Asia nibbles at bond guarantee offer

Asia nibbles at bond guarantee offer

TOKYO (Reuters): Southeast Asia's crisis-hit economies moved a step closer on Wednesday to taking advantage of a Japanese plan to help them regain their credibility on the international bond markets.

Eisuke Sakakibara, Japan's top financial diplomat, was headed to Thailand and Singapore for talks on Tokyo's bond guarantee plan after meeting with Malaysian Prime Minister Mahathir Mohamad, who expressed interest in issuing sovereign debt with partial guarantees from Japan.

Sakakibara's trip will lay the groundwork for the second stage of Japan's implementation of a $30 billion aid package for Asia, named the "Miyazawa Initiative" after Finance Minister Kiichi Miyazawa.

The second stage plan, announced in mid-May at a meeting of Asia-Pacific finance chiefs in Malaysia, seeks to nurture the budding Asia recovery by offering governments partial guarantees to reduce their borrowing costs.

"Prime Minister Mahathir expressed interest in further sovereign bond issues," Sakakibara told reporters. "We are eager to start at any time."

Sakakibara said the talks in Singapore and Thailand would be similar to those with Mahathir.

Further debt guarantees are expected to add a solid cushion of support to the embryonic Asian recovery. Malaysia says its bullish stock market and rising trade surplus are the first signs of a return to economic health.

Sakakibara said working-level talks on the portion of Malaysia's new sovereign debt to be guaranteed by Japan and the currency in which it will be issued could begin after Japan's summer holidays in August.

Malaysia successfully returned to the world capital markets in late May with a $1 billion sovereign bond issue.

Sakakibara said he did not talk to Mahathir about a possible increase in Japan's pledge to provide $2.5 billion in short-term financing to Malaysia under the second stage of the Miyazawa Initiative.

Sakakibara said Mahathir was supportive of Japan's agenda for internationalizing the yen, although there was no discussion on whether Malaysia would issue additional debt in the Japanese currency.

Sakakibara also praised Malaysia's recovery, saying it was something no one had expected after Malaysia imposed controls on its foreign exchange flows in September.