ADB head backs Yam plan to help develop bond market

PUBLISHED : Saturday, 02 May, 1998, 12:00am
UPDATED : Saturday, 02 May, 1998, 12:00am

Asian Development Bank president Mitsuo Sato yesterday gave important backing to an idea put forward by Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong aimed at boosting the role of the ADB in the region and pushing it to take the lead in developing Asia's bond market.

Following suggestions by Mr Yam that the ADB - in line with other multilateral development banks - could boost liquidity in the region by issuing bonds and recycling the proceeds, Mr Sato said the bank was planning several issues this year.

In addition, he said he was also actively considering a Hong Kong proposal where the ADB plays a much larger role in burden sharing, providing assistance in carrying out some of the traditional responsibilities usually borne by the International Monetary Fund in providing funds to crisis-hit countries.

Mr Yam said the ADB was well placed to channel funds to Asia and pledged a willingness to commit sizeable amounts of Hong Kong's own reserves to any ADB requirement for funding.

'The proposal by Hong Kong is, I think, a very important one,' Mr Sato said.

'We have already been undertaking this in the form of issuing bonds in emerging markets, in Hong Kong and Korea, so that we can recycle money in the region. We want to even further strengthen our presence in the region.' Mr Sato said he wanted to issue several bonds this year, although he cautioned it would depend on market conditions.

He said the fact the ADB was an AAA-rated institution meant ADB bonds could serve as primary benchmark issues, on which other borrowers could price their issues.

Mr Sato defended the bank against strong criticism levelled against the ADB that it had become too active during the height of the regional turmoil through its quick disbursement of loans, and that it might be doing much of the work that the IMF was created for.

He said the IMF was unable to tap regional capital markets and that there were several differences in position between the ADB and the IMF.

'I am fully aware of some of the criticism in regard to the huge amount of quick-disbursing loans . . . but I think it was necessary.

'Without this size of financial assistance to suffering countries we would have had even more serious financial situation. Not only in Asia, but beyond it,' he said.

Mr Sato said the scope of the lending it had undertaken in Asia, where commitments now stand at US$6.2 billion to Korea, Indonesia, and Thailand, had dented the bank's resources.

He warned the ADB's soft-loan arm, the Asian Development Fund (ADF), might be compelled to bring forward its five-yearly funding call.

'Because of the quick disbursement of a large amount of loans . . . the timing of the next capital increase will be accelerated.' Mr Sato said the bank might be compelled to bring forward the next replenishment of the ADF to 2001, two years ahead of the scheduled date of 2003.

He said he did not intend to see the bank become more active in providing loans and characterised the recent disbursements as a one-off, stressing he was eager not to encroach on the role played by the IMF.

'The recent agreement to give the ADB a regional surveillance role would be co-ordinated with the IMF and the World Bank so we can avoid wasteful duplication and inconsistencies.

'The surveillance role, which is to be carried out by the Asian Development Bank institute, with some secretariat work from the ADB itself, was aimed at ensuring countries employed good governance and remained transparent,' he said.