Asia's governments must tap bond markets: ADB

Asia's governments must tap bond markets: ADB

Agence France-Presse, Manila

Local governments in Asia must learn to tap alternative
sources of financing such as bond markets in order to provide
public services and reduce poverty, the Asian Development Bank
(ADB) said Wednesday.

However local authorities have been reluctant to use such
sources due to "major impediments" to the emergence of bond
markets for such units, officials said at a three-day ADB
conference on bond financing that opened here this week.

Bond financing is still in its infancy in the region but it is
emerging as an important funding option, particularly in China,
India, and the Philippines, ADB principal economist Yun-Hwan Kim
said at the conference.

Participating in the conference are central and local
government officials, international economists, researchers,
bankers, capital market specialists, and representatives from the
private sector, non-government and international organizations.

The ADB has given more attention to local governments in
recent years amid increasing decentralization and greater
autonomy of these authorities to raise their own revenues, said
ADB chief economist Ifzal Ali.

At the same time, these governments are under more pressure to
raise funds for development projects, sustained growth and
poverty reduction, Ali said at the conference in the ADB
headquarters in Manila.

Ali said that "bond financing by local governments has not
been very popular among developing countries until recently,"
adding that such bond issuances often faced many "institutional
impediments."

"Major impediments include lack of legal and regulatory
framework, weak financial management capacity of local
governments, absence of a concrete government program that will
provide incentives to both local issuers and potential investors
and absence of a secondary market," he said.

Among developing countries in Asia, "India and the Philippines
have relatively more active municipal bond markets than others,"
Ali said.

"Domestic credit markets must be capable of generating long-
term financing for cities and their infrastructure agencies, so
that these institutions can carry out their investment
responsibilities," said George Peterson, senior fellow at the
Urban Institute of Washington, DC.

Although towns and cities can simultaneously use bank lending
and local bond issuance to raise funds, Peterson said there was
an added benefit to using bonds.

"The public monitoring and public disclosure required for
efficient bond market operation are consistent with greater
transparency for all public financial transactions," he said.