Phnom Penh: The Asian Development Bank (ADB) approved a $50 million increase in capital to the Credit Guarantee Investment Facility (CGIF) trust fund to further strengthen ASEAN+3 currencies and regional bond markets.
The CGIF was created in 2010, after the great global financial crisis of 2009, with a starting capital of $700 million to promote and secure regional bond markets in ASEAN+3 member countries (Brunei Darussalam, Cambodia, the People’s Republic of China (PRC), Indonesia, Japan, the Republic of Korea, the Lao People’s Democratic Republic, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.)
CGIF guarantee operations have issued 31 guarantees, with outstanding guarantees totaling $1.37 billion. The guarantee, a non-cancellable bond, is issued by CGIF to assure investors that principal and interest will be paid in a timely matter. To date, none of the CGIF-guaranteed bonds have defaulted, according to an ADB report.
“Having a developed and integrated bond market is integral for a country to unlock more investments geared towards economic growth and development,” said Michael Barrow, the Director General of ADB’s Private Sector Operations Department in an ADB report.
“But some bond markets in the Asia and Pacific region remain underdeveloped,” he added. “CGIF, which utilizes guarantees and credit enhancements, can help as it provides greater confidence for local and foreign investors as well as encouraging more companies to tap bond markets, thereby spurring their development.”
The ASEAN+3 member states have amassed around $12.7 trillion in local currency bonds, nearly equal to the amount of euro-denominated bonds in the European Union, according to a report released by ADB earlier this year.
The ASEAN+3 economies worked together to develop their bond markets after the 1997 – 1998 Asian Financial Crisis that revealed structural vulnerabilities in the economies.
The ADB supported the ASEAN+3’s Asian Bond Markets Initiative since 2002 that installed a centralized bond market infrastructure and cross-border issuance framework.
“The growth of local currency bond markets means companies can obtain local currency funding often for longer terms, avoiding the currency and maturity mismatches that exacerbated the Asian Financial Crisis,” stated ADB Chief Economist Yasuyuki Sawada in a report.