Asian bond fund will boost cooperation, S&P says

The Jakarta Post, Jakarta

Standard & Poor's Ratings Services (S&P) said on Monday the new US$1 billion Asian Bond Fund would increase cooperation among the region's monetary authorities and develop Asia's capital markets.

"The creation of the fund is a positive development in regional financial cooperation, and S&P's applauds this as a tangible step in the evolution of a regional bond market," said Cecile Saavedra, S&P Region Head for Asia-Pacific, in a press statement.

The fund will be used initially to buy U.S. dollar-denominated sovereign and quasi-sovereign debt in the secondary market and purchases will be targeted at debt issued by the eight non- developed members of the grouping: China, Hong Kong, Indonesia, Malaysia, the Philippines, Singapore, South Korea, and Thailand. The other three members are Australia, Japan, and New Zealand.

Standard & Poor's rates more than US$52 billion in sovereign and sovereign-related U.S. dollar debt issued by these eight Asia countries.

The totals for each country vary greatly and carry ratings ranging from 'AAA' to 'B-'.

"Although the thinking behind the establishment of this fund is commendable", said Ms. Saavedra, "the nominal size of the fund indicates that the initial practical impact will be limited".

Moreover, she notes, "as seen from the information above, some of these countries have not been major issuers and there is limited secondary trading".

She further said S&P's would like to see over the longer term a greater participation in the bond market by the private sector. "Only with active participation by private investors and private- sector issuers will there be a vibrant and effective regional bond market".

Thai premier Thaksin Shinawatra announced last week the launch of the bonds, to be backed by 11 countries in the Asia-Pacific region.