Asia should liberalize rates to meet funding needs: ADB
Asia should liberalize rates to meet funding needs: ADB
SINGAPORE (AFP): Asian countries need to liberalize interest
rates to help meet the massive funding needs of infrastructure
development, a top Asian Development Bank (ADB) official said
yesterday.
Gunther Shulz, ADB's vice president for finance and
administration, said internal funding, especially through bond
markets, was the solution to Asia's infrastructural funding
needs, estimated to be US$1 trillion by 2000.
"Bond financing is very suitable for long term infrastructure
funding since it provides capital at market-driven fixed interest
rates. Bank loans are typically too short and expensive," Shulz
said.
"However, to make capital markets work efficiently, monetary
policies need to recognize a free interplay of supply and demand,
and interest rate policies, therefore, need to be liberalized,"
he said in a key-note address at the start of a two-day
investment conference.
Shulz said an estimated $600 million-to-$700 million in
savings can be tapped through the capital markets, a large part
of that through bond markets.
He said governments would also have to pay greater attention
to providing markets with tradable securities throughout the
maturity structure to create benchmarks for pricing and a yield
curve.
"This is important, for the development of liquidity is a
prime consideration for bondmarket investors," he said.
Frustrating
Joseph Mounsey, a senior vice-president of Canadian insurer
Manulife Financial, told the conference the first and most
frustrating issue faced by insurers in the region was the absence
of a wide range of liquid, high quality longer term debt
instruments.
"In some countries in which we operate, for example in South
Korea, there is a large bond market but with almost all activity
in three-to-five year bonds," he said. Such short term bonds were
unsuitable to cover insurance products with 10-to-20-year
guarantees built into them.
He said the situation was changing slowly despite increasing
institutional demand for investment instruments.
"One factor which I hope may increase the issuance of longer
term debt is the increasing amount of spending on infrastructure
projects in many countries in the region, Taiwan being a good
example of this trend," Mounsey said.
Substitute investments all had some disadvantages, he said,
citing time deposits, which were usually not long-term enough and
often involved concentrations of counter party risks, and stock
market investment, which were highly volatile and had widely
varying liquidity.
The ADB has been the pioneer in building up the regional
market for so-called Dragon bonds -- bonds issued in Asian
countries outside of Japan -- and has contributed to the
development of the Hong Kong dollar bond market.