The Asian Development Bank (ADB) should devote more efforts to developing the Asian bond markets as part of the long-term solution to the Asian financial turmoil, said Mr Joseph Yam, Chief Executive of the Hong Kong Monetary Authority (HKMA).
Mr Yam was speaking for Hong Kong at the 31st Annual Meeting of ADB held in Geneva, Switzerland, today (30 April 1998).
"The currency turmoil is telling us how and why our wealth could be cut by half because of weaknesses in the financial intermediation process in Asia which made us vulnerable to volatile speculative capital flows," said Mr Yam.
He added that net capital inflow to emerging markets, which amounted to less than US$50 billion a year at the beginning of the decade grew to US$235 billion by 1996, according to estimates by the International Monetary Fund. Asia alone has received roughly half of this capital inflow.
"However, these funds were withdrawn when investor confidence was shaken by the inadequacies in regulation and supervision of financial institutions, lack of risk management and poor corporate governance. What initially started as a liquidity crunch turned very quickly into a massive solvency crisis in the affected economies," said Mr Yam.
Mr Yam pointed out that even though the IMF mobilised financing totalling US$110 billion for three programme countries in Asia, namely Indonesia, South Korea and Thailand, with two-thirds coming from the multilateral financial institutions, and one-third from bilateral financing, it was still insufficient relative to the market needs.
"Given the sheer size of the public and private sector foreign currency debts of the affected economies, the role of the international lender of last resort cannot be fulfilled by the IMF or any single central bank without the participation of the private sector," said Mr Yam.
He urged the ADB and other Multilateral Development Banks to assist in the recycling of international liquidity. They can complement the IMF resources by using their substantial and already established market mechanism to raise funds from the market and recycle them. "Being the only development bank in Asia which is majority-owned by the Asian and Pacific economies and was established with the objective of promoting and developing the economies and markets in the region, the Bank should focus its efforts on developing the Asian bond markets and should be more active in issuing bonds within the region," said Mr Yam.
He said that if the ADB were to issue bonds to fund Asian financial sector development to help alleviate the financial intermediation problem in Asia, Hong Kong would be one of the first to invest in such bonds.
Mr. Yam also noted ADB's contribution to the region's financial development and monetary stability. The Bank's total loans to financial sector in 1997, excluding the loans to South Korea and Thailand, amounted to US$363 million, representing a 70% increase over 1996.
Mr. Yam was chosen Central Bank Governor of the Year in Asia by Euromoney (May 1998 Issue), the third time he has won an award by this magazine. Euromoney awarded Mr. Yam Central Banker of the Year in Asia in 1996 and Central Banker of the Year in 1997. The latest award recognized Mr. Yam's role in piloting Hong Kong through the regional currency turmoil and his role in international monetary cooperation. The award also noted his contribution to the development of the debt market and financial infrastructure in Hong Kong, and the establishment of the Hong Kong Mortgage Corporation.
Hong Kong Monetary Authority
30 April 1998
