banks. st.ne ilvestinient houses.aLil a gtnneti t..e.tt-t...l.d development is btik. l lininlnnesiacoadingis Confided to, lie OTC itiarket. Sit-e bIlimdcertificates are tearb6erecuirities. there is tio comlpellinig leasoil tI trade thniughl the esihaige. eteti thouigh i ere is nl, charge for bond tradles. Impediments to Secondary Market Trading The iusliitutiotual aotd policy limpedlitentusin the way of rtibii.t senildilary tiar,ket trading are elaboraled uelt.
Bujy-and-Hold In,vestors. Ilislitutlionial in-estors such as the ontitractualsa,itig sector. peinsion funds. ati( social secii.rity schemiesare the domiuianI Classesof ii'- eslors in bitnIls. In East Asian countries. all if these inseslr Classes tend It le bius-anid-lolrl innestiirs who mininizii,e nijsinathlies in, maiurity of their assets and liabilities. CI.i.itraclual saving itistilutions such as lie (CPF in Singapoureatitn the EPF ini Malaysia invest in t ling-tecil bondlsfor the express pufllise of hoeling lie boitris tot nuiaturitv. Singaponres (CPF hotils about 8(1 1 percent if gitseriitnienit securities aii is essenitialls a buy-and-Fiold Iype iusestor atid dues tot engage ini tiraitg, while Malaysia's EPF holds 50 perceit if Iutal outtatnuling bontdsaud its also a bti-auid-lihold investir. Social
Insufficient Supply of Bonds. Lac k of a siufficienit ititiber vif is.suesaniil relatiselv siiiall issue sizes iiiake it difficuilt fir itiarket partitipaits t.) actiiely etgage in sei:iundtars tiuarkkitradlitg. Iln secitndlarNbonld tiarkels of the indu-strial Countries. traldiug is farilitatedl. it ai large estetuL.Ity the availability if a crilical inass of pivenitiietit se,itiiies ztis:l a coitiniiiuous supply pNf ie. secuLlities. In contrast,. lie East Asian gvterIltlielits (es,eipt Chilia atid the Philipipities) are douisiSiing their borrowing priugramlsslue toi fiscal surpluses. aiidl iti solile CoaLnivies like Thailanid. gilveriniiienit bomud iSsliUance liastvas.el. The lack of giiver....euut securititis has benti substitited (Iy the intcreasing amount if tirpuirate bimd issuies. bui they have i inot yet reached Ihe threshold required for seconudanrmarket trad itig. The siipplrVtcoistrainit is riotted iii several relateil issues such Lis marrowdefiiititiss if etitilies eligible t issuie I(utIls. leiigtltv prvostpectius aoudissititg prOcedur-es. lie absensite if a stieattilitienl regi-glatmirframeivrork, ald diseriminattrs tas,ation oni bouds. To fac(ilitate boilnd issuiance atidiI eipatid tFle issuier base, it is Critical that these issuies be addressed sI part if the btud tutorket de-eloiptittit plani of Ilese countries. Iln getieral, the issuiatice ilelisiot shouilvdbe left 1i lhe itusirkelparticipaluIs as loIg a. tilhey i lieelie ri..uplni... e.e.l.uire1 utients. In several cilintines. lie titiitiber of issu,esaoi totaufitluds t vii call be raised atrecosntrlviledbv regidalbttrs. Itt anlnimou. btitdil issuers have tI follow tle saite lnngthlt procerlures hun each tuew bstir issIe. s hichi increases
tIatisait
t
o Siut , t
1
itidnustrial
I'oitiltrieS,
especially the United Stales. lie itrodueli:iin if shelf registratitt Fiasgreatly facilitated luid issutatuce. East Asiati regulsatiorsshouilnhseriotusly iotsider adoptintg stilci procendut-es. At Presentu.Koirea is the tunls East Asiasi tutunutrYwith a shelf-registratiott facility. which prov-ies blaniket approval fur tContiututnuuis issunatiie.
set
ittil
shlelmies anlit Penlsiont fuinsls (for exam-
ple. lie SSSandl (SIS i Ilie Philippinees and the Social Securits Olganui-lition in Thailatdl also tend ti hl bILyaral-hold tivestors due It their loug iiivestienit hunzonits. )1 ai this sitiiatiiin ha.s.however, beei cbliaglig atnd contractUial sa,inig insitutlions are beinig giveti sore flesitilit8 iti their asset all ationi. For evaniuple. underie totisutus >fthe ne[E At.lie pripi of aunual iriiestible futnids requiredl io lie iniiested iii Malaysiati (k-iernitieuit Seitnirilies was renluied firotii 70 io 50 er e pir. - iddledItat tlle itsltanlinug atnoitu of MI;S does iiot fall bieltw 70 percestl f EPF's cumulatine inuvestiblefuinns. Iln Singapore, lhegouveruiuuuetut has initiated effotrts 1tnopen lhe uinassagenient of CPF fiiids to prii ate urtflessional matiagers with i tcreased aultononor in iiivestmeit ilecisdiinmakinig. Lack of Markel Makers. Market maknrs are essential for slitie seconday mtarLket tiading. Twi issues are vif illtp-rtatl e it (ilis regarl. First. liqtidily supports tmtustbe prosirlel for market makers; antd seinild, itiarket ntokers shltil lie reitiiredl tot maititaini a uminmimuim (apital base. BTpiallv. biuld ilealers niLithighly leveraged viperatioits anivdtheir iinentirN uIsuially represenuts a large ilitltiple if theilr tapital tase. To finanite these large itveuitries, deale-s rely oti reput-iiase ronit,alth or REPO)Satid to a lesser eteiit en blorroiuings friti 1 baniksat dealer rates. iminrdlitstrial rounitre bluindl markets. titarket unitkers are providleil liquidilY Itltughi REP)) miarkets or ceitral batik redisttIuntiug windiws. But in aliost all East Asissit uttarket, Iliere has beeti a soid i Illiis regadrl as moust of (lie dealers ale riot market utakers Ilue totie laik fdlealer fitatinig facilities. Clearing and Settlenuent Systems. Elfective boed tradiutg dlepeutds on reliabsle and esperditious clearing. settleutueit, aoudpayttuent systeous. II some East Asian ouiutries this marsketiufrasructuire is nutyel fulIly in
20
place anti traders uno a iariets if risks stall as oulnterparIs risk. fraud, ant i itiltipll trades of [lie security. M iatsso tluc as ulelivers-ver,lts-patnienit. pa ei-indi-iei rp ;i central &ileisitorie, rtli,li fiirii til iiipiirtaet eleiteint initilie settle'irirt arraKengemenar-e als esetial fur sell ritars' market [ratding actiji i, Fitrulearinrg anti settlement ststrsoI fiuiitioisnee filr it is essential thiat safeguirarlslie in [Ilact- SafegoardisbuLilt into alit Sxstrutl fur liatrullitig iiin-tiirs seriirtiea. either iii tratisfer or stfekeepirg. are rirpnrtarit l tIre riraintenarnceof11 n1lilicisiolfidlerCe ini lie tdebt rrarke-t. It in essential that iiitlrIier11n, lelit
ini
iArisrimerit hldifiuiigs lie segregates frionti ie, proprietat hioldinig if tile finianiiial irntlitrtitiia. or dlealer- iiitli wirum iten-toro tire diniirg uinistes-. It is also Imprrultanlt thiat tire salekeepiiig arratngemerilsirate prol- erlok
Lirrptir .Stio,k EscianageiKLSEI and SPEEDS. ahu,h cosst f Inter-Bankl Finds Transfer Sxst,emt(iErSi andlSruls Semirities Tradinig Sxsleiil hSSTSi. [FT'S Is r Ineii transfer ftiirld i tilie iriter-iatnk riltuie minar,Le hsil, [LIt SSTS da-leelop-ietfur lhutrlolin bookertrt ft's trarisferrinhg strips. Clealrantie on tIre Kl_HEF opt rates i'l a lil)A Nwal d,li- rx~isisis is,rer -rijts of Joan1 tItiks , irtds arie dm sPiltsn iil-n toire ,ieairig hIouse tiri'Lgilgit lie hirolkies itt eser irte tire Cohen". Clear..ing aitu -tlet rie-it of g ero-rriei-it boldltll, Batik Ne,,ira Mlalatsia iBNM) idtlls, anti Cigarrnas luitudi 5 0111tirs iii SPEEDS. Tire 1f S transfers lurtdslieie 11 banks as -n as hueweri. tanks and tire eruntralbank. The SSTS. lii lie other hand. trntpletes b1 10 k entries eletroit lval tiltn tIle, tranfer of strips. The strips. liluint ee rettairi1115 Ph, n,lI, arkerd in tire teritra bank. With [ilie iritrodructiuir If tire SSTS, the lorigrmeirt. vh-01 tolls, reru... inig. airui tratisferif go-erinritibtutdl. Barth, Nlegara lurIrtdl. anti Cagainas iboitdl all oCUruritt sIriple- forlen Each rinicipal d,eaher or appro-leu dealer tmainitaitn,1lul seplarateatrouunit iithi FiNN-its o1101 setuirities accounurt andl air aggregateItsu,ttier,s acciulli fur se,iritie- lield li lueluall if its, tiru[. In atdditionr,
iiii.iiltatji... with [lie Hung Kong Captital Marketl a secur-ities lending program furthe pril ale secto-rientrtrnierilts bilged in [lile CMkU. This is intendAc i tinc-an,te[iemarket liuridiut if[ibepririatesector CMtU inst-nifiin, tair this iill help atoLiIale seuondar% irrarket transactioes. Fitialls. filie CMU plans to)des eluip a real lintle deliteri -tersis-papll,iiiit sten.,1in, 1996. Th, isalIItger-terrin i LjcIie for eliminating settlerrerit rik. wbiril,11a be effeteu ..ittle rthe irter-barik paytie,rit s'tstei unites irtio a real-tiiie grios sett,lentir rsett
~anieass...iaitiri.
anid baliars-
Malaysia
built into [ie, oNterin
Several East Asiairltlitritries tatle seenltakningste [to estabilishilrgatri-dcil neural ilearitiganditstletmeti sts[elis lIn Honig Konig, tIre liqririitN of [lie Estibarge EunridBill nd Notes Petigratooas aitdetdIII [lilel eIlloprien of air ff'it-leirt systeitl Itr le-ranl-e anti settlerlierutli1v tIhe, Mtoretars Aurlutiruts in 199h4. As ruf Sepiterr ere i994. 158 fiurarilal irmusttilius, h111d bue,tire mrembilers if [Ire Ceittral MiuueyNMarki- Lrliit SYsteiui (cmLI. Mentiberslhipiii tire CMILIiv topeit [ all mtembuier, if tire Hon~igKiurg Capital Markets Ans-iatllri. atti)iruedl inritiurtionri iii Hong Kuurg.anti eserpt diialers iii se,nities urrlulertire SetLiritiesl Oirlirna ie. Tins oe,,iye ,as extendetd[It otutierHontgKong diebt loller INs[lie Monueta,,, Auitioriet isthi tire inrtrotbd-tiri If C IU. The CNIU teefurirutu[liemrle-tfa.-eutral Iuutodiatnantd heatingageurtfor H-otrg Konrgdilolardebiet inistrurtnenrts-issed I% Isolate seor1 issUers irucui litig certifticteS Of dele.1 1oi.t-oniorrer al pap,-v arid boisdlt airri is oll,rlttd isv rIte Muiletact ALuithitityI Flire tratisfer of title, III [lie irtrituerts is ii iiouk-enrs Iona so that pliisi,ll diehiser us lot requiruedl
lion sito
learitng oxstrts--tire
KLirla
a tasl
settletert artorif is aLit tt-irtairuer ir [i BNAI fute[lie settlei,rut if,selureities tratleu. inculudiingREPO trarisaoitit.urs Setl-enuert Isafe-tetd auttomiatiealhv iii uturul-uthtin ruf[uatdefourSSTS tart icipsants.
Tire transfier tf title is effected tihrouigh i comipurterizedh luiok-n-itry systeirn Transfer i~ effectedl iby lie mratchitig of iristntetions fruut boxcro anti sellers. The C~NIU LI registnr is upriatild with the receiput a Jumiatulilig uhf transfer irrstrurLCtiuurus frulitj1i-latiCifuarul ill tIre systetti. Pvolitiontrepi)rto are issurevllirffiuurtt,anti rmemtbiersare psrovideid inrformiation cuirie-n ing thteir (lax -enld oculloUnits ii [lie e,enit that tileir Zitlliuiis late a [fitsactitun tinta parti tunlarulax. PoxNrig agents of tIle, i-suer ore adlvisedlbt [lie CILJ of tire dletails of hoililers if its debt inlitrwltenits for-tile jiripulse of pat mmeltoufinterest a,ir ruuedemption (If priuncipal. In addcitionitoi e-talloinriig iriternirltilsial linkages, tine CMIU sAla [iivlldeltuil.
The adtIvotie noun iii Ie, ilearling a11d setlenliiiii area Iv [Ire i ntrodluctioni of SPEEDS ailnd riIIs treadling hoi Iritiistandinig. [hueaiieii of 'iii organizied atit tetltral bsontduhearitig liluru- is raniperitg secotlodar liarLet tradnirg. It -soddu he adunianageLAurs [Ii huirrla -l ettral Ilearitig
brn
oreganizationit.
sinuturldhe
pusrd bN [lie ELSE or a perisate Altertautirelx. a privati-et SPEEDS torsleru I mm-ummIFI [hisi f'uilnoulr.
Thailandi lias (Inselpedl dcripless clearing anti settlemerit stotetms file I fistieuliti aitrl lIotnd itradirtg. Settleirmeit is donte bx tIle, A-sociatitui (If Sevurrities,
21
Companies, whiiichacts as t[ie iiarkel venter thal liiks all dealer, rith it, rn-hie nprri,ia-ter-s Iii fri an hz Irontradi,rg network. Tire settlemenit is a T+2. secipless. rel-clearing balanLe systervi IIrroIgIl the SET's depositIrry facility. PlICe-h e Ilnnrterldaily niltIle seCiIi Jiary'norket are iriterirledi lo reflect trtie deriianid airl sippilr rf bonids oir tiiat dar Initonesia is ill the prrrrressrrf irtrdrlrci,ig a corrlpriteri-ed -learig amimsettlemiienitsnsterrr t. replace its rirairial svsteiir. The rriajorilr f blioids ace tradled ill Ille C)TCIiarkel, arid settlerrieri take Ire in a nro-tnoire basis betieeni LIe prr-ries ihrvrlserl rirl frlrrws a pariirentl-versns-del i cci systeni. Pavnert is rrad,e I.' -rer k -c Irairk traisfer. anid bargainrsva llire StrucIk frr settleriierit aIrvlirere hrbetieertlireday rf tradilingard ter dlaNsaftiel palyirnenitis rinardcba sd a li tIne Par-sme il lle. hbi lie lack of cnrseintimr gives cise tin prrlens uslwhen orlders are filledi through muiltiple traes. The deliveryvf bearer paper for settlerineiit enrtails two risks: tIe risk rf tlieft/1rnssnIhnirig tralls;prrl and tIle risk if firge. Market parti,-ipanits iavr hieli kinri,ni n hire re1 litablC carriers I., enisur-etIe safe delrie r of parcels of phrsi,al bearer secaritie,. hinsuranireis aoailable onani r....ts it f arrfra iv US$1 mlliori aisi is als]i ffleredi irnrrrnnjn-tionnn ith rlairkel banikinigbrsiliess iurr.n Irliieliarci-e
ciiotldiai. Maln foreign investors are, by statute, arredl from in-sting iti phiNsical bearer seurities. ihile oiliestic investors larefull'V select a iistloiair lor thei rearer papner: A niumberof cristodianis lave takei, nit special mrsmararce agaiiist tIrielss of bearer bonid ( erlificates. Sich iirisirarice pror idIesinner frrr nj t arr-allr IDR 2 billirnrr (abolit US$900,000) per trairsat Lnand rei-qiri- rer-airi rrl)evlires [yr be followed dlriirg deli-es Secirrilies listed ri tlie Philippine Stock Exclrarge are M.carera thlrrrigOlrtirir rlearinrg baiks. Brokers are reqruired tr withierrre sitliii a fIIrr-dav settlemireritperiod. In 1993. I ha31 k, rrpeated aIs trair-fel ageirto fur tIre issiance of certificates tr r,ey rrwersirirl Ihe rain-ellatiri nf certificales soul. Since 1989. g-seirimerrt sen-rilies have hec- issoerl ini bonrk-enintrfrrii bv tIle d 1 eutral hank. Starcmg ill 1996. all ernitv arn debL irisirtiirerit traisactiois will Ie clearedi thrminighr a new cleariiig s,sletii belig establishied wilit filnancial assistaiwic frrriii USAID. A cenitral depoisitorr will also be put ill place il the se-r-ld half if 1995. anid air riversight -onriiriiitee.the Plililppirile Cental De 1nrsitrrs,l1 recenIly frirmed Information Sourcen. RorbL-LtseanndarY wiralrket trading hiiges ii hlie availabilty ,I r-eotralizeih iinfirriratioii tin all miiarketparlicipaints so rliat brokers aTrd seale,i rain prrrri-le blind q1tmiles. Il iiiost East Asiai -hinfonrnnilrtin infiastrtrnr0"'e is nv se-t in place and, if ii existeince. is rundioneetaN. li idrlstrial crUntries, ceintralized ilfnrinatioin soturces such as Reuters andI Blornriibecgensure a ler el playing field ini lial all market parrit ir- irts hairveacess hr t[ie sariie iinfr-,ratiri at the saaiie tuile East Asi- l ceglaltris shoulrd enciourage t[ie foriniatiosi of sLch neulralized sun ies Ldfitinfnnnatirirnnn ln far-ililtrte tiading atis ity.
The hidnoncsian [Depnritorr and Clearinhg Agen-v IKDEIt vanile intri e-slen,tee lo 1993 irirnler spo,rsorrlip if tIe seI cri slate baniks and the Jakarta anld Sirabava stock cxr,larges. aiml liar beei practiiing nietted settlemeet seriicees for shares sinice lie middle olf 1994. Scripless tranliiig will be iritrrvrCell iii aite 1'95. ThIe sriimeageinvy is esper-eil tinstart -eitrali-cd l-earing andvhneller settler ntf lrlsy elnd-1995. hlnitiallr. IMissues rIinoled innthe BPI ,ill le includled and Miris will serie aus a Stiilllis for issuer-stin listl there. l 1i,e first inrslan-e. hbirid tadlig will slill rc based ire L-registerevl berare- ser-nrities. li they isrnln he i iiinnbiIiad. iiieaniiing that to trade t[ie securities they rsae ton hIe lodged with lie KDEI. arid brokers vain tralde thirouigi their [;DEI arrnrrnritsr. Othelh mattersthat hare tn bleadlderssedare sheltle- to adopt a registecedhbearer ssterit anndhurn tr settle off-es- hanugeriades.
Rener-e Remguireinentn on Banks. Commercirnal batiks have heere a iiiajrr sestrir ilass in hbindnlr tlironngilnntnt t[Ie regionias lueyrall tise their boird holdinigs tir satisfy rtatnntnn,v filirillitr reserse ieqiirereils. Thereforre. fanks d(l nit[ trade bridls for riehl inraiiiizationi. The inpaL-t rrf these irmpedimenits iiar abate ill tIne future as Ern.t Asiail orintries rednrce their rnialndatrr requiirermenits on ianiks. Fo examiple. Trhaifarmihas redrluurd its reserve requiremimeitsto 7 percut, while i tIhe Pliilippirire rserse elireileits were -crcreled frfiri 25 per-ert in 199:3ti 21 peireint in 1994. Aiiolther relatenl factor is thratsesetal East Asiaur counleiis do rot requirirefranks to irnark-lo-inrarkettheir horndh pcnrtfilir-s As micrinseqre uence.balirks are elucitanit
Safe ctnsltrd) sehrvies are offered lI roughly 15 large haiks hat foumiparl flie vL-stldirlnIsrlssi- linltr i,nun a unrulier of otlier hanks q1 ertlirrg the serosi oruart adllrc hbasis.Benkess dffer free safe curstIondservices for their liertls, a service irairhsl rised h pivrate indhiiduals. All large inistittltiorial irsestors haue a desigiraled
22
to trade boids, as trading niay incur realized losses that need to be booked as opposed to lioldioig bonds On a eost basis. If banks, were required to niark-to-miarket. they oulds more likely trade those ecuriries which have declined in value. thereby rminimizirig tire alized losses arid investirig the pro--eel irr securities wili Arclativelv higih eapected vieldl.
In the emerging borid miarkets of East Asia. horever. the devehlpoment of risk-free yiel(l vraes has been somewhat limited in contrast to the situation in indutrial cunotries. The prinirary reasiro fal tie ln k of market-based g-reenirieirt veracity benchiniack. has beer the fart that rirost East Asiaoi gr-rerillenits, e-r:ept Chiula arid Irle Philippires. hrare notbeen artive isseiels rf lrolrrls. in view of thleir fiscal sirrplu.c-. Sirreemrrst
Othler factrrrs ihat imrrpedese-irdary iriarket traiirig, such as the lack ofliqruid berrcmarks, ireffetise iedit rating agerrcies. anid discri miratorv taxatiorr arr boinnl trading, are exani ned in the enstuing sections.
bonds ate held to iriatutiy bv t[ie onitractiral savirg sritor arrd financial irrstitutioins serrrndarx iriackets have been slorwto deselrp. Anrotirerimpediment lo estidilislhing ben,rhrauk yield crlves has berrr the slrorl matririties of hoid issues Forexamrrple,Ire Philippirre brird rniarketis dominralterby 91-day treasury bills and corporate binds are priced off tlie 91-day T-bill rare. Figunre2.4 illast,ates hllerhomarkvield ues in East Asian hond miarkets.
BENCHMARKS Benchruarks play a cnicial role in the efficienit fanrtioninig of bolli tie primrar and tIre secoirdary bonin rirarkets. They serve a variety Of parposes. They are uised as a bellwether to gaLagetIle prevailing inlelest rate striuture; the rrmarkets expectatioris of fatare interest rate miorvemenits,iiflatirr. and thie assio,iated risk preiiiia; arid piovide lIedgirig vehicles fir sonie unldersriting arid tradirg risks. and tis idenrtifv that poilion of issouanceyieldrs which pertain to credit or default risk. Investor, insfixed incrun-e securitles are exprsed to a aranev of potential risks' dependlirngvio [lie Ioal niarket cliiate. Tnie irrajor souries rf risk inirlde: (al business risk (or risk if defalt): (bi interest rate risk: (I) liquidity I iarket stability riskl: (dl puirciasi ng owerrisk: annd(e) issire-specific risks (reinvestireit risk, rall rise, price riskl. GCier the risks ir,slrvd nl fixear iicomire securities, tie availabilits of market-based bellrhiriarks is essential IOprice these secLnities. In indulsutrialcouilt maraketssuci asbhe lnited States. fised iicoie ecurities are prnced off US treasuar securities. which ar isonsidered nsk-free. A margin to cover credit risks and other specific issue risks is added ZIOthe prevailing yield iii benchmark secLaities. Asailabilitv of a aiarket-based berLcIiriiark also facilitalte developisrent of otier e risk irrariagemeritinstruments sich as futures anId Optiis.
liaterest rate controls are alsi hamipering the efforlt tli establish benvlnirarks in Ciiiria and Korea. In Korea. tie Llserf Nionetary Stabilizalniroeiads (IlSBs) issueed by thie Barik if Korea Offers alternative benicilirarks. althoigih in a linited sense as tfie lualtarities of MISBs dir iiot stretch besrurid tw ve,ars. It is expeteld trat Korea ill acceleruateits financial lrfrmis anid by 1997, niarket-sased benchoiark-s hu-ld emerge with corinplete deregiulatirn of irterest rates. rI the assercLeof governimirenitsecuirities in Inldonresia moniey iriarket i nstrarrrcut1Is i-iied by Bank Ilirdnesia, or bank deposit rates are possible alterniative berhciirarks. Tire offshirie sWapialre ih arnistler nidication Of fundirig cost that criulvi ie tisei as .a b-lichir,ark. Neertlieless. thIeg-iserririmenit,in East Asia hare ieer taking steps in recent years to deve-rp henicihmuark securities. Fur examaple.ii Hong Krrng t[ie Monetary Auithority started the Exsharige FirundBills anil Nirtes program in 1990 to fi,ster tlie establrishlinrernt da f benicliirrark yield cur-e These erlarities ace issaed rin a regLlar basis with up to 3-year mratirities andl are actively traded. ihe Monetari Authority is in the pji-ess of expanudingtire riraltaity sta 1 tareH f exchanigefand hills arid nirtes is imo plarning tIr issue 5-year aritirs Tlie GONI has helped sIrengthell tIe Caganias. whini 7 row issuies3-. 5- anin -yeac briids.
While benschmbarks do riot have to he risk-free, their risk should he easily assessable. The definirng ciacarteristic if beinchrmarkse,urities i, their liviility lie.. narrow bid-ask spreads fiur large trades). which is-often associated with regular arid large issues. High lir;diiility enasles inuarket participantc to close Otuttlhei p(rsitioais wilhout incarlirg large losses, whiclh make the in ideal hedgirigvehlicles. Frr benchiniarks to le useful. the sie of issLiancesiould be large and cover the entire nualtirityspectruim to create a yield i-ur e.
These huruuds are ar-tisely tradedl arid potelutially cani se used as benchnuiarks. In Thailand. the slate enterprise sector boundsrcnauldbe asedlas henucihmarruks iyelluraging a large entity sauh as ECAT to issue securities un, a regilar hasis across all suaturrities. Repackaging if IFCT (Industrial Finance Cortauratioanof Thailainl
23
loanis and [ihe oultstalnding govenirnent bonds illtO niew SeiLIrities ou01d(also provide aijoihee avenue in the devel,.pnienl of benlohiarks. In the Philippines. the governientli has been trying 1(1lenglhen the matolrils sirmcture in ani effor1 to develop benc1hmarks. a hid: nay be aiked by the re,enl itridtdction of 3-year floatilg rale vltes.
Figure 2.4: Yield Curves in Selected East Asian Markets Hong Kong: ExchangeFund Bills and Notes (November 1994) 0
8_ [l)/llO lF IR
1111TRIVHNGI'ING;FX
[:IES."
A key ingredienit vf bond niarkel develo1 :ient is tl:e establishment of a credit ratiiig hinlstrN Several Asiani coutnries have begun to lake slells In dvevelup domestic rati:ig agencies to Iv)st their bond miarkels adl ensilre investor prolectior. Chii:a. Ilndonesio, Malaysia. the Philippines, atidi Thailand all have rating agencies. The effeclive-ess of these ratii:g agencies tlu,s far h1. been. hwever. mised. With rapik grvwt hin is bonid rmarket. Ratii:g Agency Mala.svia (RAM) is well establishevl and lias beeln aLIccessfll. The Thai Rating and Infirmation Service (TRIS) is relatirelRy new, LIti has dlone well in stabilizing its presen,e in the rmarket. In Korea asd hlie Philippines, lioaever. raliig agenicies have been relatirely less effe-lie despite being iII operationfor imiorethan a eraode. The liidonesianrcalig agenicywas established orily in November 1994 and
6
3-m4 h
2-mh
2-yr
3-yr
5-yr
Malaysia: Bank Negara Bills e
8,
7 6
5t 3-ih
its r-le is still evolving. The key issues facing thle ratii:g indsirt i:i East Asia are dis,iissel below. A (((ore cormprelienisie review of credit roatiogagencies is presenledlin aciiipariiio repvrt.
6-m-h
I year
Malaysia: Cagamas Bonds (December 17, 1993) 8t
Issues in Emerging Market Rating Agencies Role of Government. The role of g-verilmeni is cm(cial in fosterinig the (e1-lopmeil of bn,,vl niarkets ati:., especiallyv. relit rating ageilcies. Il the Unijted States, the governnienl facilitated llie development of vredit ratiiig agelicies. thiiugli in auiindirect aoV,,bV ioslil:ili:ig regidaliinis that lvse ratuigs as a n:easLilen:.eoitvf
7
3-yr
risk. The Unilbfim Net Capital Ride is aii exariiple l of slch a regilatioii 1I ernergilig niarkels, le rIle of go' eniiienil in promoting crediltatiiiig ageo ies is even i((ore c-rial. East Asian goveriimenls slioild iii( ve deiisiRelR ktoeliiriiale th ile iiing ilulpevhliiients. su,h as gliaran-les. to e-uilre :iinifoir accournilinganvl diiscl1sLIre reilifirenlleillsarld t esiablish pruldenlial regulations desigoevd to eII(OLurage [lie Luse(f ratiogs. These issues are highliglited bela.
7-yr
5-yr
China: Secondary MarketYield Curve 20
F
Is .....
IS
24
15 I
2 5 n5
3
t4n5
Gutarantees. Prior lo tire stall of iredlil raliiogaigeoicers, go-cri-rifests hiad reqiuiredl that Ifiori issues Ire guwanarleed. lo Keona.bonrde wererequ1iredto lbegrarairtced uniil rererilisv. Tlis, has had a .iginifieont irrspait ori invseelric,ntcoitire iniitat Korrain iin-liir, eel ori griararilees rallier, thlan inreasrUringaod rmanagirngir-esij risks ,eser though thriee ratiing agencies lhaie biecnill oiperalion for almilrsl a decade. i Ir idlin-ria, lIre abs,,nrc of ratings hiasfireds lie BAPEPAM lio irrpio-e strir ti goaaramrle,arii sinking fluiridr(iin-iei Te, irerilt ir as thata Iiririteslrarigiof iiiiss wasbririghrtlo tiremrarket.Regoilatiree ran accelerate lie dleselrprirrnt of eatinIgagencies bryeljisiiraitirg giarastee r,q1uirerrrriit iii liirin sris Accouniting Procedures and( Disclosure Reqtuiremienits. Tire abseirr of a ariifnirrrr1set if a-or-eiaruig prinrcipile an Iproper sdiscirisire requiireMerineprices a seriroe tirrat to [lie inirtgrii rrl rel iablility~ if sredit ratiirgs. Goris llcrriilcraell.rfar-ilitate tie r'atinig i'rocss is iiiarlaririlg three rcnlitircrirte. lIn Eaist A~siar,uri-riuritirig proredu-re are. ii general. rieli selesrirped anisiare broarll) in lrie wisthrirnterrratirnalliv a-rrpted etardoerl. Thirrirrig0irrt tire regiOrir.listed ruInI-
p17iidedl i n'icllise for' issLers to, he rated arid rointribateedIi lire twe-re rif UI rainrig agercir-e. lin eneegiirg nmarkets. roses er, ilie lark if eopihistri,aled 'ie ctrierit rirlltiss anrdilie f,O-l iha[ nirirs ri-liltitoiralicet iriirt ticirsl to lie ciaeiedeill [lie isiritear-lial aviergs ecelor niecesitate tliar prirririfial regulatioire lie ini plase. a, lIlnioiesia lhas dime. iiv pa-inig [lie lea perisuiionfi 1 d la.ii Prufitabrility. Credit rati rrg. user uiric. r-air lie a pro..ftlable usies Th rrurrli, p rrhititset for ratiing aril finraneial irrfor,roiatiorn-rrs ice isi-ririelastl espaniurnilg sloe in growthr in adebt rn.rrkels. Hirre,er. urcer ratinlg ageiri-ir are sesic-orrieiited eriterp,risee. lirei orinrimei-ial Stiiiiese ilper l i Ilie ilerriariri for thleiror- is-es man lie priwe risers aire iliiiiig toipar. lIn itdisuerial -ruintriesil eisaini fur raiting urgenrc ecri ice, isfisi eral, lisircd and alrrmcstall rating age,ri-ir hlare lierr prri tlable. i ncicgrgrrre iiiirrci.lme rrt rIngagenrieis farct ses alcrrhallcniges ati -tablihisiiig thleir i-irirmeri-iali sabilits. Tires irir-rir hi.sse ii their miniial veare of ir[,cali-r urtic ioiighig start-rip, ainid irertirrg se lark rrf,siffi-n-uit ricoandi fur rating. andi a Iiririterl nuirrbrrr sif diebt sie
Err -sarnriric ini -. ianrerriryirig
piani-e arc rqsiired to com1 rlv sithi tire lo,al code if accoiuniting iroL-erlree 1111,ann errdarrds if pras-tire. Ars-011rritirigp)ruimples a I tirie -ntent of their s.norifirnity with iwrteriatrirs.al standarsde if prartire, rosirer. dereris sirtire o stage of dc, lirpirrerr of their firran,ria nriarkete. Hung Konig,Sirigaproc,.and hrlaiassia liar e tine miost dlesesppid aecorrirfirIg sVss1crrre. is 1ncharc rirlisiltenit is ith Initerenairnira Ar--,.irrritillg Stairraride: ai-i-riirrting liro0redlires ii Korera. the,Phrilippinres.arid Tliai[lairi( arc basesdon rrlerrartiorral Ar-oirritir11gStanrrards. sith sori- nisidifiratisiri ii saitlo,nal rrqaircrrrrnrt. Tlhe 1 hridirrcsiarn ac-i-urirrting prarcli-cs are hases ii ILoal requi-irirerits. airndas uar-IItheir rniforrir its iinicerh nationral standsardis is, sonersirat lionmcid. Reflecting tire transition friorn a seiriallsv planrried to a rmarketes-s,nriry. tire Clrirrr- acs-Luirirtrg pri ,rsdriee, airs starilarsie are still cunnIing. With regardl tOidilslrie rr-sirirMerlit, Certainl rrlirrirrLrrrrstaisdards liars to Fir nut to ire listend sir etoick es-harigee. Fire brrndr is ,tie he
riarket., inny Inn rati rg ag-weriis-CRISIL iCredlit Ratinig irforrmrationiScmrns sif Indria Lirritredi anncRANI of Nlalay-sia--iiae rcer urirfitable, hiile ih, Pihilrippinie ratring aigeirce11:11111 pretel ite fir't year- of profit. ini 1994 aftre being iii esisterrec fire nIOrcluaul a-ricadlr-
pirospec-tuisrcriLriferieicrtensurles that arlerulLateirifrirrialioni is,di-lediiss to tire artiket.
rtig -isting eating argerrieis arnr a,1i- in rg econorirrrisOI sr-air 1), pinning r-esrcrses, both hrrraniann a Iflranrir-al.
Comipetition. Aitir tlire -septioir of Klera. crnrermgri East A,ianrruarketehair sirk uric ratinig agerri ii riperartiorn.Acrrrrpefiti,e rriloiriiirrrit inl tire rating inisd-sir s-ill hieir ensure ioijer-tire ratings and elirinirate recntsekirig. Hir,i,re i this nra. nut be prarstic-algiveri tire eizc sif Ires- nrrar1kete.li Ilre abencrieofi air aiicriatc arrirbier of i-elicr annl irisesrir. [tir rrril-ailiorr if rating agerir-ice riill nut ire icie-effe,-tire. The,rermuistalso Ireenough riualifiedi rating anralystsa I inure,prorfsei...irialstaff in Lhr Ilisal labor mrioketto eriplir Inurloethan run- r.rinrg agerics. Gurul three liririatirsir rnd tire costsa,,( esrut,rd ii h estabrlishirirg rating ageirr-ire. Orrrs e ,ir-rgiurgoriarkete irirds for,ustheir atteritiru. at liri stage, inirstregthe-i
Howricc. ilr 'i-riirtric" sith iiiati rrcn rapidli' genii ig isrnd imarkets.ires rartirrgagencieseold bi le esiciurrageh.
Pniulential Reguliationse. Bond esriere imurstire consinisesdthat ribtairririg a ratisg ii ll pr- idc a(--es, li a wider iris-stri Irae fo,iire itueriurities and lielli resduce the isit Of ierring dieht. Tire Urritesi States iris prnseleitia regtilaririrs goreerririg tire rurralitr of irns-trrrrrt of'asuch inisitatioirr as,biarks. irrsrmar- crnrrparni-e.andi sasiruge ann( loan assorialirori. Therscregurlatioirr liar-c
Mandlatorx Ratings. Feoraia iirarkt du...clohprrrert icr.sper-hui. rranrrator-yeuatirigsi-air hrchpjurnp start the eatrig ilidoetre. espes-iall, iimnaikssirdc emriarrdfoe iredit ratin,gs is iow. Hir-scre, riraindiatrr ratirige, iraN dis,eOrrirug is-ncr- fe..rirn raising furrid, ili deit iriarkete. lii
25
Malaysia. the ceritral bank ruled that all public debt securities rnust bh cated, and in Thailaid, the SEC has iistituted a requirement that all Lliusecurevidebt must be raled. Indonesia adoptel a similar regulation in 1994. Experience in Malaysia anid Thailanid suggests that manidaltory-atiuigscail help the ra(itig inldtiltr anrld contribute to the growth of bind markets. Howeser. it is essenitial that ratirg agenrciesfurther develop threir rating techiuiquiesand traini their staff to gain the aceeptance of niuarketparticipants.
agencies to establish a regionial ratinig company. Such a company cil(ld brridge the gap by rating cross-border isslies or offer second opinions (in the ratinlgs of a rational ageicy. Also. in countries where the brind markets are tlhin. establishing a local ratilng agency may uil be economitciial. Regiunial ageii ies an uitigalt the issue of lack of breadth arid depth in national hbird miarket, and achiese ermmirorniesif scale it improvi ig the quiality anid efficienry of ratings. DERIVATIVES
Rating Stanidards. It is geirerally per,eived that ratlig processes and tIre analyses of emerging market ratiig ageicies are riot as rigorouIs as those of their interniatiounial counterparts. The lack of highly trained professional anialysts. ilte absence of riniforrii acciruntirig airnl disclosrure requcirements. aord the ability of ani agency to function as an iuidependenit entity free from political influence all conitribute to this criticism. A particular isuLe is that ageircies rate some domiiestic corporations above the crriiuitrs's sovereign risk liiiiit. i'he indlow of foreign inve,stimentcan hell) increase tIre breadth anli liqujidity of nascent Iornd markets, awim domestic rating agencies can facilitate ihis effort by striving to eain credilbiitsy in the iirternati.rmialareria. Role of Iiistitutional Inivestors. Investors in bond markels tendrl1i be predonoiriarllv irstitutionial. TIre success of tIre credit ratirig indrstry hinges in their demanid for ratings. Iideed, in the United States arid Japaii. tIre emergence of pension fuinds. biisuraice uconlpaniies, anid nuitimal funds hla had a strong positive inipact onm the use of ratiiigs. In East Asia. iistititional iuvestors such as penision funids, contractual sarin(gs institutions, auivlinsuraire companies tend to be ii the public sector A natural tendency for these i trlhuit irs is IHiinvestingovenuirentsecmuilies.Witlitheexpectedichange in their asset allocatioin policies. these institutions are likely to provide a miajor impetus for thierating indlustry. Cross-Border Rating. As the regirn's capital mamkets becioie innre arid imioreintegrated with furtiler liberalizatioii of capital flows. issuers will imirreasingly tap different niarkets of the regiuo in search of low-cost capital and investors will exparid their universe of livestiment opportunities to maximize the returin oii their investments. regardless of ihere the issviers aire based. In such a scenarinoratiiig ageniciesface air additinial challenige rif ratiiig issuers domiiiriled in othmer connries and the imupactof sovereign risk oii their ratings. Credit ralitig on a reciprocal basi Iiay provide an apprnrachis to encourage niatiolial alternative. Anuothrer
26
In Easl Asia, tIe iarket lo il derivative instmrumeritsha. been uirsnily linited to crmmrdities. The development of crrniinidityfutures rirarkets was a ilatLiral piogressiur in East Asia. giveir the legion's abundance in cormnidities suich as iopra. palmr oil. amidrice. Fiianicial ftitures have onli reiseuity begun to coolse airvl are dovlmiiiatel by foreigii exchange future criittracts. Thie open capital acirrunts ini iiarny East Asiaii iouitnries havefistered active foreigi exchange irarkets ariminecessitated the dexelopumenit (f i urienicy futires in recent years in response to iucreasing demianidfor effective risk maniagemeit produicts. The rapid grwth in FOIIEX futuiieu can he. in part. attributed to funid mianage rs whi rise derivative instruimnits such as filutre s ariil iptions to gaiui access lo these countries without exposure to ilhe underlying financial assets. A recent Leinian Brother,' survey' of iiistitntioinal investorsindicated tilha ctirren-- orietedil derivatives are used Iy nmostirislitutiouural iuvestors with exposiure it East Asia. Although Hong Kiong Sligapore, Malaysia, the Philippines. and China all have ftitures exchanges, active tradling has seen conifinred toi Singapre's SIMEX--Singapore iiternational MlonelavExchange (see Bvx 2.2). Chila's dolmestic miarket in treasury bond future, grew srubstuantirllyin 1995. The deielopmeint (ofinterest rate futures aird swap markets hias been relatively slow dlie tn tie fact that the uinderlying fixed imcmume niarkets are inl developmeirtal stages arid a5s smch are riot active enough to simpport derivatises market. However. given Irie rapid pace of grith experieicevd by lie regionr's houndmarkets over 1 the past five years. airy the expected acceleratioir in grout h of these nmarketsover the, next decade. interest rate-luiked derinalive instruamentswill soon follow. The Lehnumaui BHrrther,' stuidy alsr shoised that insestors are i ncreasinigly becomiinginterested in iuiterest rate swaps. For example. hrvestIierit managers indicriled a fivefold surge in tineir intemtiun tin LIseinterest rate swaps. Also,
the low corTelatioli betweenEast Asian iiiterest rate rolntractsand the niajor interest rote contracts in lie Uniterd States anid lie United Kingdomii has helped ilicrease foreigin inleret in th-eseproducts. rTA\ATIO
Box 2.2: SingaporeInternational Monetary Exchange (SIMEX) diat iI Is-
>t.ltt.-p-
N
"cit
tI ri ;,
loath-
iI
1h-1-oll t
5.c-,-ttelit,
iiiil-IhIIt altt lit t
J
ticltic
"ictojSNn iFr
I
t fintiit-t allithun t..... ttiitti,. s SittiliFi,.,-cu .t1at4 The fiscal regine--taxet anidl relaled tIharges suoh at Il,e -. pl t-[ tctt li-k li:tiiigiisciit sci t it to stanims dut anid registratiion feet-lcon islently ranks as Iioiitttitttit. Tillta t .t. iltiittd 1i iltig li.- Ioia priority soUofor eluergilug snd market participanits. lit 1.it-agoNle atutiltEstisige itti sitiii i]ttcsict shalt A recent tuo-ev tf foreign iulftiiltilnlal ilirettr . liii tittirt itrll-lcl iil i ii tttt hllisit t approlachesto these rliarkels plaoes taxatioil with rilarcol 1 t98ltidiiigliA-fdllri o iiiicglitl th lieIh tiilltgc tilt el0oilolic/ClArreilrxy siod interest rate/sieiLl rctnideratio.ns Mli tl s Ni- i.ltlei. tt. hi N lt s, l EI-N t cit-it as a decitse eleinent in decitsitinitaking. A 1992 Wiorld Of-,,.[ Stil ..... . .. I l t tI - tint. ti-n- .lillt1 ad Bank working paper idelntified withhiildilg tax leeljs as Etc tdi, iia18Lt illttd rittit ext tutuic itt,ititit b8L ,l 11,r a ilnajor barrier to portfolitt alos-altiltl reluiring ilncreates littititlait-it l i, aticii Ic 1t, 1tt, hitr. gi t,ig 1lit s1it -tt in pretax rales of returil to be profitable. Colnpliraling t it lt hL c 8 i.t,Ltdtg Itttrt. IitiL t 1-ftith the tax anialvsis are difereulles in treatmelits f re-litic .i..... ci cutrit-ighi rik tutu ipt- itti cut-t-liti ii deitte ans inon-residenis, ilnstitutitnits ali d indidual rt-tsut ttttt litit tt-,. treaSUlrY alind coilporate inlttirlielis. aIlid iltitrest and ti .. tth .... t.i tgli .. ilt.rgIl iltlt itrc.tr a hilt lu-tilBu capital gains. Disparities betlteeln dehitanid equitt ithIxi ,It lit - 1i e . 1,t tilild , ,, -I.III;hut 24 Ithildilig infWense tIle broad ralige of secrities chaises. liii itiltiu l )9t I iRt--c It. as do ilterliatioilal acsrird.s a hict proidle fttr relief against dtLible taxatioll. Corporate taxatioll rail also weigh heasily iltrading arlisily, aoil limited dtediiltibilBox Figure 1: Trading Activity on the SIMEX itt ltan raise tIle cost tf caryHing mondportfoliots. (Millions of Contracts) aicgicits
F
EmergingMarketsTrends
25
A timpalisoln bs Iregiotl of a ithihtolsdingrates on literest. disilends. alnd capital gains ser Lliepast fise vears
2
showsthat thieyhale fallenl iii Asia an1del.ewherelIt authorities
nl11e to silllulate
seurities
taLtisities.
Witll
the market bsodi Iiirilig tlhis period. a supplv-side t)Ipe effect has oc-rurred. with lower rates generatinig increa-ed reselnilue. HIloes%er. buddet dsefirils ill seeral colritliets Ialrl gri cIIronilnielistlrsalel). aoich sith finanlcial
ins
titulion, tNpitai
couletitiltinig
IS
-
-
L
10
a large pail
of the tax baxe. new types of tralisactilln taxes have 5 breul iltrodtdIed to raise revense anld so cirporate tax _ obligations fitr selonldar) nadilig ha1e oftenl-eiaiie 0|n_nd_ -tiff' Thev also hale beeli topLe telllpordri1v *urb stiff. besl Tierplilpoell to tluiptirails inch1985 1988 0i5i 1liar roptlal linlo.st which linterfere witli nilolietarl andt exchalige rate polhiy by placilig upwarl pressure on 5us-- It-osisit -tthtiulsfstsoshttcc. currencies
aild
-xspalldiing noney
1994
uppksl. 1
Steep capital gailns taxes designed lo diss-Larage specillatioln hlae leen slashed dilrilig the period as theN
tI....
tended to slifle seciuritiet activity generallv and sa,-ted wideIy friisi interest anid dividend itithhcilding. The
Nikkrt-225 au-k lot-hit. Ntkkei-: it s-k tili ylcc-rllut lItG .. l....... -iitl FPt ILgil. l'tll-iii-
diiergenle was especiall1
pronounilced for foreignl tax treatlies an Usually only claimi doiiestic credit fur tle latter tax pa nuents. imlsest lIs
wcho utlder
Ii
iilihidc
,il. ga.,I.
doLible
i
titt.
IS
27
li
itrce.-.l.ltti. ih
l
51St :IS:A li.g iti
iiictl, i
isttllt
Fk...g .
I.t.-.lt.-ht-l.ark.
li
iti ll/cO l iI tsri lucclultlii li
.i..... tiltst
E,Ul,d,dlI
i.,-k hiuttci,,, I o l's,'i'tt-
iiI
Itit lih liii
F\ 1()fIat - 1 ttli tilt
Table 2.10: WithholdingTax for US-Based Institutional Investors
Indonesia. Willilolslirig lax is 15 percent for local investors, soild raiges firo () to 20 percent for foreigin-
era depending oni bilateral tLeaties. Fir US-based 1988 11993 t.8 tl0 12.9 12.1 20.(0 20.11 0.0 201.0 15.0 11 t
holsolesia K,ea Motarsia P1`1611bc. Tt d
L,r,g-rss.ip.i... L.... pa, ... .s,.s,
11088 I((3 35.0 15.0 16.1 IS0 4101.1 (1.1 5.0 25.0 25.01 1(.1-
11t88 35.1 1.1 0t.0 1.11 01.3 12.5
10c99 0.
t (Iio 0.t I' Tb.'
Goseromeotpaper-SBI arid state agely iloids-is riot subjectto stailiij dIirtv ar]Id COTmmIiSSiOn,Ilnt regis-
1i,L,i tEl siaLast. k.oe,gis'
585
Sit
ii erlors [he raleis 15 percent. and(ifor thoseIbased in co(triesw alldilebile tax iiirdsinclitiig Atustia. Belgiarn. Canada, Fi,nla-l. Frmame,GermanYs. iidia, Japain. tire Neliberlamiss.Singapore, Sooalt Korea, aird Thailand-the birden ailbe frtlher redused.with the late tir UK noeslotors for exaiiiple. beiig 10 perceot.
Q54.
The shill triwarr greater uniformitvy in Ireatniierit if se-rrrities reflects aii eolhirg oriseniss ariroing iiivestorsallilpsl icmnakers alike for pani s to Ire extent possible in all fiinarlwial assets.ilrlialidg lbaokrleproits aid ri rriiiiiier-ial paaper,to mrlinilize norion-onrinii ercial distitrtii-s. It has allereri patterns cited ri tire 199)2 World Bank sirses ii rshihcapilal gains le-fs Ir a%elragge ere'ri higherthair rtller levies.
lered ciorporates iraile onrthe er(hanlge inLmstray a levs iif ().8 pier,eIt of transacrtioin lalile, Wil: a ceiling of I pelonl ietollbloea-il-rllblkerage charge.Bearer debenirice aridOT issueesLae exemip fro tilheassessment.
"I'le slatLaSof zerio ouiponiilnstrainelts las received c frili,tirng rninigs. linitialy the, were thougit lti escape wilihhldilgerelitrel.hlut recenitbI.rif(iatio Iiii iis reaten]gaiis asLtaxable interexs. CrOufusirn s temsIeroin tlie alireiice if capital gails tax at t[ie sotirce. Pre-miiiNsi hlocalilaeslrrrs hld ti pbara self-assessed 35 Clarificationr aird sirltpificatiorn lhaie also beei rajijiir percenitcapital gains lev vn stscks arid bondils whuh lbjeclties as urlielrlailurt, riiiltiire lrlin>gs. aiidI flewas ishlel aoinilesd thirorigl lruiasactionswilh foreign rIiiellI hiairgev hIa-Leo led as disi reirlics th erigage-rr tiierprarls nil liable for lie ia,. New regtilatioirs rreiil aiid pray,lieireilro -nenurt. Ad lis, bellinld-tihe- aibl ishi ira1pitrl gaiirs lx dorroe t1 blil l i111 Oltsibigi cr0ipsri 1 .- nes leterIiiiatioiir is gradsiialls being replacedl il i ririrrie rirar le taxes biriii heIevily thanrl epirsit trarlspareint
sirlaiiied
vLsirnmuillnrits
iilh
firaur-e
rirsircoe.
milrl-
Fixei-reliriri
i
ross-cirrnci
I
irterest
rLite
istines aud ceintral baiks rdllishirig rri lisxerd i raiatig reieiirl mi-eilars fur [he first time. These hlialiges have been acrompaiei [r rioi.alizaltio. If papriork 1 ards filing rerIirrmdre|ii s. ariI the reatirii Ibi lf iriels, 1 fir appeali anid cbil plaiiiI. hr se-errb irises.X-
V
0
tC
'
a
,E
=
9.E- u-cc
_C_-
,,S
r;rSEz
~ ~
-
,
L_V-
V
v~~~
.~~~~~~~~~~~~
't
~~-aA ~' ~w ;V
V~
V
_
xt
cc
'E
L
C -
V
_;
Vt
C
ENDNOTES
ExecutiveSummary I DeJi/-d to jarho/es hiia, 2
3 A
Hong Kong. l/oIc,/a. Korea. (oh, Cia. Phi/ippinei. Soigap-r. and Thaaild. Th d i -sla/ao bea-e ron --nd b-od o oi -arhet ioieais '.en/Ii-deireni/ned h- die /rogth ofooiiaritoofinoirosaeo'.. Debt asi-oa-it iihents noiteitii f/sin i/ahn one .r...ace t -,d// dlfine-l an1otoilci nicrk otin tent. ahih Ihtt/ inh loa-ge-n,-ia e ace refrend to) an otriocr t,,osda(i.e.. co¢t. 'oar¢cink debt iiiitrneiiietils. Capitol atrkloe/st i/ t siiilct,neiii,Ice n,lrnio//i- uzidainici ija cit/tee toalds r 'le¢peaihogon thel ghw/r/ragt oottosi ttYIaredebin t'aoieao, il/i i'Oasis ofs ac in '¢liseiaeor. a-Jade LZIhool ars h'o geeooateita-s. In a/re..ed heto, -lt -laias of l o/ittii arrei .,, i-irltent hbaisniati..itie.i f/ ri- than antr di oai I'icr a....i eiergiiig tool li 1 to as boit,!, 71o-er/fi-, au/eu apeii oili a t /h ie(Adioi doe. no t di,tmkiit-ti,nb,et- e e an, i toad.'. Knind a.r' b/i. E-5 4.A i/ a',-dthe PaJift. Iairatiea4 in daira.iteaiiar Pnit TeenarraB Fatoer f/rgee9Boo-o. Bi,e/ Boat. /V4d. Th,til-and.Soe,,t Searidn en, I,ia,ooial i/its p22. Leeo,t,-r 1994.
i5 Ia A/led l Vt. bheRTC(,inn..al-r.../ hnsi oe lii.oiiag nroias ooipanie. ,cani-r is Thai/al,d: I1i-e-,tatg Pchate Sect", and /lit(lo'ilig Irii,patinE¢i f/ear in Silte EnterprBe/i 9.WrsdR,ik. 7 Th, E ... ,nii,- : Sit-r, o! -I5h Fio,,,n' oira6tn 12. IV9f1. Ir rns i......... (a Sat/il E-a (it.in,hide,d a Frainr Ark foer loactitr Stt/ilti, Pa/ty Ioara a/d 8 Crocing R.GB.-RefJoen of lI,riri C-w- t F /lei-es. -i .. (Ed/ Ba/ins. 7: -l C,,tiar./li. (C. IPri,i,a,aAia b/aorte, P/md, 1iiashiigum. IC( 1994: /isng.C.H. M'at,et-/la-d8 .1siinne/' I,,ietri C,,itt-,if i, D-/rir/amg C (Ipecma p,t -ie.:g Pan-eda, afd Rehi-ed /ao,r ktiag (a/ipe VII. 40. fieeaaio/ 1 P /Ioret O (iottafd P I,s r io, oar/of R Afrais -Ippn-beh-e. Il-r-iri FLn,d. Io,/hiaV, n. Di. /la/: Jsdbn',,n. RB. ,,a,Iee/b h,ce,t aIo/ fr-/FI-ritadil cif-D pihiot j,o it 1 it 911. p. iit
Chapter
I
KOH; IRs M/,/'ii/': /IS;: the Ph/ipp/ie,s PHL; Siiigqpu-es SCM" I/f/i-nd 1,iH-,,d,r: C¢hi-: CH/V (bumgKh,g: Hhl.:Cbhd'u- : ID.V: Ke; nIl To,it-and: TH4. 2 rh, E-K,ooiois: Si-r, ifAIihi Faia e. Vo-r-itec 12. 199l. 1 d3 .-hiooidncg Hp/id D,s,-c/'lsil it in Lust -tlt in tIl h,e P, idie. grloeil B-rk( /ii3a -I La-/ac,; La/i.Eso -I I/nd the Pa,Jw: fIr .ni i....i in lot cairs-P-at ro Treads and LItoe Reqoicenirat,. torl/ B,k. 1994. i Shillbg. John and i .ann ./top iioiigiog Cfaptto/ Ltoi Pas,A,i. BiuntI Bat. / .945 bh Iliaiiiils Inl-eliaiig iii S el ul -i,pti"li dImpni ig F.tfi-hh i8 '(lair Eiiipior.B,irl,/Botk. I
Chapter 2 IJlhl,n , o-iiield er/a r. .4h-e eh,., uaiai,ua a] In Idsi ,oahe,'- in orbhi/its right host -1siiin -e-ie-'m hi ,, iod ifteirna -Vtigli_. J. The Role 'if the Straira Pbnomnt/ (laitea Too ePripdgs if be /id,hl Boatk -la, lI Coiifccae', I/ri e LuaF oiri. oe/ld HRank.199.1. 3 I ahd SoocoJii,pa. inoahl,. Fa,,,on I I'dAi, ,gdoou.f.i 0-0.&g/io 'ether/a Jde nn a,hSais-:rflaai Saiaeo. Sfii losirab. Ao-icii. .Vic Fai /ii/ 1, Prlogarl I/el,/. IluuNi- Z-,/-nd. A Co-irarita/l iaiiilg sre 0 d/fi/d,a i/ iidc,i-atrlr p-iii-ii/siiifiiiiti. li i e Co -it apaniei. -... .. .ii/H aerit-ihi 'iga/taiti. til R,inoI/r/r /iiii/ Ciii. n-t/on-Vm BroiBeh- 'e Ihe. .5 Beaa,hles RBine.R JJoaBigI a'ih TishI R,d. (IWaehs /OilA I phe. /oehrni Seistehri. 6 -sot, Fenk J nI MPYdork.IcC/g 1/. The H-Andtk ,/aFi-ed/ Is 0 1 / ea,il d Hi i m 7 h,i/i V/in d Stsit. h/le ,, ifpia/isocin oes esitt/ired; liB iniii:/ ihh the i/oe ,ufrsgh,irni i iif.s..rie. tot orniation in-s,ne aeoeai ,/i'oee. Jo In geoa'-iIh in/irrl ,Ihi/.iar ne%iees that ifte negoioi ioa -aa,'oroi' iaati in ei,i/in-a/ fngroteni e cegoicant ao,l reaha -a-e roh tod-r,.I1ols nI l t 1 ha,n,rabeei) anil nd-- fia0nr-iol i,,firc i-h'n. .... ealungibrtaoineha .f-i-irs (ii fie-io i/t'repiiei,: (ii) p ,ciio h it,/ti,iii iii) tle -c,-i,eii/es onil EL- lE,I ge i/rae i./' o f ouiiiiiiiiio.ill,aoronene, dIi 1 ralner -s: (uifeil,sil" ccliog /iti;i/ies 8 I-n.,iiiaini-l h-vs-,r Rc1iiiri i.liaiosPa /ir /995. Lch,,-i,n Brih-en. 1 2
134
Chapter 3 I
C,happe. The.. If.. .,nd Athin, lkal,,,,. -Htgii/nii.i.i. 'i.. irii' /abe Sni BiR It Tr-ni . ...Id Thei- nintni i negn il kln/,s " WPS 8681.la/ B-nk. Ji -isie /892. Cr-epan 4hiii, C/ininiii athBor 'If Ciii - -ac i/if ShFedeisi,,Pise, ,eii Rciiib bfire, lsnkh A~ n Iia C-isfcreaikth Iaenei,is)g -niaian' qScirnc C,-i,ansini lInbaii ):S'tn 24. 1881. A In hr I iii-d Sines,,/sr rsIinid si,ideSecs 2(1/itt/i" S" li 4ntie I/ 113 .......i idcj/-ii/ .. '. i .... ute...stak.seaa kGi b.kasIs, dIr-e -ac. -cdec Ii ialctdni, b til a''4iitrit-/-iiapitfiii-iipe/i i/nin grc.....illtrilmiiuit/.ae.pinr giiiiatan'rt/i 'teii ii , sp Iinisif el/c l, i ri',, ti ni"iiiii ,iiiisiieniai,cn/ae'f //ntfri nat,In1 tuna -ida /ititreti ," iiid gi h-,nc rn . .i Iisei .. righlit ii pni. i-l,iini ,Iciliiiii/ri'ei ,im siri.mitfini'i/ l/iit , genimpariic iii 'c - iW Inlam tnhmcci /c.... ir.i. i i teiil..i/cci/. Cbti a, ll icddl, mnin m pni/a mi an -itrd miiiitinii ........... ..nI /igc iliii /-ureguiincni' ,in. i g--sici. itrsieiitinei iin,i/ k,iir ir.i '. rst.....aiiirris'se/tcetrint'/siin .. i, t .ipiei .i'iiciii'tJiie;rriii/c/iiriici/ ...... isirn rig/it ii p-h-kse ant a/ikejwfgig." A Se.niti.. I..r. t in Japan Chapter,b/I, Ircctss'mniiitut'n 4,llA S,,ec.. lln,i i -rtrBeRi,,, Ii/miiti.tii2,p/m 248-257-. 4....nI Rcp,met,S,ccm mr and Entume Csinn .. i .. ... H,,flig Rang. 1994,''ana A... I Hatfln b,n 6 StakA bang" fling king. 1994,' C/sunm Clf 7,0 e. .eabtin .f.....ic.Iarinm Hang Kag. Hang hang. lIQi/ antIS....... .ne'cuIumni/ at rsCanisun''Hang hang. B-scing kiIN ir/ G a t ike`'h-C it i/m Bciiiii C'itr, B"giilatir' subkahp.P--nag. Ialsrss Jiiiiar , l1/i/. i h,'kSFC mafai/e,Idbi he --s'n /ucsutheiu's-su- sIl nta nal - -arnabti g,in fnI ke-,~ gas-e...inent~Fa Int i/ic niiit/eiii 2
~
h I Ik''nii bunmirbe nit fitmr' .... s' it.. ...... s... nt. 'i /0.0/hi pen. 'i,' .. iiii 1 1 ) I//t/uec/i-rmista -1 f -e'n't/h-gesmiei ci perJi-cn dchl/hi/afaiaic.i. iie.. is. i/J..i-ii/i/aigr'laIn -'cia /iriciibi -f i/i erglai dc.uu/ .... lc,ih i-din.....a'e d.ain.i.... , .. kIti G NEC. 7 Ia-ei St Ac Eiuans' h-, a-ul ,,, 1s.rrsartnm" 9t'2,pq' 5-12,,aiii 0Ii i Ckhmppc,,I,. -i., p/i 2k-2S 8 Tke 1 Q68 baa a Etein ih, Cap,it,al.Iiirkc is ra,' dIciti -,runmus di l 1ae 'f,hbe maita irktk -,cargngaqani i gi pu,s smm aiiumnepu'iauismi idi'tlmuecI,ri mum ,k nmAime. //Iriiic p-i st lie,mme fiuuc .lelit .mm...paie ,te h1/m SEC m''ia'r' -Iiiiem''uuiipmm e"um in Igii usm int. ithccr,'.c"aiiiici/ /'iie gi'pi/m.ise:Eci KSt'ikb hsm/ige, pm'P.p 7,.I 7h.lka i/a' b '.irte ..... I' Bcgalisu. Beafing /--'eisad bih aair P'ijuka........ un ............ u.rucium d s kan-ge Cuuaiss fua T/iis It ih/,ik ergma'mIBRgm/umuu/Ii'ebb'p, P....ismg. /Inus suit .. t.i.incs a 19/G. /8 The-Sc-a-rsFciag 4Taia'-msmk Tkn~ilnaib/ ni4,/Ap I 5i /1 .'iT.-/QS/ma--t'c ak/c. in /aIinni....... ani/,i .nanii ire i/ac...thtk bibs/anac at .....naacuni nct.....f-'r'ack- h.a air-.
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rcgiinid nii- i Sknngkh,in be glem I' bi nkIiig at h tket tmcuJ'ibc -.d.i'/h'anipmncd 'if i/m tim nsse .ihkngk ha ikSkh-gbi h, B-,ii k at tb, P-apb,s'B-ank Ch Ilm ih,t S/i-gkii I'b-nnmg C I ,,i,tci.ii h Ib',,,i i/r- miru"Itb, S/'ingbiii /.mnnuiinu tic-ten.ie.smiga Barna 'ke h Inmmr iii PIann-, ike 11-n-cpa14,l'a/tup be .bagk'uu Enesga In" hBrea /.,n-n nu .. . I..... i/nil I/b Off 1 Jm t ikhmeIme'r- 'u/ he,tfi//l c / ih, ........ iuu. Dp/'it Sc G...i..i.CIieeah/ik$i i i/nil 1S..t... uranus.i -hc fi,nbb-ime Is t, 'ml ike 1 Skiing/si Bean' k i tke 'sute, 4-'s Ifnnup'au Bir, i-,. I' MIn ik -ni -iai/ nai...n... cI Irse bus Ikun- i Jl, li/i/ Ih-np-n baaiiitiin prai ' inn hb n .Inill sii/b i ccli ca ciis tst- e Fci-i ,iinic the Cisp-is /'iia 'tmic t/iidil sh......si.... .. Ik /-h, m/mhm. -i'n hi s/ unit,ccieteiinl ''e/ i ii ii.The I.is ,Is I 1,/ra i hicitit nddtitisi i.ni ussu ...... ke oult'rc,di '/ , It is .s.... uu liii keen cIfitmblime fi/ic i/iee /icniIii... run.. a i len- nic kaanbp-c n-i th, /ni-be, h/ng IA5 Nc- /iC''e ,8/nin ant - An )i/, "]'n"bie n cirte lIAn si" nnki Jiiin latthril /tunss Illd. rkGk, 'so. 2, S--inte 8 li/i/. pp 1,1.-12I, ad! Ik ,eumngI/ru "Tk, /C6RCiin,d Ch-nm'sam A I-kirbet- /ChunsrNccsss tgiidiia......... s Beijing. C,iii 4/irs 25, 1084. 1 /8 The -c gt-enuines-tml n -sb Ah "I in capital nine et c,gs/atin kr/nrc the Aiuisi Se iiii-sIanmsinsm sa/sul' l/St 1 tic, Cssp,itii/ Ps.a . ......itt. II nus--i oi Es.i........ the Tibh u ccFiti1 '.In' i/ic-Emreup , /n .... i.si /usu-mite (Prii Ifti.i.iice's Li,pnr- -en); tkc BcssR nr1a] (lsnpat-es tbe lhaiir ... . f' nenitnatTri e,is't/d--tr:a B-ank'seg- Ilaacs / 7 -It the Thi- SEC.'there isasp-ciit Ofi/i -4' tkh SEC thusIinsir p isinin/p-nl-t isgn -iinniih sheg-nen-iecii s barge m/'tk ni -iin..n..i. is.fs. ritt fei//ie /k Ike Pkilippie h,un CapitlIm nsD-i clpnicn Ciuelnaig/-hn-tcmsiru A k EC'in1tin hding the I)prsi tsan-' Bsigk'u, S-n-rn. B...ean. ./ I itcr-I' H...ease. a...id she iff//lie i teIn' m ni Cnnns.sna sssstm itsc -in the pnb/scni-d ke 5 1 P'hdm pmsStick E-c/s-ge -ii EI iEI rcpc..ien..iag she /sIiiecir re .... " i citie .. sisa P-i sign ..... t..iii... FiSt-S em-uih 4-Ia Rcp'in. 1 lkIan., P/'d/pp-nm'. 1994. p. 21 /9 I/-s -gms ,gBri Tke CSR.S isii Chmss' SIn' A/metes,.Ckhu S nte Rcgs,iatn C.i.i..i.. ( iin B. qi.i. C/minim'/pr/ 25, li/ut.
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20 T.letg. J:. and -orkerR. F,,t,,,a I I1eralizotiwi. A le,nn - n -irel d,1 lanrt,irt PIt/ic i-tiAitan Ctttn.ro. ,t/,. 21 Tleng, J. -id CorkerAR. IIJ81. 22 dtitditnirajati. -, UrdA,/k,,L.L F,,it...l R0knn Intld tetare (I t-- l' in Ila,tet. /1110Utying Pttpte V, 118.1,grirttttaw-l Ilttnettir Fond. I -li ,hingtil-DC. 1988. ad tin t ,re/t -lit.pters p-owdeittike audt. 2.3 n//a.I.. IaId Fhathkte.l . RHegti.led D-eeg,d/oi-n of the Fin cd eStiten: Ihe C-e !f Fare,,. t./t. R iJd Hank: Fare,,: Fintinial Se,lay Sttd,. Report Unt.11.17-0K. DJ1993atd The Philippi-,er: kitttitl Ilrk tile. //lolm 1. Repart Nt. /lI(.iJ PlI. /1lti2. 24 C-r/ing H.H. -Ref tttsitf tI`aaet,tt- h1,rtiateta, it .S,,tt Pkni A4,w mil/e, in, I/a/n1,,. T. an.d CitnIli, C.. (edIt) Fant te.ko fie aneta-rt Stakilit, Pd4k Ittr antin ower Etetent. In-ernationAl Ihiitet hio nl. araA gt,tt, tC. /:199: HlOigC(.H I-ia ket-Bw-etd SIte,,,, ,,f lttnet,,rt Cittel Hit Dt,ektptttg C,tttttriet: tiper-tting Pr Inteeo,,,,,/ Relte,t I.t...a. itkittg Paiter \o. 40t. MIttettti,,It/ il,ntrc Fontd. I)t.. 190/: Jaltittt1,,, RBH.a,ld Rn-kk. T latteta, (.i-n-etl PInt--et/re. and Pi OCiahtngtnn. ua,ti/ Relit,rn,.: 4I1oIraacei. tIt et It Reett,¢tFrpee/n,e- in i ete/ltpmttg,,nI,re. 1991t.op. it. r
Chapter 6 I 2
J8rkl Bank. CIlb,al E ionott*c Jntapet:. -t-noar,1995. Ft hn-/tie.ti-li. MI-eattt,o,iinInfm att,f ittt.r. : P,,,t T-eed,,,-an
3 4 S
Th,itl-td, S-,irl ett drliem-Ia...e. .a.d Oplini. [ecetttke 22. 1/941 4 Th,iil-nd: Iceretidtttg Peit-tite.Sectr, Pai 1 titittiil 1ntpu- *ng Efit ie,ntt The -,n,wtt: S-,y -ectr4 4sian Finonta. Vh tibee 12. 1994.
kir
R
,ynnir,.
tek/dBRtk. 19tt4
St,,e Piwteeltriao JvraldBaik
Annex B I
Slight_. J.. Th, e li1-thm tt titettt F,t,tttCc.al ultirketnl Pr.ttet /t tt atle iigt "e R8,/f U blottattt Litt i-nntettt [leDn ,p,,e, ithin,it. Jrl/ B,,,zk, 1993. 2 4l1t/ia (tt,d J. Jr. Bnen Re lie S n ettries ofthe C-n-nilt-ee RtAnkit,g. Htttoi,Btit,.I, It AjJi,ii. U S S,tla/7, ee/tttlOtt-d in Feettl Re.t.e Rolletn. I 8. V,i. 3 11.are. 192,1: IhlE Inte,nat,n,l Bi. ati'd tail Iloeket,: 1ietel.qni,et,. Penn tecit 1 antI Pndht o g,ldrk E--oaic, and Fi ntotl So-et. athtgia. DC. 1094: Fei4n-l Bereete - Battk eoI);,k. Adntial i-tn ,f Re/ltiti,thi,p Jirh Pe,,amAettlrtA1tpp-dit lt. E fti t,, i Ht .. .... t. le et.h . te.. et tit/to Ieet (fthttgitt. DC, 19tt2i. 3 /111F hu,-er ,tiaal d Capital l Inte WIarke I: V "l,jenl. and ,eeto Pal/i,t- r . 1994. op .it. I ..-.. An hi. E.. Japa.ne.r .etrieiro IItiket. EanaBatne: Rattk,. 19tO Jo/an Setiritito R,e,ran h btraite. titte M,IIarker i Jqtp-. 1002. l/F Int-titiH,ttdl Capital llrket MI 1994. . ctt: AF nre.R9 4t, Me I itIttlx ittttairtt, ttfPitte Areerniient i tiritter llarket, -m ISSeie,te Ila-ket: The Set h - -I,oesr..e. .. /,ll. 1. Chicago. 1003. Il)E( .' St ttco Infl Cia Oi .. etinten / l,,,-t,an toEFlI ttatieti --. Fi n l ltieke, Teet ,...:/B94: 4li,,,,FI-IIF aiteenai l C tI tital 1lti-kea: 0-e,pe/tr,ttw. Prtttl I adPa l ir Rttl ti ,P---ti-. ..... I ,n,CSn_eSl.1,. Jutikigron. tIC. Seltetle l1994. 0 IlEtClA op. it. 7Z I/FI tat 6,peina,n,l iqattil larke-, 10994.op,. -it. 8 Rep,-el,h -,e tigreeti-en-ener tettr i1iii l- ih tlc . the ,r,le u/ legt..erntt.ietttitt.. hlt od u ti t1,,b-ighIt tIetn kttk 1titt,t .ttil ,g-tai fi[tore tmtat ,intWIt/e-Renereptirckt,etgI eet- et -areIt tg Ftena i ,/, A t t-e/liapte 1igi t gre-d/iiitJie t..ie.. lI 9
Ja,nt Repteta a the
artnen --
Setiaeltira ! elAr-k,. Ilepant-en
f/ the Pe/redl Retreed.. S eni. Inhtttgittt
tJ'
Tee,,,r n Sy,-inttuand-
D(.. 1992.
-I,te,/,Stig,,tt,. /e,,,,,,,l. Illin-ii
i
Ct,t,i,ti. Cang
and Batrl nfGCtee-ntt
the Te,,/: t)tereett ,1d Cleating B A,,tk k1-,eett,t , it hti430: 1/1E hI-,ternenat/, Cttltttttl llteketa. 1994. op ii.
4-fr
lltttte
-,1 ,-,JIketiiHrynen Seetteitiet ttto-J,ttt-Ietnttt, I 10 1 Cl-eC /,t S.A. Thle Ftintpeon Rnd I-lrketr np,ttil. I Iya1-t. The )ea B-d, 1It,lett. CSFB Rean- th,. CSetdilStit,e. Frit Bvatt,m 19B7: Sectiritie,i,, it, Ja/tan. J,,/,fi,, Settreitet Retette, miee /992. 1t9itiite. /2 It Lto1n. .A. The Eo-tpeati Rta IlMArk tpD. p,. 1.3 P,,bli, S,- lri,i,, 4,,,,, flid h,dilz i,d,lll qfJ 11.,,i,ip,,l B lI, 9-ehiutgtl D(:. 1999. /4 Hi, I,nrd. 'The, e, B,att llarkirt .''- CSFRB'lr RO,an h. C-eeli, Ca/ar. Pir.t BR,to. . i...-e.N,, 1007. 15 .ll-ka,. S.F.: Ihe l-tropltn B,,t,, I 1903. tp. til. Iiket. It, Phmn,/an, l tdipti/ it,l,ol B Mtdi.P,lu S-,tttr,i At c/t,it, 17 F-rp. E.J:, d Kttikr. 4. I7he Jt,t....et. Capttettre Bo-td llti
ruthtttgttti. D19.. 1QI. -i,d,d/,le, ,,et it, Fta-i.
PJ. fd. The Japtittete H,,n,B d lnyke,. Pe,W
Pikhah,ht,g Cttn'tattt.Chittgi. 1990 . 18 P/hti.
K. a,nd lld
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F ilaog,ige.tint/ I-,,og,ape B- ked Settiettiet Hann-an-W.iea
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P1ililitOa,.1993. F-er1-fifil
Bao,k fior Il--it-,total
4--ilo/
1989). Choogeo
of Sotanti,.
HY
Market. Some Beet
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t
Ce-t-el
BRoo- . dn-lef-/et
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li
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Idtioeiof Cotittteti-:
Iit.ittiteoto
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Peoiedtieei
Belh-f-aittlier.C. (
C..l/ipg
The K. CoK-eeooeo Roo,.d l.r-et. CSFBRt.e.....h
91 2
B--avide-. Bii-ario. saloonio, Bent/tot-.-
Hoo- BRg 1t the
Wield
I joie.
Io,ti ll-ir--t•-1994
f te,ttitto ..
Bflorid .- akeet
Neic lrkA: A-lafc.t.
odfMitttettt Iliitrtteit-, "Ii Sou'thl Eat A,ia.' h, T. Balitto ar,d C. Cot-arelli. etlo..EReaoetoii.f-i h4t, Phid-i I md roaotet Etpeeteocro XI/i/itpit. Dl. Itritational Mont-tan Ftitwrl.
R.C.B 19)94. Biftritto
ffioe tliotetir
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Ch-ante,Chiftrl. 19t4. Broitaton of S--In-iNl, M,arkeo,iii Htitg Ki,iit. Hliig Kiirtp. ChL-g. H.. rd. 1I988. Wl-ieta-ŽPohic to Pcqfic BRoio, Coit-t,et. B,tto: Elit-er Ac-atIt-toi Plblither,. 1 ChI, N.J.. oi-d . Kltatkhlt. 1988. Lettoooof Fioatcii Li Pa1 er-N,.5(1. Wa0oluiptoti.DC.
ziea/iotwii lo A-ua: 4 Ctiiop-ueiutie Siu,d,: \no,/l Ban-kDi.aa.io....
Clta/tpp. Tern MI..fhugh R. Hao-th, attd Mart,inWtkn,o. FaIl 198i). ClIthal Fitte: f
lithe Fatitre.". C(;/o0f-ofi,-u
J
Ciase,. Co--lnrtuieo
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I T -ipprNI., IHakghR. H-oa-h. atid Mar-iti G. Waikitt. 1/90. PabhI, Pb/lic To-ar., t lIe loeriiattott-l B-ad Market, iii tho 1980l(),.In 4dtte.fi io .... u..t.t/ Planning nat Fut-eetotottog. l 4, Pdrt B. CGreono le. CJoAneeItieii: JAI P-e., 1-tt. i i ttori-. -utd L.i llerImait/ez. 194.z,Mat eoeeiionotuAd,uuattoit-t li Capitl al In/boo; ltit 4-tari Stole. .orld Batik Pit/iin Reo..e.t u g-itip Paper,Nu. 1377. Aool..i.tiuiM.DC.
f>trbt
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VV'ddr B-lk,
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EotL
jetlalthe titttlrod aI-k. Mla 1983. "lie Bliid-brrmik , Tariaitirio
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lTh,
Iliig
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in Cirtoani.
Bank fr- ltitrniiatiiriial
impgM.,ne Mar-kI l. h The [oner Market fM-
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i
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;ill- 0l. R.A. Feli,isra 1985. IplietatimgPI St. L i,,. oldo.tei1. M lTeit. Dad d Vol kerol-Lalrin.
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Cierirt
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Ii,i,ild Siteu Sertati. i,, i, u iripia-
9
nit8 . Briefinmg at tlte Region,alR,egl[ai-
Ree,riro/ ThieF
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/ C,piltn
tii i, nd ,i, Pii iiiiil S-mors. iViteratinnal Miietoei
CoieenineotSeetmeitienluo1I 989.3. Sepirnilir asliiiigini. L(DC.
of IloK
lle,rkert: Get elopoe nt. Pe ,.,peI, n-d
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11)85.I L n.,e of
Hder enene -l Rook if
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..o...
11G. DColiitrtii. Rrprootii 1 r
)9-258.991Qtl C rigre
Inlot Sroii
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S. I le'. ti9911C.riit',.o.
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I
Oltl, Anirrorl llriiifrr',er
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lIrgat-ia
iF
Mmg Lung Miortari Antl,nrit. 1')')4.AlnittmnlfeR iret. I lng Knit,. lung Knt MNintora A rtl,iily. 1')')4. Ceninl [lone , Illo-ker ft, .SeUiu n. I-.log Lig. li,,lg K,,otgStin,kF-lhtaige. 19')4.Anor...dReport.Hliu,gK.,-g. lrleriuazlwio l Fi-at
l o irmnii,ri. 19')4.ER-trgiog Slurk iTMloeke P-at Ri-ok.Wrunlhii,i,mtn DC.
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i,/irlr Report i/ri (rilmen Iio -n merelit. Il,, ket. lrittnaii 1992. [pepart-rei of lie Tor ujih,. S-,lsi-ittin at orhaigr Cn iioio,n.tnIl tIl R-d o G r-, If Ite derIralRer r S 8aou-irglu DC: t SC--oe it Pririli;g (Offi,r Wtr. Kaa-rim.B. Stiriinei 1992. "A Cf i R>ener, e Rok
o
no1 liel
> "fiii M.miif Ii a;ri Pirlirn tl 1rumatingPnuneil nro im Sir llritnd"rial Ciiri;itrirn.' Perem
trrkJIemerli lfieure
klh.ikhlaiwD).19'2. B.dir., l MWortan urmitrl miSeleeirdlC:nritir-. Minio-gralr. ITheW-rld Haul. B a
nli& ugl n. DC.
Knienian. 1J.T..-d P \a-dl- Bongl.1980. Clh-ng,i M fbc-rmil B-ik Mnnev Ilorkut (Iluer0 titig Iraiertre. ii thr 1981k. Bank fur Silreirtn. F..i....trir Pal- N,. 23. Brinlr. Flteuuuaiinial K-drmurr.KNal. 199)4.toni l-ail. WnaAmli,,igt,. DC.
-liii nd t/e Pririi: /irso Iiieiriit In/inteoet
-Iee
Tr,,d,-/n
Ft-,Hd.i.....ee Re ie
...ieinni. WBrlul
K,arenStork E.rehinge-.Srplrnuke1992.S-euu d. Limo. Ulk-ui,Th n.... .. Jr.198.. TheG;--,eruneotSuourrriie;.i Aft 1 (J. irgee- Mar...o.. 1" iilert C. Prri. Co-I Iiri el.
:'P986:A Uiitrr -eril/ Pemen;-tiu o. N- )Curk:Pra-tieiitg La. lntitne
140
NIjrlri,
NIrri
June 2(1. 94. t- ilerge. f17rtlie Nih lairr C,pi l MikNarieL. Lurir Ie...ii ,(dd-e.e,S -rifeieir--A,i--i C.pIr Ai Nireke,t: GIrIrili Fr.lriIitr. Kieei,rLueipiir iHill-r.
Muir'I. Ailrrir.
Iirt-nrat-rrOI Ci
Ma ire Jairi ' 1')995. Pirnir9l. Ri,le .1diiiiiiiiii;. Virek,l-rp. Hair udraig Hriiei. Perid--g.nrlair. Ma/n. . Mili.l
MIaiavri,irr
ftre
Se.ri[ i tie- irril iiriCi.irii
Miriar .iir.
i/eg-ii
1l
Seh IwiiCri ...r.irrri..ir...
M iir.rl.
ki.air
Se...riri.ie-NMarker.Apriid 14. 1914. PFirer eI'd cii ii
ill
tile
Reguiat-rr
Lirriririri.
1rnosTerrer.irRrrrfr err C-pr-jr fieir F..i..eii.. I Prli/fe /994. I')')4. H n.g K rI,g. Mirriloii...r. D.. Ian BR.D Had, 1994. Initen ain ifirrini NIrireturriFinni. \XaL irnrgl.
Mfil.re.r. (. Grirlii.l"iiI "tiiertIi Firi
,riirSi,
1
hl I-.eri S.K.. i. 1'r193.The Errepeir
I/.i.. i llireki.i. I.ir--agrr:Prili-r P,iril i.irig Ci
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1993. irrir-e.h-rntin Meirria
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I
-nr,eri t irrlitnrtirr
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err Fer-irrige ii
Fi (eINot,, PFrigeraIr.
lire Ih, C irrrr'ie
-ini R [eger
e
iatiir. B6i0ie
.m [larikig. m H .r,rergnrnriL-dir:rrr
g i-recerr1r
irr.i- trtii,dr
-irir ir-.
Nrri:rgieig /Irrr,e.rr Pri/ -
lG- -r-errir-eeri Ser -t-e
r ir- Crritai
-rrdr Shi
Ref-r-iri. Leen
hl
leiri
fri riri
SeB-1, ri
i
Nirker..
r
Freririr LF irerr
Die, erel,,,l.ir)rg 0Iire
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Frir.ir.r.r. -
Bireri
Viririririrfe
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D.Ciirhgtrir (. 1
Rh-ee. Guin, S. 1993. F- ei-irih -re NlI,i ke,t ..I Sr- .. irr-e.rI Ailar Err.r..r.ri. e.. in Eirreegirig Burn ilireet Irrie E- r.. r..... P.rr;: eg.nriiarrtirnrr turnEr...ir i...eri (:i-iee.eriiern irund [D -re1iruprr-r. Frhe R,,(,eri tLe. 50 Slt- r. ir Regiririhini ( 1rr-1e rere e ,.f tire irieir,itiiirdi
rt, e t Irlirr Se, t,, Mirketa. kite. r Sr -lgrrrrrenrihrr ilie. Cnrii.ei...r.r... .. \n-riirrit
Se-liardleS. eI Il. 1993.Re-ciri Er,per re ii Fr-ill. Aa-1 ripl-i . Df..
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SrrIikihrg
riagirr
Se
D., ann irlrr Vrr-rg. I)995.
retar fi)r M
'-eeeiritree.En i
Affair; fir MUietin
--8.erritrc
a..I Fu re -tu l.
.en-( I
R,i.en .. ei
-
Snipe.,
ir i.hi,,
if Hi,rig k.enrg. (irf
t.nieitiri Fl.ir
Ch,--
Fa.rt lleII
PFairr,N.. I ()8.inter-iririlrii
Sr-iri
B.in,k (p,." -
NiiretaA n
-I).
En/h-rr,irefrIeri Br/Ie Pergerre.rr..e.
nirnIr/iriii
. -Ar)r InrnnrerRBeqre.r.Hiring Krming.
ir" Jhiper . 1')')2. (:Iijie
.,f 11
Au.
tie [ire 16i1, Alirirrlli
[i/r) .
Shrenig A,rire, . NMar27, 1994. -DerriiIrircrt ii lie Hk Driiirra LrnIriranr e.eirrr Efirixrerne.t:innler linrlierriti ret [inningRan1,g.
E. _........... . ... I_Fi
iii
ie Fihrlrl pinie;. /1':3. fjirie.....ir.
i-iatnirte . err erriter Hirurn
1e)91. Re.ii
th/e Dir..r.rr.
DCi [)( . .
(fi ,pl/rrl/ruflrrr. C),r-i.irri
H1eergKirrg. JirIre i')')B. /r/,,firder rn
.1 ii Thrnge ilanlarid. B-rrgkrk. Tirliaild.
S7ee rrir I r.n il F"in e C trr
ithr, g iri
m rf tire
tirgnriiDrtbrir
Ir(i N-eenfir- tuneruiting Srr.rigerrieirn.' A -Weirrig falrree02. irtr- rtin,i-A NlirrretanFinnL.
Jiir
. PP-A 10.
ia.
Pir i Reir. -lieri C:. S' pe- r I)r)2. '"lIS lIiiriirerrtinnnr mniri [)err'irr}irrerert \\rirk.iiieir.
Q/irrrrtir
ilrii
Seiieiii
Nlhdihi-nr D-d
Reginialuire. Ahnirk..iirrt. Perrarrg. M1ain
te,. nr r ii h
[1(. D.
g K.-g
i 141
I errr Ir R
NXIVSer
,er1. Nilirrnir. Firinidpiree. tie. Sriihiijrt
Df/.-i Markr.... .Sriarrr/
t/ceenri
tirii
Jipri.
e. in P""/fr
B(ei.rnrBrier..
e...
St.ad, of ihe EJfriizene of ihz Iinplezzzeuiationzfth1e(Izec-zineni S Aczzeili/e i/i qf 1986. O(ctber 1990. Preparedbr the Depar,tmentii Ihe Trrza-izen. Srz dn,I .,riiiea ExchangeG.Lizi-zi,i i. dlh .. lie Bnn.l..nil J;z eiazro(ofthe Federal reeze Seneizi [tam/ig ,li.DC. Szznzlzraeajuzz. V. -lii L. Mci/iz. 1988. 'Fi-zawizal Reinm- -dli Mom-ian Lani, Iizierzzzzluziza MzzizeacFa,dzid. Dzahiugizzi, [( Sir-ey
.I A,ia,i Fi-ai-ze.-
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