IMF: Asian Bond Fund A Positive Step But Details Unclear
IMF: Asian Bond Fund A Positive Step But Details Unclear
Dow Jones Bangkok
The International Monetary Fund (IMF) on Tuesday welcomed the creation of the Asian Bond Fund as a step toward greater regional cooperation but noted that there were still several uncertainties regarding implementation and future development.
"It's a good first step to the extent that it succeeds in strengthening the regional bond market, but it's unclear how it will develop from what we have now," Alessandro Zanello, IMF's division chief for the Asia Pacific Department, said at the end of a mission to Thailand.
Asia-Pacific central banks on Monday announced plans to pool US$1 billion out of their foreign reserves to buy Asian government bonds in a bid to promote the region's bond markets and reduce dependence on foreign capital.
The group of the region's central banks known as Executives' Meeting of East Asia and Pacific Central Banks said the fund will buy "a basket of U.S. dollar-denominated bonds issued by Asian sovereign and quasi-sovereign issuers" from China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines, Singapore and Thailand.
"The view is to create and enforce the capital markets within the region," Zanello said. "How they will achieve that still remains to be seen and a lot of details, complex facts, (and) issues remain to be resolved."
He said the fund's appeal lies in the idea that it will help recycle a pool of reserves from central banks to keep them within the region instead of investing them in U.S. Treasurys.
"But if you look down the line in life of the Asian Bond Fund, you see a system where perhaps an Asian bond will come to life, a security backed by a basket of other high quality bonds. Nobody really knows how that will happen and how soon."
The central banks said they will consider buying bonds denominated in regional currencies once the fund is set up to further broaden and deepen bond markets in the region.
Thai Prime Minister Thaksin Shinawatra on Monday said the IMF has agreed to include funds invested in Asian dollar-denominated bonds under the Asian Bond Fund in overall central bank foreign reserves but it remains unclear whether local currency bonds would also qualify as reserves.
"It's a technical issue which assets should be counted as reserves," Zanello said. "The general rule of thumb is that you need something that is liquid and marketable."